AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SPORTSLINE USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7375 65-0470894
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
---------------
MICHAEL LEVY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SPORTSLINE USA, INC.
6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(954) 351-2120
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES OF COMMUNICATIONS TO:
KENNETH C. HOFFMAN, ESQ. ELLEN B. CORENSWET, ESQ.
GREENBERG, TRAURIG, HOFFMAN, BRIAN B. MARGOLIS, ESQ.
LIPOFF, ROSEN & QUENTEL, P.A. BROBECK, PHLEGER & HARRISON LLP
1221 BRICKELL AVENUE 1633 BROADWAY
MIAMI, FLORIDA 33131 NEW YORK, NEW YORK 10019
PHONE: (305) 579-0500 PHONE: (212) 581-1600
FAX: (305) 579-0717 FAX: (212) 586-7878
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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, check the following box. [ ]
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 number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value per share ... $46,000,000 $13,940(1)
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<FN>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
</FN>
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED APRIL 16, 1997
[SPORTSLINE USA LOGO]
SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold
by SportsLine USA, Inc. ("SportsLine USA" or the "Company"). Prior
to this offering, there has been no public market for the Common Stock of the
Company. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. It is currently anticipated that
the initial public offering price of the Common Stock will be between $ and
$ per share. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "SPLN."
----------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1)
- ------------------------------------------------------------
Per Share ...... $ $ $
Total (2) ...... $ $ $
- -----------------------------------------------------------
(1) Before deducting offering expenses payable by the Company, estimated at
$ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively.
----------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson,
Stephens & Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
COWEN & COMPANY
MONTGOMERY SECURITIES
The date of this Prospectus is , 1997
<PAGE>
[REPRESENTATIVE WEB SITE PAGES]
INFORMATION ON THE COMPANY'S WEB SITES SHALL NOT BE DEEMED TO CONSTITUTE A
PART OF THIS PROSPECTUS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
PAGE
----
Summary ....................................................... 4
Risk Factors .................................................... 7
Use of Proceeds ................................................. 20
Dividend Policy ................................................. 20
Capitalization ................................................. 21
Dilution ....................................................... 22
Selected Financial Data ........................................ 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 24
Business ....................................................... 29
Management .................................................... 44
Certain Transactions ........................................... 53
Principal Shareholders ........................................ 55
Description of Capital Stock .................................. 57
Shares Eligible for Future Sale ............................... 60
Underwriting .................................................... 62
Legal Matters ................................................. 63
Experts ....................................................... 63
Additional Information ........................................ 64
Index to Financial Statements .................................. F-1
----------------
The Company intends to furnish to its shareholders annual reports
containing audited financial statements examined by an independent accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim, unaudited financial information.
"SportsLine" is a registered service mark of the Company. The CBS
"eye device" is a registered trademark of CBS Inc. This Prospectus also
includes trademarks and trade names of companies other than the Company and CBS
Inc. All other company or product names are trademarks or registered trademarks
of their respective owners.
3
<PAGE>
SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION, INCLUDING "RISK FACTORS," AND THE FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THE PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE CONVERSION
INTO 14,496,109 SHARES OF COMMON STOCK OF ALL OUTSTANDING SHARES OF THE
COMPANY'S PREFERRED STOCK UPON THE COMPLETION OF THIS OFFERING, (II) THE FILING
OF AN AMENDED AND RESTATED CERTIFICATE OF INCORPORATION WHICH, AMONG OTHER
THINGS, AUTHORIZES THE ISSUANCE OF "BLANK CHECK" PREFERRED STOCK AND (III)
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR OUTSTANDING OPTIONS
OR WARRANTS.
THE COMPANY
SportsLine USA is a leading Internet-based sports media company that
provides branded, interactive information and programming as well as merchandise
to sports enthusiasts worldwide. cbs.sportsline.com, the Company's flagship
site on the World Wide Web (the "Web"), delivers real-time, in-depth and
compelling sports content and programming that capitalizes on the Web's unique
graphical and interactive capabilities. The Company's other Web sites include
those devoted to sports superstars such as Joe Namath, Shaquille O'Neal
(shaq.com), Cal Ripken, Jr. (2131.com) and Wayne Gretzky (gretzky.com) and to
electronic odds and information on major sports events (vegasinsider.com). The
Company's objective is to become the leading Internet-based sports media
company and to create a global sports brand. To this end, the Company focuses
exclusively on sports and distinguishes itself from other content providers by
offering innovative, timely and comprehensive sports content. Traffic on the
Company's Web sites has increased significantly since the commercial launch of
the Company's first Web site in August 1995 to a daily average of 1,200,000
page views and 155,000 visits during March 1997, and the Company's Web sites
had approximately 33,000 paying members as of March 31, 1997.
The Company distributes a broad range of up-to-date news, scores, player
and team statistics and standings, photos and audio and video clips obtained
from leading sports news organizations; produces and distributes entertaining,
interactive and original programming such as editorials and analyses from its
in-house staff and freelance journalists; produces and offers contests, games
and fantasy league products; and sells sports-related merchandise and
memorabilia. The Company also owns and operates a state-of-the-art radio studio
from which it produces the only all-sports radio programming broadcast
exclusively over the Internet.
A key element of the Company's strategy is to establish strategic
relationships to increase consumer awareness of the SportsLine brand and build
traffic on its Web sites. In March 1997, the Company established a strategic
alliance with CBS Inc. ("CBS") pursuant to which the Company's flagship
Web site was renamed "cbs.sportsline.com." The CBS agreement provides for
cbs.sportsline.com to receive at least $57 million of advertising and on-air
promotion during the next five years, primarily during CBS sports events such as
the 1998 Winter Olympics, NCAA Men's Basketball Tournament, NCAA Football, PGA
Tour events, U.S. Open tennis and the Daytona 500. The Company believes that its
relationship with CBS, in particular the branding of its flagship Web site as
"cbs.sportsline.com," and the promotion the Company will receive on CBS
television broadcasts, will enable it to establish SportsLine as a broadly
recognized consumer brand. The Company has also established strategic marketing
relationships with sports superstars, personalities, organizations and affinity
groups.
4
<PAGE>
Participatory and spectator sports are among the leading pastimes for
Americans as demonstrated by the popularity of sports media and by the time and
money consumers spend on sports events, products and services. Based on industry
sources, the Company estimates that attendance at Major League Baseball, NFL,
NBA and NHL games during the 1995-1996 season was approximately 120 million,
generating gate receipts of over $3 billion. Sports television programming also
consistently draws large audiences, with sports broadcasts comprising eight of
the top ten most widely viewed television programs in 1996, according to Nielsen
Media Research. The publishing industry also benefits from the popularity of
sports, including SPORTS ILLUSTRATED magazine which had paid weekly circulation
of 3.2 million, reached 23 million adult readers weekly and ranked second in
advertising revenue among U.S. magazines in 1996. In addition, the U.S. retail
market for licensed sports merchandise and apparel was approximately $14 billion
in 1996, according to the Sporting Goods Manufacturers Association. Due to the
popularity of sports among males between the ages of 18 and 49, advertisers
consider sports events and media as attractive venues to reach this audience.
Based on industry sources, the Company estimates that approximately $4.2 billion
was spent on sports television advertising and approximately $5.4 billion was
spent on sponsorships of sports events in 1996.
The Company generates revenue from multiple sources. Since March 31, 1996,
a majority of the Company's revenue has been derived from advertising. Although
most of the content on the Company's Web sites is free, users can purchase
memberships and premium content and products. The Company also expects to derive
future revenue from transactions on its Web sites, including the sale of limited
edition memorabilia, licensed apparel and other sports-related products,
syndication of its programming in other media and development of Web sites for
third parties.
The Company was incorporated in Delaware in February 1994. Its principal
executive offices are located at 6340 N.W. 5th Way, Fort Lauderdale, Florida
33309, and its telephone number is (954) 351-2120. Unless the context otherwise
requires, the terms "Company" or "SportsLine USA" refer to
SportsLine USA, Inc., and the terms "cbs.sportsline.com" and
"vegasinsider.com" refer to the Company's Web sites, located at
http://cbs.sportsline.com and http://www.vegasinsider.com, respectively. All
references to cbs.sportsline.com include, where appropriate, www.sportsline.com,
which was the address of the Company's flagship Web site prior to March 1997.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby ........................... shares
Common Stock to be outstanding after the Offering ...... shares (1)
Use of Proceeds ....................................... For working capital and other general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol .................. "SPLN"
</TABLE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
FEBRUARY 23, 1994
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- --------------------------
1994 1995 1996 1996 1997
-------------------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ................................. $ - $ 52 $ 2,437 $ 96 $ 1,253
Gross margin (deficit) .................. - (705) (883) (507) (46)
Loss from operations ..................... (442) (5,372) (13,084) (2,334) (4,754)
Net loss ................................. $(404) $(5,330) $(12,855) $(2,374) $(4,603)
Net loss per share ..................... $ $ $ $ $
Weighted average common and common
equivalent shares outstanding (2) ......
</TABLE>
MARCH 31, 1997
---------------------------------
PRO FORMA
ACTUAL AS ADJUSTED (3)(4)
---------- --------------------
(Unaudited)
BALANCE SHEET DATA:
Cash and cash equivalents ...... $17,732 $
Working capital .................. 23,059
Total assets ..................... 30,855
Long-term obligations ............ 311
Total shareholders' equity ....... 26,524
- ----------------
(1) Excludes 2,037,792 shares of Common Stock issuable pursuant to stock options
outstanding at March 31, 1997 (of which options to purchase 395,504 shares
were exercisable) with a weighted average exercise price of $0.85 per share
and 3,991,500 shares of Common Stock issuable upon the exercise of warrants
outstanding at March 31, 1997 (of which warrants to purchase 3,469,000
shares were exercisable) with a weighted average exercise price of $2.63 per
share. See "Management-Stock Plans" and "Description of Capital
Stock-Options and Warrants." Also excludes 9,669,317 shares of Common
Stock issuable pursuant to the Company's agreement with CBS (including
3,800,000 shares issuable upon the exercise of warrants to be granted to
CBS). See "Certain Transactions-CBS Agreement."
(2) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the weighted average common and common equivalent shares
used to compute net loss per share.
(3) Gives effect to the conversion of all outstanding shares of the Company's
preferred stock into 14,496,109 shares of Common Stock upon completion of
this offering.
(4) Adjusted to give effect to the sale of the shares of Common Stock
offered hereby at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
LIMITED OPERATING HISTORY; ANTICIPATION OF CONTINUING LOSSES; ACCUMULATED
DEFICIT
The Company was incorporated in February 1994 and commercially introduced
its first Web site in August 1995. The Company first recognized revenue from
operations in the quarter ended September 30, 1995. Accordingly, the Company has
a limited operating history upon which an evaluation of the Company and its
prospects can be based. The Company's prospects must be considered in light of
the risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in the new
and rapidly evolving Internet-based advertising, information services and
commerce markets. To address these risks, the Company must, among other things,
provide compelling and original content to Internet users, maintain existing
relationships and effectively develop new relationships with advertisers, their
advertising agencies and other third parties, develop and upgrade its
technology, respond to competitive developments and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will succeed in
addressing such risks, and the failure to do so could have a material adverse
effect on the Company's business, results of operations and financial
condition. Since its inception, the Company has incurred substantial costs to
develop and enhance its technology, to create, introduce and enhance its service
offerings, to acquire and develop content, to build traffic on its Web sites, to
acquire members, to establish marketing relationships and to build an
administrative organization. The Company intends to continue these efforts and,
in addition, to increase its spending for content development and acquisition
and for marketing. As a consequence, the Company has incurred operating losses
in each of its fiscal quarters and years since inception and expects to continue
to incur significant operating losses on both a quarterly and annual basis for
the foreseeable future. At March 31, 1997, the Company had an accumulated
deficit of $23,191,992. The Company has achieved only limited revenue to date
and its ability to generate significant revenue is subject to substantial
uncertainty. There can be no assurance that the Company will ever generate
sufficient revenue to meet its operating expenses or achieve or maintain
profitability and the failure to do so would have a material adverse effect on
the Company's business, results of operations and financial condition. Further,
in view of the rapidly evolving nature of the Company's business and its
limited operating history, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNPREDICTABILITY OF FUTURE REVENUE; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, the Company is unable to accurately
forecast its revenue. The Company expects in the future to derive revenue from a
mix of advertising, membership and premium service fees, merchandise sales, Web
site development and syndication fees, the amounts of which it is unable to
predict. Through March 31, 1997, transaction and site development revenue have
not been significant, and the Company has not received any syndication revenue.
Because changes in revenue from memberships and premium services are expected to
occur over a period of time while advertising revenue will be recognized when
the advertisements appear, fluctuations in quarterly revenue and operating
results are likely to be particularly affected by the level of advertising
revenue within each quarter. The Company's current and future expense levels
are based largely on its expectations concerning future revenue and are to a
large extent fixed. Accordingly, the Company may be unable to adjust spending in
a timely manner to compensate for any unexpected revenue shortfall, and a
shortfall
7
<PAGE>
in revenue in relation to the Company's expectations could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the Company currently intends to significantly increase
its operating expenses to develop and enhance its technology, to create,
introduce and enhance its service offerings, to acquire and develop content, to
acquire members and to establish marketing relationships. To the extent that
such expenses precede or are not subsequently followed by increased revenue, the
Company's business, results of operations and financial condition could be
materially adversely affected.
The Company's quarterly operating results have fluctuated in the past and
are expected to continue to fluctuate in the future as a result of a variety of
factors, many of which are outside the Company's control. These factors
include: the level of usage of the Internet; the level of traffic on the
Company's Web sites; demand for Internet advertising; seasonal trends in both
Internet usage and advertising placements; the addition or loss of advertisers;
the advertising budgeting cycles of individual advertisers; the number of users
that purchase memberships, merchandise or premium services; the amount and
timing of capital expenditures and other costs relating to the expansion of the
Company's operations; the introduction of new sites and services by the Company
or its competitors; price competition or pricing changes in the industry;
technical difficulties or system downtime; general economic conditions; and
economic conditions specific to the Internet, electronic commerce and online
media.
The Company expects that its revenue will be higher leading up to and
during major U.S. sport seasons and lower at other times of the year,
particularly during the summer months when the only major U.S. sports season in
progress is Major League Baseball. The Company believes that advertising sales
in traditional media, such as television, generally are lower in the first and
third calendar quarters of each year, and that advertising expenditures
fluctuate significantly with economic cycles. Depending on the extent to which
the Internet is accepted as an advertising medium, seasonality and cyclicality
in the level of Internet advertising expenditures could become more pronounced.
The foregoing factors could have a material adverse effect on the Company's
business, results of operations and financial condition.
Due to all of the foregoing factors, it is possible that the Company's
operating results will fall below the expectations of securities analysts or
investors in some future quarter. In such event, the trading price of the Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
EMERGING MARKET FOR THE COMPANY'S SERVICES
The Company operates in a market that is at a very early stage of
development, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced or developed competing products and
services. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty and risk. Because the market for the
Company's Web sites is new and evolving, it is difficult to predict with any
assurance the size of this market and its growth rate, if any. In addition, it
is not known whether individuals will utilize the Internet to any significant
degree as a means of purchasing goods and services. The adoption of the Internet
for commerce, particularly by those individuals and companies which historically
have relied upon traditional means of commerce, will require a broad acceptance
of new methods of conducting business and exchanging information. There can be
no assurance that the market for the Company's Web sites will develop or that
demand for the Company's service will emerge or be sustainable. If the market
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's Web sites do not achieve or sustain market
acceptance, the Company's business, results of operations and financial
condition would be materially adversely affected.
8
<PAGE>
DEPENDENCE ON ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM; RELIANCE ON
SHORT-TERM ADVERTISING CONTRACTS; COMPETITION FOR ADVERTISERS
The Company expects to derive a substantial portion of its revenue from the
sale of advertisements on its Web sites. The Company's ability to generate
advertising revenue will depend, among other factors, on the development of the
Internet as an advertising medium, the amount of traffic on and the membership
bases of the Company's Web sites and the Company's ability to achieve and
demonstrate user and member demographic characteristics that are attractive to
advertisers. Most potential advertisers and their advertising agencies have only
limited experience with the Internet as an advertising medium and have not
devoted a significant portion of their advertising expenditures to
Internet-based advertising. There can be no assurance that advertisers or
advertising agencies will be persuaded to allocate or continue to allocate
portions of their budgets to Internet-based advertising or, if so persuaded,
that they will find such advertising to be effective for promoting their
products and services relative to traditional print and broadcast media. No
standards have yet been widely accepted for the measurement of the effectiveness
of Internet-based advertising, and there can be no assurance that such standards
will develop sufficiently to support Internet-based advertising as a significant
advertising medium. In addition, the widespread adoption of technologies that
permit Internet users to selectively block out unwanted graphics, including
advertisements, attached to Web pages could adversely affect the growth of the
Internet as an advertising medium. Acceptance of the Internet among advertisers
and advertising agencies will also depend, to a large extent, on the level of
use of the Internet by consumers, which is highly uncertain, and upon growth in
the commercial use of the Internet. If widespread commercial use of the Internet
does not develop, or if the Internet does not develop as an effective and
measurable medium for advertising, the Company's business, results of
operations and financial condition would be materially adversely affected.
The Company's advertising revenue to date has been derived under
short-term contracts. Consequently, the Company's advertising customers can
move their advertising to competing Web sites or to other media quickly and
without penalty, thereby increasing the Company's exposure to competitive
pressures. There can be no assurance that the Company's current advertisers
will continue to purchase advertisements, or that the Company will be able to
secure new advertising contracts from existing or future customers at attractive
rates or at all. Any failure of the Company to achieve sufficient advertising
revenue would have a material adverse effect on the Company's business, results
of operations and financial condition.
There is intense competition for the sale of advertising on high-traffic
Web sites, which has resulted in a wide range of rates quoted by different
vendors for a variety of advertising services, making it difficult to project
levels of Internet advertising that will be realized generally or by any
specific company. Competition for advertisers among present and future Web
sites, as well as competition with other traditional media for advertising
placements, could result in significant price competition. Most of the
Company's advertisements to date have been sold on the basis of the number of
"impressions," or times that an advertisement appears in page views
downloaded by users, rather than on the number of "click-throughs," or
user requests for additional information made by clicking on the advertisement.
There can be no assurance that the Company's future advertising customers will
continue to pay on a per-impression basis rather than on a "click-through"
basis. In addition, there can be no assurance that the Company's advertising
customers will accept the internal and third-party measurements of impressions
received by advertisements on the Company's Web sites, or that such
measurements will not contain errors. The foregoing factors and uncertainties
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business-Advertising and Sales."
DEPENDENCE ON CBS RELATIONSHIP
In March 1997, the Company entered into a five-year agreement with CBS,
pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." Over the term of the agreement, the Company has the
right to use certain CBS logos and television-related sports content and expects
to
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receive at least $57 million of advertising and on-air promotions. Such
advertising and on-air promotions, as well as the association of the Company's
brand with CBS, are important elements of the Company's strategy to increase
awareness of the SportsLine brand and build traffic on its Web sites. There can
be no assurance that CBS will perform its obligations under the agreement, or
that the agreement will significantly increase consumer awareness of the
Company's brand or build traffic on its Web sites. Any failure of CBS to
perform its material obligations under the agreement, or the termination of the
agreement prior to the end of the term in accordance with its terms, would have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Certain Transactions-CBS Agreement."
INTENSE COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of Web sites on the Internet competing for consumers'
attention and spending has proliferated with no substantial barriers to entry,
and the Company expects that competition will continue to intensify. The Company
competes, directly and indirectly, for advertisers, viewers, members, content
providers, merchandise sales and rights to sports events with the following
categories of companies: (i) online services or Web sites targeted to sports
enthusiasts generally (such as ESPNet SportsZone) or to enthusiasts of
particular sports (such as Web sites maintained by Major League Baseball, the
NFL, the NBA and the NHL); (ii) publishers and distributors of traditional
off-line media (such as television, radio and print), including those targeted
to sports enthusiasts, many of which have established or may establish Web
sites; (iii) general purpose consumer online services such as America Online,
CompuServe and Microsoft Network, each of which provides access to
sports-related content and services; (iv) vendors of sports information,
merchandise, products and services distributed through other means, including
retail stores, mail, facsimile and private bulletin board services; and (v) Web
search and retrieval services, such as Excite, InfoSeek, Lycos and Yahoo!, and
other high-traffic Web sites, such as those operated by C|NET and Netscape. The
Company anticipates that the number of its direct and indirect competitors will
increase in the future. Management believes that the Company's most significant
competition is ESPNet SportsZone, a Web site which offers a variety of sports
content.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, significantly greater name recognition and substantially larger user
or membership bases than the Company and, therefore, have a significantly
greater ability to attract advertisers and users. In addition, many of these
competitors may be able to respond more quickly than the Company to new or
emerging technologies and changes in Internet user requirements and to devote
greater resources than the Company to the development, promotion and sale of
their services. There can be no assurance that the Company's current or
potential competitors will not develop products and services comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing Internet user
preferences. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which would materially and adversely
affect the Company's business, results of operations and financial condition.
In addition, as the Company expands internationally it may face new competition.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company would not have a material adverse effect on its business, results of
operations and financial condition. See "Business-Competition."
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET
The Company's success is highly dependent upon continued growth in the use
of the Internet generally and in particular as a medium for advertising,
information services and commerce. Use of the Internet by consumers is at a very
early stage of development, and market acceptance of the Internet as a medium
for advertising, information services and commerce is subject to a high level of
uncertainty. The rapid growth of global commerce and the exchange of information
on the Internet and other online
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services is new and evolving, making it difficult to predict whether the
Internet will prove to be a viable commercial marketplace. The Company believes
that its future success will require the development and widespread acceptance
of the Internet and online services as a medium for advertising and commerce. In
particular, the Company's future financial success will be dependent on the
sale of advertising on its Web sites and its ability to attract and retain
paying members and to sell merchandise and premium services. There can be no
assurance that the Internet will be a successful commerce and information
channel. The Internet may not prove to be a viable commercial marketplace
because of inadequate development of the necessary infrastructure, such as
reliable network backbones, or complementary services, such as high speed modems
and security procedures for financial transactions. Consumer concern over
Internet security has been, and could continue to be, a barrier to commercial
activities requiring consumers to send their credit card information over the
Internet. The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by sustained growth.
DEPENDENCE ON STRATEGIC RELATIONSHIPS
In addition to its relationship with CBS, the Company has entered into
other strategic relationships with sports superstars, personalities,
organizations and affinity groups to increase awareness of its brand among
consumers, to create revenue opportunities and to obtain content for its Web
sites. There can be no assurance that any party to a strategic agreement with
the Company will perform its obligations as agreed or that any such agreement
would be specifically enforceable by the Company. Many of the Company's
agreements with its strategic partners may be terminated by either party on
short notice. The failure to maintain its existing strategic relationships, to
establish additional strategic relationships or to fully capitalize on any such
relationship could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business-Strategic
Relationships."
DEPENDENCE ON CONTENT PROVIDERS; SIGNIFICANT PAYMENTS REQUIRED TO BE MADE TO
CONTENT PROVIDERS; RISK OF THIRD PARTY CLAIMS
The Company relies on independent content providers for sports news,
scores, statistics and other sports information. The Company's future success
depends, in significant part, on its ability to maintain its existing
relationships with such content providers and to build new relationships with
other content providers. The Company's agreements with content providers
generally are short-term and may be terminated by the content provider if the
Company fails to fulfill its obligations under the applicable agreement. Some of
the Company's content providers compete with one another and, to some extent,
with the Company for advertising and members. Termination of one or more
significant content provider agreements would decrease the sports news and
information which the Company can offer its customers and could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company's agreements with most of its content providers are
nonexclusive, and many of the Company's competitors offer, or could offer,
content that is similar or the same as that obtained by the Company from such
content providers. In addition, the growing reach and use of the Internet have
further intensified competition in this industry. Consumers have gained free
access to certain information provided directly on the Internet by certain
content providers. To the extent that content providers, including but not
limited to the Company's current suppliers, provide information to users at a
lower cost than the Company or at minimal or no cost, the Company's business,
results of operations and financial condition could be materially adversely
affected.
Fees payable to content providers constitute a significant portion of the
Company's cost of revenue. There can be no assurance that the Company's
content providers will enter into prospective agreements with the Company on the
same or similar terms as those currently in effect. If the Company is required
to increase the fees payable to its content providers, such increased payments
could have a material adverse effect on the Company's business, results of
operations and financial condition. Moreover, the
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Company may in the future be subject to third party claims, for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of information supplied by its content providers, and any
such claims may have a material adverse effect on the Company's business,
results of operations and financial condition. See "-Intellectual Property;
Risk of Third Party Claims for Infringement," "-Liability for Information
Retrieved from the Internet" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
TRADEMARK LITIGATION
On March 25, 1997, Weatherline, Inc. ("Weatherline"), a company that
provides pre-recorded weather and sports information by telephone, filed a
complaint against the Company in the United States District Court for the
Eastern District of Missouri. Weatherline owns a United States trademark
registration for the mark "Sportsline" for use in promoting the goods and
services of others by making sports information available to customers of
participating businesses through the telephone, and claims to have used the mark
for this purpose since 1968. The complaint alleges that the Company's use of
the mark "SportsLine USA" and other marks utilizing the term
"SportsLine" infringes upon and otherwise violates Weatherline's rights
under its registered trademark and damages Weatherline's reputation. The
complaint seeks a preliminary and permanent injunction against the Company from
using marks containing the term "Sportsline" or any other similar name or
mark which would be likely to cause confusion with Weatherline's mark. The
complaint also seeks actual and punitive damages and attorneys' fees. The
Company believes that its use of the "SportsLine" mark and
"SportsLine" derivative marks does not infringe upon or otherwise violate
Weatherline's trademark rights, and the Company intends to vigorously defend
itself against the action. The legal costs that may be incurred by the Company
in defending itself against this action could be substantial, and the litigation
could be protracted and result in diversion of management and other resources of
the Company. In a separate matter, a request for an extension of time to oppose
the Company's application to register the current version of the SportsLine USA
logo has been filed by Weatherline with the United States Patent and Trademark
Office ("USPTO"). There can be no assurance that the Company will prevail
in the lawsuit or any related opposition proceeding at the USPTO, and an adverse
decision in this lawsuit could result in the Company being prohibited from
further use and registration of the "SportsLine" mark and
"SportsLine" derivative marks and being ordered to pay substantial damages
and attorneys' fees to Weatherline, either of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
INTELLECTUAL PROPERTY; RISK OF THIRD PARTY CLAIMS FOR INFRINGEMENT
The Company's performance and ability to compete are dependent to a
significant degree on its internally developed content and technology. The
Company relies on a combination of copyright and trademark laws, trade secret
protection, contractual provisions, and confidentiality and non-disclosure
agreements with its employees and with third parties and contractual provisions
to establish and protect its proprietary rights. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate, that the Company will be able to secure trademark registrations for
all of its marks in the United States and/or foreign countries, or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, service marks and similar proprietary rights. In addition, effective
copyright and trademark protection may be unenforceable or limited in certain
foreign countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of the Company's services. In the future,
litigation may be necessary to enforce and protect the Company's trade secrets,
copyrights and other intellectual property rights.
There can be no assurance that third parties will not bring copyright or
trademark infringement claims against the Company in addition to the lawsuit
filed by Weatherline referred to above, or claim that the Company's use of
certain technologies violates a patent. If it is determined that the Company has
infringed a third party's proprietary rights, there can be no assurance that
any necessary licenses or rights could be obtained on terms satisfactory to the
Company, if at all. The inability to obtain any required license on satisfactory
terms could have a material adverse effect on the Company's business,
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results of operations and financial condition. The Company may also be subject
to litigation to defend against claims of infringement of the rights of others
or to determine the scope and validity of the intellectual property rights of
others. If competitors of the Company prepare and file applications in the
United States that claim trademarks used or registered by the Company, the
Company may oppose those applications and have to participate in proceedings
before the USPTO to determine priority of rights to the trademark, which could
result in substantial costs to the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could require the Company to
license disputed rights from third parties or to cease using such trademark. Any
such litigation would be costly and divert management's attention, either of
which could have a material adverse effect on the Company's business, results
of operations and financial condition. Adverse determinations in such litigation
could result in the loss of certain of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties, and prevent the Company from selling its services,
any one of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, inasmuch
as the Company licenses a substantial portion of its content from third parties,
its exposure to copyright infringement actions may increase because the Company
must rely upon such third parties for information as to the origin and ownership
of such licensed content. The Company generally obtains representations as to
the origins and ownership of such licensed content and generally obtains
indemnification to cover any breach of any such representations; however, there
can be no assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
representations.
In 1996, the Company was issued a United States trademark registration for
its former SportsLine USA logo. The Company has applied to register in the
United States its current SportsLine USA logo and a number of other marks,
several of which include the term "SportsLine." The Company has filed
applications to register "SportsLine" marks in Australia and the United
Kingdom. There can be no assurance that the Company will be able to secure
adequate protection for these trademarks in the United States or in foreign
countries. Many foreign countries have a "first-to-file" trademark
registration system and thus the Company may be prevented from registering its
marks in certain countries if third parties have previously filed applications
to register or have registered the same or similar marks. It is possible that
competitors of the Company or others will adopt product or service names similar
to the Company's, thereby impeding the Company's ability to build brand
identity and possibly leading to customer confusion. The inability of the
Company to protect its "SportsLine" and other marks adequately would have
a material adverse effect on the Company's business, results of operations and
financial condition.
As part of its confidentiality procedures, the Company generally enters
into agreements with its employees and consultants and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology or that agreements entered into for that
purpose will be enforceable. Notwithstanding the precautions taken by the
Company, it might be possible for a third party to copy or otherwise obtain and
use the Company's software or other proprietary information without
authorization or to develop similar software independently. Policing
unauthorized use of the Company's technology is difficult, particularly because
the global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford the Company little or no effective protection of its
intellectual property.
The Company also relies on a variety of technology that it licenses from
third parties, including its Internet server software, which is used in the
Company's Web sites to perform key functions. There can be no assurance that
these third party technology licenses will continue to be available to the
Company on commercially reasonable terms. The loss of or inability of the
Company to maintain or obtain upgrades to any of these technology licenses could
materially adversely affect the Company's business, results of operations and
financial condition.
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RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The Internet industry is characterized by rapid technological developments,
evolving industry standards, changes in user and customer requirements, frequent
new service and product introductions and enhancements. The introduction of
services or products embodying new technologies or the emergence of new industry
standards and practices could render the Company's existing Web sites and
proprietary technology obsolete and unmarketable or require significant
unanticipated investments in product development. The Company's performance
will depend, in part, on its ability to license leading technologies, enhance
its existing services, develop new proprietary technology that addresses the
increasingly sophisticated and varied needs of Web users and advertisers and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. The development of Web sites and other
proprietary technology entails significant technical and business risks. There
can be no assurance that the Company will be successful in using new
technologies effectively or adapting its Web sites and proprietary technology to
customer requirements or emerging industry standards. If the Company is unable,
for technical, legal, financial or other reasons, to adapt in a timely manner in
response to technological developments, evolving industry standards, changing
market conditions or customer requirements, or if the Company's Web sites do
not achieve market acceptance, the Company's business, results of operations
and financial condition would be materially adversely affected.
MANAGEMENT OF GROWTH
The Company has rapidly and significantly expanded its operations and
anticipates that significant expansion of its operations will continue to be
required in order to address potential market opportunities. The Company
expanded from five employees at January 1, 1995 to 156 employees at March 31,
1997 and the Company expects to add additional key personnel in the near future.
Such growth has placed, and any future growth may continue to place, substantial
strain on the Company's management, operational and financial resources and
systems. To manage its growth, the Company must implement, improve and
effectively utilize its operational, management, marketing and financial systems
and train and manage its employees. In addition, it may become necessary for the
Company to increase the capacity of its software, hardware and
telecommunications systems on short notice. There can be no assurance that the
Company will be able to effectively manage the expansion of its operations or
that the Company's systems or procedures or controls will be adequate to
support the Company's operations. Any failure of management to effectively
manage the Company's growth would have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company intends to expand internationally and expects that its
international operations will be subject to most of the risks inherent in its
business generally. In addition, there are certain risks inherent in doing
business in international markets, such as changes in regulatory requirements,
tariffs and other trade barriers, fluctuations in currency exchange rates,
potentially adverse tax consequences and difficulties in managing or overseeing
foreign operations, and there are likely to be different consumer preferences
and requirements in such markets. There can be no assurance that one or more of
such factors would not have a material adverse effect on the Company's current
or future international operations and, consequently, on the Company's
business, results of operations and financial condition.
RISK OF SYSTEM FAILURE, DELAYS AND INADEQUACY
The performance of the Company's Web sites is critical to its reputation
and ability to attract and retain users, advertisers and members. Services based
on sophisticated software and computer systems often encounter development
delays and the underlying software may contain undetected errors or failures
when introduced. Any system error or failure that causes interruption in
availability or an increase in response time could result in a loss of potential
or existing users, advertisers or members
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and, if sustained or repeated, could reduce the attractiveness of the Company's
Web sites to users and advertisers. A sudden and significant increase in the
number of users of the Company's Web sites also could strain the capacity of
the software, hardware or telecommunications systems deployed by the Company,
which could lead to slower response time or system failures. In addition, if the
number of Web pages or users of the Company's Web sites increases
substantially, there can be no assurance that the Company's hardware and
software infrastructure will be able to adequately handle the increased demand.
The Company's operations also are dependent upon receipt of timely feeds and
computer downloads from its content providers, and any failure or delay in the
transmission or receipt of such feeds and downloads, whether on account of
system failure of the Company, its content providers, the public network or
otherwise, could disrupt the Company's operations. Any failure or delay that
causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company relies on private third party providers to provide it
with access to the Internet. Any disruption in the Company's Internet access or
any failure of the Company's third party provider to handle higher volumes of
users could have a material adverse effect on the Company's business, results
of operations and financial condition. The Company is also dependent upon Web
browsers and Internet service providers ("ISPs") and online service
providers ("OSPs") to provide Internet users access to the Company's Web
sites, and members and users also may experience difficulties accessing or using
the Company's Web sites due to system failures or delays unrelated to the
Company's systems.
The Company's operations are dependent on its ability to maintain its
computer and telecommunications equipment in effective working order and to
protect its systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins, computer viruses and other events beyond
the Company's control. Although the Company has developed an out-of-state
disaster recovery plan to respond to system failures and also maintains property
insurance for its equipment, there can be no assurance that the Company's
disaster recovery plan is capable of being implemented successfully, if at all,
or that such insurance will be adequate to compensate the Company for all losses
that may occur or to provide for costs associated with business interruption.
Any damage or failure that causes system disruptions or other significant
interruptions in the Company's operations could have a material adverse effect
on the Company's business, results of operations and financial condition.
INTERNET COMMERCE SECURITY RISKS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments will not result in a compromise or breach of the
algorithms used by the Company to protect customer transaction data. If any such
compromise of the Company's security were to occur it could have a material
adverse effect on the Company's business, results of operations and financial
condition. A party who is able to circumvent the Company's security measures
could misappropriate proprietary information or cause interruptions in the
Company's operations. The Company may be required to expend significant capital
and other resources to protect against the threat of such security breaches or
to alleviate problems caused by such breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, and the Web in particular, especially as a means of
conducting commercial transactions. To the extent that activities of the Company
of third party contractors involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could expose the
Company to a risk of loss or litigation and possible liability. There can be no
assurance that the Company's security measures will prevent security breaches
or that failure to prevent such security breaches would not have a material
adverse effect on the Company's business, results of operations and financial
condition.
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LIABILITY FOR INFORMATION RETRIEVED FROM THE INTERNET
Due to the fact that materials may be downloaded from Web sites operated by
the Company and may be subsequently distributed to others, there is a potential
that claims will be made against the Company for defamation, negligence,
copyright or trademark infringement or other theories based on the nature and
content of such materials. Such claims have been brought, sometimes
successfully, against online services in the past. In addition, the Company
could be subject to liability with respect to content that may be accessible
through the Company's Web sites or third party Web sites linked from the
Company's Web sites. For example, claims could be made against the Company if
material deemed inappropriate for viewing by children could be accessed through
the Company's Web sites. Although the Company carries general liability
insurance, the Company's insurance may not cover potential claims of this type
or may not be adequate to cover all costs incurred in defense of potential
claims or to indemnify the Company for all liability that may be imposed. Any
costs or imposition of liability that is not covered by insurance or in excess
of insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of its senior management and other key personnel, none of whom
is bound by employment agreements. The Company maintains $2 million of key man
life insurance covering Michael Levy, the Company's President and Chief
Executive Officer. However, the loss of the services of Mr. Levy or one or more
of the Company's other executive officers or key employees could have a
material adverse effect on the Company, and there can be no assurance that the
Company will be able to retain its key personnel. See "Management-Executive
Officers and Directors."
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical, editorial and managerial
personnel. Competition for such personnel is intense, and the Company has, at
times, experienced difficulties in attracting the desired number of such
individuals. There can be no assurance that the Company will be able to attract
or retain a sufficient number of highly qualified employees in the future. If
the Company is unable to hire and retain personnel in key positions, the
Company's business, results of operations and financial condition could be
materially adversely affected.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is subject to various laws and governmental regulations
applicable to businesses generally. The Company believes it is currently in
compliance with such laws and that such laws do not have a material impact on
its operations. In addition, although there are currently few laws or
regulations directly applicable to access to or commerce on the Internet, due to
the increasing popularity and use of the Internet, it is possible that more
stringent consumer protection laws and regulations may be adopted with respect
to the Internet, covering issues such as user privacy and expression, pricing,
intellectual property, information security, anti-competitive practices, the
convergence of traditional channels with Internet commerce, characteristics and
quality of products and services and the taxation of subscription fees or gross
receipts of ISPs. The federal Telecommunications Act of 1996, which was recently
enacted and the judicial interpretation of which is uncertain, imposes criminal
penalties on anyone who distributes obscene, lascivious or indecent
communications over the Internet. Such provisions of the Telecommunications Act
of 1996 have been challenged on constitutional and other grounds and the outcome
of such challenges is uncertain. The enactment or enforcement of the
Telecommunications Act of 1996, and any other federal or state laws or
regulations in the future, may increase the Company's cost of doing business or
decrease the growth of the Internet and which could in turn decrease the demand
for the Company's products and services, increase the Company's costs, or
otherwise have an adverse effect on the Company's business, results of
operations and financial condition. Moreover, the applicability to the Internet
of existing laws in various jurisdictions governing issues such as property
ownership, libel and personal privacy is uncertain, may
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take years to resolve and could expose the Company to substantial liability for
which the Company might not be indemnified by the content providers or other
third parties. Any such new legislation or regulation or the application of
existing laws and regulations to the Internet could have a material adverse
effect on the Company's business, results of operations and financial
condition.
The Company's contests and sweepstakes may be subject to state and federal
laws governing lotteries and gambling. The Company seeks to design its contest
and sweepstakes rules to fall within exemptions from such laws and restricts
participation to individuals over 18 years of age who reside in jurisdictions
within the United States and Canada in which the contests and sweepstakes are
lawful. There can be no assurance that the Company's contests and sweepstakes
will be exempt from such laws or that the applicability of such laws to the
Company would not have a material adverse effect on the Company's business,
results of operations and financial condition.
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject the Company to additional state sales and income
taxes. As the Company's service is available over the Internet in multiple
states and foreign countries, such jurisdictions may claim that the Company is
required to qualify to do business as a foreign corporation in each such state
and foreign country. The failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify. It is possible that
the governments of other states and foreign countries also might attempt to
regulate the Company's transmissions of content on its Web sites or prosecute
the Company for violations of their laws. There can be no assurance that
violations of local laws will not be alleged or charged by state or foreign
governments, that the Company might not unintentionally violate such law or that
such laws will not be modified, or new laws enacted, in the future.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications
services. For example, America's Carriers Telecommunications Association has
filed a petition with the FCC for this purpose. In addition, because the growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service, local telephone carriers, such as Pacific Bell,
have petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions are granted, or the relief sought therein is otherwise
granted, the costs of communicating on the Internet could increase
substantially, potentially slowing the growth in use of the Internet. Any such
new legislation or regulation or application or interpretation of existing laws
could have a material adverse effect on the Company's business, results of
operations and financial condition.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering. The initial public
offering price will be determined by negotiation between the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The trading price of the Company's Common Stock could be subject to
fluctuations in response to quarterly variations in results of operations,
announcements of technological innovations or new services or products by the
Company or its competitors, changes in financial estimates by securities
analysts, the operating and stock price performance of other companies and other
events or factors. In addition, the stock market has experienced volatility that
has particularly affected the market prices of equity securities of companies
within certain industry groups such as technology companies generally and
Internet-related companies in particular, and that often has been unrelated to
the operating performance of such companies. These broad market fluctuations may
materially adversely affect the trading price of the Company's Common Stock.
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CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this offering, the Company's present directors and
executive officers, greater than 5% shareholders and their respective affiliates
will beneficially own approximately % of the outstanding Common Stock
(approximately % of the outstanding Common Stock assuming full exercise of
the Underwriters' overallotment option). As a result, these shareholders, if
they act as a group, will be able to control all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. Such control may have the effect of delaying or
preventing a change in control of the Company. See "Management,"
"Principal Shareholders" and "Description of Capital Stock."
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale by the Company of the Common Stock offered hereby. Rather, the Company
intends to use the net proceeds from this offering for working capital and other
general corporate purposes, including expansion of the Company's marketing and
advertising sales efforts, content development and licensing, international
expansion and capital expenditures. A portion of the net proceeds also may be
used for the acquisition of or investments in businesses, products and
technologies that are complementary to those of the Company. Consequently, the
Board of Directors and management of the Company will have significant
flexibility in applying the net proceeds of this offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CHARTER AND BYLAWS
The Company is organized under the laws of the State of Delaware. Certain
provisions of Delaware law may have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, certain provisions
of the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and Amended and Restated Bylaws (the "Bylaws") may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that a shareholder might consider in its best interest. The Certificate
will authorize the Board to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock and to fix the number of
shares of any series of preferred stock and the designation of any such series,
without any vote or action by the Company's shareholders. Thus, the Board can
authorize and issue shares of preferred stock with voting or conversion rights
that could adversely affect the voting or other rights of holders of the
Company's Common Stock. In addition, the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change of control of the
Company, since the terms of the preferred stock that might be issued could
potentially prohibit the Company's consummation of any merger, reorganization,
sale of substantially all of its assets, liquidation or other extraordinary
corporate transaction without the approval of the holders of the outstanding
shares of the Common Stock. Other provisions of the Certificate and Bylaws will
(i) divide the Company's Board of Directors into three classes, each of which
will serve for different three-year periods, (ii) provide that the shareholders
may not take action by written consent, but only at duly called annual or
special meetings of shareholders, (iii) provide that special meetings of the
shareholders may be called only by the Chairman of the Board of Directors or a
majority of the entire Board of Directors and (iv) establish certain advance
notice procedures for nomination of candidates for election as directors and for
shareholder proposals to be considered at annual shareholders' meetings. See
"Description of Capital Stock-Anti-takeover Effects of Certain Provisions of
Delaware Law and the Company's Certificate of Incorporation and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; FUTURE EQUITY ISSUANCES
Sales of substantial amounts of Common Stock in the public market following
this offering, or the perception that such sales will occur, could have a
material adverse effect on the market price of the Company's Common Stock.
After the completion of this offering, shares of Common Stock
18
<PAGE>
will be outstanding. Of such shares, only the shares sold pursuant to this
offering will be tradable in the public market without restriction. The
remaining 25,294,187 shares of Common Stock to be outstanding after the offering
are "restricted securities" within the meaning of Rule 144 ("Rule 144") under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
publicly resold, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144. Beginning 90 days after the date of this Prospectus,
of these remaining 25,294,187 shares will be eligible for resale in the public
market, subject to certain volume, timing and other requirements of Rule 144 and
to the lock-up agreements described below. In addition, beginning 90 days after
the date of this Prospectus, an additional shares issuable upon exercise
of options and warrants which will be vested at such time will be eligible for
resale in the public market, subject to compliance with Rule 144 and Rule 701
under the Securities Act and to the lock-up agreements described below. The
remaining shares of currently outstanding Common Stock and shares
issuable upon exercise of options and warrants which will vest after such 90 day
period will become eligible for resale pursuant to Rule 144 and Rule 701 at
various times within the next year, and some of such shares could be sold
earlier if the holders exercise their registration rights described below.
The Company and certain of its existing shareholders have agreed not to
offer, sell or contract to sell or otherwise dispose of any Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Robertson, Stephens & Company LLC, subject to certain exceptions. In
its sole discretion, and at any time without notice, Robertson, Stephens &
Company LLC may release all or any portion of the shares subject to such
lock-ups.
The holders of approximately shares of Common Stock have the right in
certain circumstances to require the Company to register their shares under the
Securities Act for resale to the public. If such holders, by exercising their
demand registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price for the Company's Common Stock. If the Company were required
to include in a Company-initiated registration statement shares held by such
holders pursuant to the exercise of their piggyback registration rights, such
sales may have an adverse effect on the Company's ability to raise needed
capital. In addition, approximately 180 days after the date of this Prospectus,
the Company expects to file a registration statement on Form S-8 registering a
total of shares of Common Stock subject to outstanding stock options and
warrants or reserved for issuance under the Company's stock option plans.
In connection with entering into strategic relationships, particularly with
athletes, the Company has issued and may continue to issue warrants to purchase
significant amounts of Common Stock. The issuance of significant amounts of
warrants in the future, particularly warrants with exercise prices below the
fair market value of the Common Stock at the time of issuance, could have a
material adverse effect on the Company's results of operations or financial
condition, or on the market price for the Company's Common Stock. See
"Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors participating in this offering will incur an immediate,
substantial dilution of $ in the net tangible book value per share of the
Common Stock from the initial public offering price. To the extent that the
Company issues additional shares of Common Stock pursuant to its agreement with
CBS, or other outstanding options or warrants to purchase Common Stock are
exercised, there will be further dilution. See "Dilution."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company pursuant to this offering are estimated to be
$ ($ if the Underwriters' over-allotment option is exercised in
full), based upon an assumed initial public offering price of $ per share,
and after deducting underwriting discounts and commissions and estimated
offering expenses.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for the Company's Common Stock and to
facilitate future access by the Company to public equity markets. The Company
intends to use the net proceeds from this offering for working capital and other
general corporate purposes, including expansion of the Company's marketing and
advertising sales efforts, content development and licensing, international
expansion and capital expenditures. From time to time, the Company expects to
evaluate possible acquisitions of or investments in businesses, products and
technologies that are complementary to those of the Company, for which a portion
of the net proceeds of this offering may be used. The Company presently has no
commitments or understandings for any such acquisitions, and is not presently
engaged in any negotiations for any such acquisitions, and no portion of the net
proceeds has been allocated for any specific acquisition. Pending such uses, the
Company intends to invest the net proceeds from this offering in
investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, to fund the development and
growth of its business. In addition, the Company's equipment line of credit
contains covenants that restrict the Company from paying dividends in excess of
$750,000 without the lender's prior written consent. See Note 5 of Notes to
Financial Statements.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 (i) on an actual basis, and (ii) on an as adjusted basis to reflect the
conversion into Common Stock of all of the Company's outstanding preferred
stock upon the completion of this offering, the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of $
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the
Company's Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ -------------
(Unaudited)
(In thousands)
<S> <C> <C>
Long-term obligations ...................................................... $ 311 $
-------- ---------
Shareholders' equity (1):
Preferred stock, $0.01 par value; no shares authorized, issued or outstanding
actual; 1,000,000 shares authorized, none issued and outstanding pro
forma as adjusted ......................................................... - -
Convertible preferred stock, $0.01 par value; issued in series; 3,000,000
Series A shares authorized, issued and outstanding actual; 6,162,776
Series B shares authorized, issued and outstanding actual; 5,333,333
Series C shares authorized, issued and outstanding actual; none
authorized, issued or outstanding pro forma as adjusted ..................... 145 -
Common stock, $0.01 par value; 50,000,000 shares authorized, 10,798,078
shares issued and outstanding, actual; shares issued and
outstanding pro forma as adjusted .......................................... 108
Additional paid-in capital ................................................... 49,463
Accumulated deficit ......................................................... (23,192)
-------- ---------
Total shareholders' equity ................................................ 26,524
-------- ---------
Total capitalization ...................................................... $ 26,835 $
======== =========
- ----------------
<FN>
(1) Excludes 2,037,792 shares of Common Stock issuable pursuant to stock options
outstanding at March 31, 1997 (of which options to purchase 395,504 shares
were exercisable) with a weighted average exercise price of $0.85 per share
and 3,991,500 shares of Common Stock issuable upon the exercise of warrants
outstanding at March 31, 1997 (of which warrants to purchase 3,469,000
shares were exercisable) with a weighted average exercise price of $2.63 per
share. See "Management-Stock Plans" and "Description of Capital
Stock-Options and Warrants." Also excludes 9,669,317 shares of Common
Stock issuable pursuant to the Company's agreement with CBS (including
3,800,000 shares issuable upon the exercise of warrants to be granted to
CBS). See "Certain Transactions-CBS Agreement."
</FN>
</TABLE>
21
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997,
after giving effect to the conversion of all outstanding shares of preferred
stock into Common Stock, was $ , or $ per share of Common Stock. Pro
forma net tangible book value per share is equal to the Company's total
tangible assets less total liabilities, divided by the total pro forma number of
shares of Common Stock outstanding. After giving effect to the sale of the
shares of Common Stock offered hereby, and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
March 31, 1997 would have been $ , or $ per share. This represents an
immediate increase in such pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares in this offering. The following table summarizes, on
a pro forma basis as of March 31, 1997, this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................................. $
Pro forma net tangible book value per share at March 31, 1997 .................. $
Increase in net tangible book value per share attributable to new investors ...
------
Pro forma net tangible book value per share as of March 31, 1997 after offering .. ------
Dilution per share to new investors ............................................. $
======
</TABLE>
The following table summarizes on a pro forma basis as of March 31, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and by the purchasers of the shares of Common Stock
offered hereby at an assumed initial offering price of $ per share, and
before deducting underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION (1)
-------------------------- ---------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ---------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... % $ % $
New investors ...............
------------ ------ ------------ ------ -
Total ..................... 100.0% $ 100.0%
============ ====== ============ ====== =
<FN>
- ----------------
(1) See Note 5 of Notes to Financial Statements for a discussion of certain
non-cash consideration received by the Company in exchange for the issuance
of shares of Common Stock.
</FN>
</TABLE>
The above computations exclude (i) 2,037,792 shares of Common Stock
issuable pursuant to stock options outstanding at March 31, 1997 (of which
options to purchase 395,504 shares were exercisable) with a weighted average
exercise price of $0.85 per share and (ii) 3,991,500 shares of Common Stock
issuable upon the exercise of warrants outstanding at March 31, 1997 (of which
warrants to purchase 3,469,000 shares were exercisable) with a weighted average
exercise price of $2.63 per share. The above computations also exclude 9,669,317
shares of Common Stock issuable pursuant to the Company's agreement with CBS
(including 3,800,000 shares issuable upon the exercise of warrants to be granted
to CBS). To the extent that any of the foregoing options or warrants are
exercised, or additional shares are issued to CBS there will be further dilution
to new investors. In addition, in April 1997, the Company's Board of Directors
approved the 1997 Incentive Compensation Plan (the "Incentive Plan") under
which an additional 2,000,000 shares of Common Stock have been reserved for
issuance and the 1997 Employee Stock Purchase Plan, under which an additional
500,000 shares of Common Stock have been reserved for issuance. Furthermore,
under the Incentive Plan an additional number of options may be granted equal to
the number of shares of Common Stock with respect to awards previously granted
under the Incentive Plan that terminate without being exercised, expire, are
forfeited or canceled, and the number of shares of Common Stock that are
surrendered in payment of any awards or any tax withholding requirements. See
"Certain Transactions-CBS Agreement," "Management-Stock Plans" and
"Description of Capital Stock-Options and Warrants."
22
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data set forth below as of December 31, 1995 and
1996, and the selected statement of operations data for the period from February
23, 1994 (Inception) through December 31, 1994 and the years ended December 31,
1995 and December 31, 1996 have been derived from the Company's audited
financial statements, which statements have been audited by Arthur Andersen LLP,
independent certified public accountants, and appear elsewhere in this
Prospectus. The selected balance sheet data as of March 31, 1997 and the
selected statements of operations data for the three months ended March 31, 1996
and 1997 have been derived from the unaudited financial statements of the
Company which, in the opinion of management, include all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results for the full
year. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 23, 1994
(INCEPTION) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- -----------------------
1994 1995 1996 1996 199
-------------------- ----------- ----------- ----------- ---------
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ................................. $ - $ 52 $ 2,437 $ 96 $ 1,253
Cost of revenue ........................ - 757 3,320 603 1,299
----- ------- -------- ------- -------
Gross margin (deficit) .................. - (705) (883) (507) (46)
Operating expenses:
Product development ..................... 58 633 939 223 269
Sales and marketing ..................... 59 1,179 5,569 633 1,602
General and administrative ............ 309 2,662 4,870 844 1,522
Depreciation and amortization ......... 16 193 824 127 1,315
----- ------- -------- ------- -------
Total operating expenses ............... 442 4,667 12,202 1,827 4,708
----- ------- -------- ------- -------
Loss from operations ..................... (442) (5,372) (13,084) (2,334) (4,754)
Interest expense ........................ - 50 136 58 14
Interest and other income, net ......... 38 92 365 18 165
----- ------- -------- ------- -------
Net loss ................................. $(404) $(5,330) $(12,855) $(2,374) $(4,603)
===== ======= ======== ======= =======
Net loss per share ..................... $ $ $ $ $
===== ======= ======== ======= =======
Weighted average common and common
equivalent shares outstanding (1) ...... ===== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
MARCH 31,
1995 1996 1997
----------- ---------- -------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 184 $13,994 $17,732
Working capital (deficit) .................. (1,944) 11,779 23,059
Total assets .............................. 2,496 17,850 30,855
Long-term obligations ..................... 684 409 311
Total shareholders' equity (deficit) ....... (452) 14,273 26,524
<FN>
- ----------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the weighted average common and common equivalent shares
used to compute net loss per share.
</FN>
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION ALSO SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
SportsLine USA is a leading Internet-based sports media company that
provides branded, interactive information and programming as well as merchandise
to sports enthusiasts worldwide. Traffic on the Company's Web sites has
increased significantly since the commercial launch of sportsline.com in August
1995, to an average of 1,200,000 page views and 155,000 visits per day during
March 1997, and the Company's Web sites had approximately 33,000 paying members
as of March 31, 1997.
The Company's activities during the period from February 23, 1994
(inception) through December 31, 1994 and the year ended December 31, 1995,
primarily related to recruiting personnel, licensing and creating content,
developing and enhancing its software and hardware infrastructure, negotiating
relationships with sports superstars, personalities, organizations and affinity
groups, and raising capital. Although most of the content on the Company's Web
sites is free, users of the Company's Web sites can purchase memberships and
premium content and products. Prior to March 1996, substantially all of the
Company's revenue was derived from membership subscriptions and fees for
premium services. The Company first recognized advertising revenue in March
1996. Advertising revenue and fees from memberships and premium services
constituted approximately 64% and 36%, respectively, of the Company's total
revenue in 1996. In addition to revenue from advertising, memberships and
premium content, the Company expects to derive revenue in the future from
transactions on the Company's Web sites, including sales of limited edition
memorabilia, licensed apparel and other sports related products, syndication of
its content in other media, such as radio, and development of Web sites for
third parties. Through March 31, 1997, transaction and site development revenue
have not been significant and the Company has not received any syndication
revenue.
Advertising revenue is recognized in the period in which the advertisement
is displayed, provided that no significant obligations remain and collection of
the resulting receivable is probable. Company obligations typically include
guarantees of a minimum number of "impressions," or times that an
advertisement appears in page views downloaded by users. Revenue relating to
monthly memberships is recognized in the month the service is provided. Revenue
relating to annual memberships and seasonal sports contests is recognized
ratably over the life of the membership agreement or contest period.
Accordingly, amounts received for which services have not yet been provided are
recorded as deferred revenue.
RESULTS OF OPERATIONS
REVENUE
Total revenue for the three months ended March 31, 1997 was $1,253,000
compared to $96,000 for the three months ended March 31, 1996. Total revenue for
the year ended December 31, 1996 was $2,437,000 compared to $52,000 for the year
ended December 31, 1995. The Company had no revenue during the period from
February 23, 1994 (inception) to December 31, 1994. The increase in revenue in
each period was due principally to increased advertising sales and to a lesser
extent to increases in revenue from memberships and premium service fees. As of
March 31, 1997, the Company had deferred revenue of $801,000 relating to cash
received for which services had not yet been provided.
24
<PAGE>
Advertising revenue for the three months ended March 31, 1997 and 1996 and
the years ended December 31, 1996 and 1995 accounted for approximately 57%, 31%,
64% and 0%, respectively, of total revenue. Advertising revenue from barter
transactions, in which the Company received advertising or other services or
goods in exchange for advertising on its Web sites, accounted for approximately
2% and 32% of total advertising revenue for the three months ended March 31,
1997 and for the year ended December 31, 1996, respectively. In future periods,
management intends to maximize cash advertising revenue, although the Company
will continue to enter into barter advertising relationships as appropriate.
COST OF REVENUE
Cost of revenue consists primarily of content and royalty fees, payroll and
related expenses for the Company's editorial and operations staff,
telecommunications and computer related expenses for the support and delivery of
the Company's services and prizes awarded to contestants in the Company's
various contests. Royalty payments are paid to certain content providers and
technology and marketing partners based on membership levels subject, in certain
instances, to specified minimum amounts.
Cost of revenue for the three months ended March 31, 1997 was $1,299,000
compared to $603,000 for the three months ended March 31, 1996. Cost of revenue
was $3,319,000 for the year ended December 31, 1996 compared to $757,000 for the
year ended December 31, 1995. There was no cost of revenue for the period from
February 23, 1994 (inception) through December 31, 1994, as no revenue was
recognized. The Company's operating expenses have increased significantly since
inception, which reflects the costs associated with building an infrastructure
to support the operation of its Web sites and commercializing its services. The
increase in cost of revenue for the three months ended March 31, 1997 compared
to the three months ended March 31, 1996 and for the year ended December 31,
1996 compared to the year ended December 31, 1995 was primarily the result of
content and royalty fees incurred for increased content, growth in the
Company's editorial and operations staff and telecommunications costs. To
support these efforts, the Company has significantly increased the number of its
employees from five at January 1, 1995 to 156 at March 31, 1997. The Company
anticipates that cost of revenue will grow as it increases staffing to expand
its services and incurs higher content and royalty fees and as the Company
requires more bandwith from its ISPs.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expense consists primarily of
consulting and employee compensation and related expenses required to support
the development of existing and new service offerings and proprietary content.
The Company capitalizes certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of a working
model and the time when the product is ready for general release have not been
significant.
Product development expense for the three months ended March 31, 1997 was
$269,000 compared to $223,000 for the three months ended March 31, 1996. Product
development expense for the year ended December 31, 1996 was $939,000 compared
to $633,000 for the year ended December 31, 1995 and $58,000 for the period from
inception (February 23, 1994) to December 31, 1994. The increase in product
development expense in each period was primarily attributable to increases in
personnel and associated costs relating to developing the features and
functionality of the Company's Web sites. The Company believes that significant
investments in product development are required to remain competitive. As a
consequence, the Company intends to continue to invest significant resources in
product development.
SALES AND MARKETING. Sales and marketing expense consists of salaries and
related expenses, advertising, marketing and public relations expenses and
member acquisition costs. Member acquisition costs consist primarily of the
direct costs of member solicitation, including advertising on other Web
25
<PAGE>
sites, printing, production and shipping of member kits, and the cost of
obtaining qualified prospects from direct marketing programs and from third
parties. The Company expenses member acquisition costs as incurred.
Sales and marketing expense for the three months ended March 31, 1997 was
$1,602,000 compared to $633,000 for the three months ended March 31, 1996. Sales
and marketing expense was $5,569,000 for the year ended December 31, 1996
compared to $1,179,000 for the year ended December 31, 1995 and $59,000 for the
period from inception (February 23, 1994) to December 31, 1994. Barter
transactions accounted for approximately 1% and 9% of sales and marketing
expense for the three months ended March 31, 1997 and the year ended December
31, 1996, respectively. The increase in sales and marketing expense in each
period was a result of growth in the number of personnel and related costs,
member acquisition costs, public relations activities and participation in
conferences and trade shows. The Company intends to continue to invest in member
acquisition programs.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists of
salary and related costs for executive, finance and accounting, technical and
customer support, human resources and administrative functions as well as
professional service fees. General and administrative expense for the three
months ended March 31, 1997 was $1,522,000 compared to $844,000 for the three
months ended March 31, 1996. General and administrative expense was $4,870,000
for the year ended December 31, 1996 compared to $2,662,000 for the year ended
December 31, 1995 and $308,000 for the period from February 23, 1994 (inception)
to December 31, 1994. The increase in general and administrative expense in each
period was primarily attributable to salary and related expenses for additional
personnel, higher professional fees and recruitment expenses. The Company
anticipates that it will incur additional general and administrative expenses as
a result of becoming a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
consists primarily of the depreciation of property and equipment, amortization
of costs associated with consulting agreements and, beginning in March 1997, the
amortization of deferred advertising and content costs relating to the CBS
agreement. Depreciation and amortization expense for the three months ended
March 31, 1997 was $1,316,000 compared to $127,000 for the three months ended
March 31, 1996. Depreciation and amortization expense was $824,000 for the year
ended December 31, 1996 compared to $193,000 for the year ended December 31,
1995 and $16,000 for the period from inception (February 23, 1994) to December
31, 1994. The increase in depreciation and amortization expense in each period
was primarily attributable to increases in property and equipment and, for the
three months ended March 31, 1997, to amortization related to the CBS agreement.
Under the Company's agreement with CBS, the Company will issue at the
beginning of each contract year shares of Common Stock and warrants to purchase
Common Stock in consideration of CBS's advertising and promotional efforts and
its license to the Company of the right to use certain CBS logos and
television-related sports content. At the beginning of each contract year, the
Company will record as deferred advertising and content costs the value of the
shares and warrants issued in such contract year, based upon the fair value of
the Common Stock in March 1997 when the agreement was executed. These amounts
will be amortized to depreciation and amortization expense over each related
contract year. See Note 5 of Notes to Financial Statements.
INTEREST EXPENSE. Interest expense consists primarily of interest paid on
the Company's existing equipment line of credit, on capital lease obligations
and on short-term loans that have been repaid. Interest expense was $14,000 for
the three months ended March 31, 1997 compared to $58,000 for the three months
ended March 31, 1996. Interest expense was $136,000 for the year ended December
31, 1996 compared to $50,000 for the year ended December 31, 1995. There was no
interest expense for the period from February 23, 1994 (inception) to December
31, 1994.
INTEREST AND OTHER INCOME, NET. Interest and other income, net primarily
represents interest earned on cash and cash equivalents. Interest and other
income, net for the three months ended March 31, 1997 was $165,000 compared to
$18,000 for the three months ended March 31, 1996. Interest
26
<PAGE>
and other income, net was $365,000 for the year ended December 31, 1996 compared
to $92,000 for the year ended December 31, 1995 and $38,000 for the period from
inception (February 23, 1994) to December 31, 1994. The increase in interest and
other income, net in each period was primarily attributable to higher average
investments in cash and cash equivalents. The Company anticipates that interest
income will increase in future periods as a result of the investment of the net
proceeds from this offering pending other uses.
INCOME TAXES. No provision for federal and state income taxes has been
recorded as the Company incurred net operating losses through March 31, 1997. At
December 31, 1996, the Company had approximately $18,000,000 of net operating
loss carryforwards for Federal income tax purposes, expiring from 2009 to 2011,
available to offset future taxable income. Utilization of the net operating
losses may be subject to annual limitations due to ownership changes. See Note 7
of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's primary source of liquidity consisted
of $17,732,000 in cash and cash equivalents. The Company has financed its
operations primarily through private placements of Common Stock and convertible
preferred stock.
As of March 31, 1997, the Company owed $449,000 under an equipment line of
credit which is payable in 33 equal monthly installments beginning in July 1996.
The borrowings under the equipment line carry interest at the prime rate plus
1.5% (10.0% at March 31, 1997) and are secured by substantially all of the
Company's assets. In addition, the Company is required to comply with certain
restrictive covenants which include, among other items, maintenance of certain
financial ratios and a cash balance equal to the amount of the outstanding
balance of the line of credit.
Net cash used in operating activities was $3,557,000 and $2,347,000 for the
three months ended March 31, 1997 and 1996, respectively. Net cash used in
operating activities was $10,915,000, $4,390,000 and $389,000 for the years
ended December 31, 1996 and 1995 and the period from inception (February 23,
1994) to December 31, 1994, respectively. The principal uses of cash for all
periods were to fund the Company's net loss from operations and increases in
accounts receivable, prepaid expenses and accrued expenses, partially offset by
increases in deferred revenue, accounts payable and depreciation and other
noncash charges.
Net cash used in investing activities was $492,000 and $2,594,000 for the
three months ended March 31, 1997 and 1996, respectively. Net cash used in
investing activities was $1,183,000, $1,446,000 and $42,000 for the years ended
December 31, 1996 and 1995 and the period from inception (February 23, 1994) to
December 31, 1994, respectively. The principal uses for all periods were
purchases of property and equipment, except for the Company's purchase in March
1996 of a restricted certificate of deposit (which subsequently matured).
Net cash provided by financing activities was $7,787,000 and $10,077,000
for the three months ended March 31, 1997 and 1996, respectively. Net cash
provided by financing activities was $25,908,000, $4,353,000 and $2,098,000 for
the years ended December 31, 1996 and 1995 and the period from inception
(February 23, 1994) to December 31, 1994, respectively. Financing activities
consisted principally of the issuance of equity securities and draws on a term
loan with a bank in December 1995 and January 1996 (which was subsequently
repaid in March 1996).
The Company intends to use the net proceeds from this offering for working
capital and other general corporate purposes, including expansion of the
Company's marketing and advertising sales efforts, content development and
licensing and international expansion and for capital expenditures. Although the
Company has no material commitments for capital expenditures, it anticipates
purchasing approximately $1,700,000 of property and equipment in 1997, primarily
computer equipment and furniture and fixtures. From time to time, the Company
expects to evaluate possible acquisitions of or
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<PAGE>
investments in businesses, services and technologies that are complementary to
those of the Company, for which a portion of the net proceeds of this offering
may be used. The Company presently has no commitments or understandings for any
such acquisitions, and is not presently engaged in any discussions or
negotiations for any such acquisitions, and no portion of the net proceeds has
been allocated for any specific acquisition. Pending such uses, the Company
intends to invest the net proceeds from this offering in investment-grade,
interest-bearing securities.
The Company believes that the net proceeds from this offering and current
cash balances will be sufficient to fund its working capital and capital
expenditure requirements for at least the next 12 months. To the extent the
Company requires additional funds to support its operations or the expansion of
its business, the Company may sell additional equity, issue convertible
securities or obtain credit facilities. The sale of additional equity or
convertible securities will result in additional dilution to the Company's
shareholders. There can be no assurance that financing, if required, will be
available to the Company in amounts or on terms acceptable to the Company.
SEASONALITY
The Company expects that its revenue will be higher leading up to and
during major U.S. sports seasons and lower at other times of the year,
particularly during the summer months when the only major U.S. sports season in
progress is Major League Baseball. The Company believes that advertising sales
in traditional media, such as television, generally are lower in the first and
third calendar quarters of each year, and that advertising expenditures
fluctuate significantly with economic cycles. Depending on the extent to which
the Internet is accepted as an advertising medium, seasonality and cyclicality
in the level of Internet advertising expenditures could become more pronounced.
The foregoing factors could have a material adverse affect on the Company's
business, results of operations and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, was
issued. SFAS No. 123 allows either adoption of a fair value based method of
accounting for employee stock options and similar equity instruments or
continuation of the measurement of compensation cost relating to such plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES." The Company has elected to continue to use the intrinsic value
based method. Accordingly, pro forma disclosures required to be presented by
SFAS No. 123 for companies continuing to utilize the intrinsic value based
method are presented in Note 6 of Notes to Financial Statements and have been
determined as if the Company had accounted for its stock-based compensation
plans under the fair value method.
In February 1997, SFAS No. 128, EARNINGS PER SHARE, was issued. SFAS No.
128 simplifies the methodology of computing earnings per share, and requires the
presentation of basic and diluted earnings per share. The Company's basic and
diluted earnings per share are the same, as the Company's common stock
equivalents are antidilutive. In addition, the Company's basic and diluted
earnings per share are the same as that computed under APB No. 15, EARNINGS PER
SHARE, as presented in the accompanying Statements of Operations. SFAS No. 128
must be adopted for the year ending December 31, 1997 and be retroactively
reflected in the financial statements.
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<PAGE>
BUSINESS
THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS PROSPECTUS.
SportsLine USA is a leading Internet-based sports media company that
provides branded, interactive information and programming as well as merchandise
to sports enthusiasts worldwide. The Company produces and distributes original,
interactive sports content, including editorials and analyses, radio shows,
contests, games and fantasy league products. The Company also distributes a
broad range of up-to-date news, scores, player and team statistics and
standings, photos and audio and video clips obtained from leading sports news
organizations. Traffic on the Company's Web sites has increased significantly
since the commercial launch of sportsline.com in August 1995, to an average of
1,200,000 page views and 155,000 visits per day during March 1997, and the
Company's Web sites had approximately 33,000 paying members as of March 31,
1997.
The Company has established a number of important strategic relationships
to increase awareness of the SportsLine brand, build traffic on its Web sites
and develop proprietary programming. In March 1997, the Company entered into a
strategic alliance with CBS pursuant to which the Company's flagship Web site
was renamed "cbs.sportsline.com." The CBS agreement provides for
cbs.sportsline.com to receive at least $57 million of advertising and on-air
promotion during the term of the agreement, primarily during CBS sports event
broadcasts such as the 1998 Winter Olympics, the NCAA Men's Basketball
Tournament, NCAA Football, PGA Tour events, U.S. Open tennis and the Daytona
500. The Company also receives television and radio promotion through strategic
media relationships with The Golf Channel and Sports Byline USA, the nation's
largest syndicated sports radio network, and on numerous sports talk radio
stations around the country. In addition, the Company has established strategic
relationships with sports superstars, personalities, organizations and affinity
groups.
INDUSTRY BACKGROUND
THE U.S. SPORTS MARKET
Participatory and spectator sports are among the leading pastimes for
Americans as demonstrated by the popularity of sports media and by the time and
money consumers spend on sports events, products and services. Based on industry
sources, the Company estimates that attendance at Major League Baseball, NFL,
NBA and NHL games during the 1995-1996 season was approximately 120 million,
generating gate receipts of over $3 billion. Sports television programming also
consistently draws large audiences, with sports broadcasts comprising eight of
the top ten most widely viewed television programs in 1996 according to Nielsen
Media Research. The publishing industry also benefits from the popularity of
sports, including SPORTS ILLUSTRATED magazine which had paid weekly circulation
of 3.2 million, reached 23 million adult readers weekly and ranked second in
advertising revenue among U.S. magazines in 1996. In addition, the U.S. retail
market for licensed sports merchandise and apparel was approximately $14 billion
in 1996, according to the Sporting Goods Manufacturers Association. Due to the
popularity of sports among males between the ages of 18 and 49, advertisers
consider sports events and media as attractive venues to reach this audience.
Based on industry sources, the Company estimates that approximately $4.2 billion
was spent on sports television advertising and approximately $5.4 billion was
spent on sponsorships of sports events in 1996.
THE WEB AS A NEW MEDIUM FOR ADVERTISING AND COMMERCE
The rapidly increasing number of Web users and ubiquitous access to the
Internet, both in the United States and internationally, have resulted in the
emergence of the Web as a new mass medium. International Data Corporation
("IDC") estimates that the number of individual users worldwide with
access to the Web at the end of 1996 was 35 million, growing to 163 million by
the end of 2000.
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The Web is an attractive medium for advertising because of its
interactivity, flexibility, targetability and measurability. The interactive
nature of the Web enables advertisers to establish dialogues and meaningful
relationships with potential customers. The flexible nature of a digital medium
like the Web enables advertisers to change their messages frequently in response
to real world events and consumer feedback. The Web also enables advertisers to
reach broad audiences and to target advertisements to users with similar
demographic characteristics, specific regional populations, affinity groups or
selected individuals. The Web is a measurable medium because impression levels
and demographic information concerning users can be tracked and reported to
advertisers. Jupiter Communications estimates that the dollar value of online
advertising will increase from $301 million in 1996 to $5 billion in 2000.
The Web is emerging as a medium for global commerce. A growing number of
consumers have begun to transact business over the Web, such as paying bills,
booking airline tickets, trading securities and purchasing consumer goods.
Moreover, online transactions can be faster, less expensive and more convenient
than transactions conducted via human interaction. Internet retailers can offer
convenience and value to their customers and simultaneously display in-depth
information concerning products or services selected by users according to their
preferences using a combination of text, video and sound. IDC estimates that the
total value of goods and services purchased on the Web will increase from $318
million in 1996 to $95 billion in 2000.
THE SPORTSLINE OPPORTUNITY
The Company is capitalizing on the market opportunities created by the
worldwide popularity of sports, the emergence of the Web as a communications and
commerce medium and the similarities between the demographics of sports fans and
Web users. By offering comprehensive and compelling sports programming that is
continually updated on a real-time basis, and by utilizing the Web's graphical
and interactive capabilities to add entertainment value to its content, the
Company is targeting sports enthusiasts worldwide to develop the SportsLine
brand. The Company believes that it can leverage its brand recognition and its
other media properties, such as its sports radio programming, in the pursuit of
multiple revenue opportunities, including advertising, memberships,
merchandising, content and programming syndication and Web site development.
STRATEGY
The Company's objective is to become the leading Internet sports media
company and to create a global sports brand. Key elements of the Company's
strategy include the following:
FOCUS EXCLUSIVELY ON SPORTS
SportsLine USA focuses exclusively on providing sports information,
programming and sports-related merchandise 24 hours a day, seven days a week.
The Company distinguishes itself by offering broader and more in-depth sports
coverage on its Web sites than is available from any other single source of
media, including television, radio or print publications. The Company
differentiates its Web sites by (i) providing comprehensive and innovative
sports programming, including news and scores, editorials, sports radio shows,
contests, games and fantasy league products; (ii) utilizing its editorial and
technical resources to package proprietary and third-party content in a
compelling and entertaining format; (iii) producing original video programming
surrounding major sports events, such as live interviews and "cybercasts" over
the Internet; (iv) providing local sports coverage through its relationships
with more than 30 specialty publications and, in the future, expanding such
coverage through its relationships with more than 200 CBS affiliates nationwide;
and (v) offering exclusive content related to its sports superstar relationships
and real-time odds and extensive matchup analyses through its vegasinsider.com
Web site. The Company seeks to capitalize on its technical resources to maximize
user satisfaction by (i) optimizing the speed of delivery of its content and
(ii) utilizing interactive multimedia software tools such as Active X, Java,
RealMedia (streaming audio and video), Shockwave and QuickTime Virtual Reality
to add entertainment value to its programming.
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LEVERAGE STRATEGIC RELATIONSHIPS TO ENHANCE BRAND AND BUILD TRAFFIC
The Company has established strategic relationships to increase consumer
awareness of the SportsLine brand and build traffic to its Web sites. The
Company believes that its relationship with CBS, in particular the branding of
its flagship Web site as "cbs.sportsline.com" and the promotion it will
receive on CBS television sports broadcasts, will facilitate the establishment
of SportsLine as a broadly recognized consumer brand. In addition, the Company
has established strategic relationships with sports superstars, personalities,
organizations and affinity groups, and operators of other Web sites to increase
traffic to the Company's Web sites, to attract new advertisers and members and
to create additional revenue opportunities.
CAPITALIZE ON MULTIPLE REVENUE OPPORTUNITIES
The Company is pursuing multiple revenue opportunities for future growth.
The Company believes that advertising, membership and premium service fees,
merchandising, content syndication and third party Web site development
represent key revenue opportunities. The Company believes that the demographics
of its audience are consistent with those of the sports industry generally and
are attractive to advertisers seeking to reach these consumers. Although most of
the content on the Company's Web site is free, the Company charges membership
fees for access to exclusive editorials, matchup analysis and other exclusive
content such as proprietary contests and fantasy league packages. The Company
also expects to increase its revenue from merchandising, including sales of
limited edition memorabilia, licensed apparel and other sports products, as well
as by developing Web sites for sports superstars, personalities, organizations
and affinity groups.
DEVELOP MULTIPLE DISTRIBUTION CHANNELS
The Company intends to extend the SportsLine brand and leverage its sports
content by syndicating its programming and distributing its proprietary content
through a variety of media, including radio, third party and CBS affiliate Web
sites, online services, news wire services, publications and e-mail. The Company
currently produces the only all-sports radio programming broadcast exclusively
over the Internet. The Company intends to syndicate its radio programming
nationally to traditional over-the-air sports talk radio stations. The Company
also intends to capitalize on the experience of its management and its
relationships with sports superstars, personalities and journalists to develop
sports-oriented television programming.
PURSUE INTERNATIONAL GROWTH OPPORTUNITIES AND EXPAND GLOBAL REACH
Given the global nature of sports, the Company is pursuing opportunities to
leverage the SportsLine brand internationally. The Company intends to establish
foreign news bureaus to create global sports coverage and to establish strategic
relationships that will enable it to more effectively obtain and deliver local
sports content. The Company does not currently have any overseas operations or
arrangements, but is pursuing opportunities to build Web sites targeted to the
Australian, European and Pacific Rim markets.
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SPORTS INFORMATION, PROGRAMMING AND DISTRIBUTION
The Company offers a broad range of sports-related information and
programming, which it delivers through its network of Web sites and other
distribution channels.
INFORMATION AND PROGRAMMING
<TABLE>
<S> <C>
NEWS AND EDITORIALS The Company's news organization provides up-to-date general
sports news and information for all major professional and
college sports 24 hours a day, seven days per week, including
previews, game summaries, audio and video clips and color
photographs, obtained from strategic partners and a variety of
leading sports news organizations such as The Associated
Press, CBS, Reuters and SportsTicker. The Company
publishes exclusive editorials and analyses from its in-house
staff of 22 writers and editors and more than 45 freelance
sports journalists.
SCORES, STATISTICS AND ODDS The Company delivers continuously updated, real-time scores,
schedules, standings, player and team statistics and odds for all
major professional and college sports from data providers
including The Associated Press, Computer Sports World, Data
Broadcasting Corporation, Elias Sports Bureau and
SportsTicker.
FANTASY LEAGUES AND CONTESTS Fantasy league enthusiasts can participate in SportsLine
leagues or form their own leagues with customized rules,
scoring and reporting. The Company administers player
transactions (for example, drafts, trades, starting lineup
selection and disabled list and minor league moves) and
provides summaries of scoring, standings and roster
transactions. Proprietary contests feature cash prizes, limited
edition sports memorabilia and other awards based on the
results of weekly, season-long or special event related games
of skill. Regular sweepstakes and "giveaways" feature cash
prizes, sports memorabilia, event tickets and other
merchandise.
LOCAL AND PERSONALIZED CONTENT The Company packages its information and programming to
enable users to follow local or regional team and event
coverage, including weekly stories from college sports
publications and team coverage from Pro Sports Exchange.
Members can personalize the information and programming
they receive through the Company's "Personal SportsPage"
and "Personal SportsMail," which are delivered over the Web
or by e-mail.
COMMUNITY CONTENT The Company hosts interactive chat sessions with sports
superstars and personalities, and experts on subjects such as
sports memorabilia and fantasy leagues. The Company also
hosts bulletin boards and newsgroups devoted to sports-
related topics.
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LIVE RADIO! The Company's radio studio produces over 70 hours of
original live programming each week, including interviews
with superstars and notable sports personalities and regular
commentary from leading sports analysts. The Company also
"cybercasts" syndicated radio shows from Sports Byline USA,
Sports Overnight America and experts on sports-related
topics.
VIDEO The Company produces original video programming
surrounding major sports events and live video interviews and
"cybercasts" such as the Company's exclusive live Internet
coverage of the Special Olympics All Star Cafe Celebrity
Auction. The Company's Super Bowl XXXI coverage included
live video interviews and daily video clips covering the event
and sports celebrities.
</TABLE>
WEB SITES
CBS.SPORTSLINE.COM, the Company's flagship Web site, features
comprehensive, in-depth coverage of all major professional and college sports on
a domestic and international basis, including the following:
Baseball Football
Major League Baseball National Football League
Minor League Baseball Canadian Football League
College College
Hockey Basketball
National Hockey League National Basketball Association
International Hockey League Women's National Basketball Association
American Hockey League Continental Basketball Association
College College
Auto Racing Olympic Sports
Boxing Rugby
Cricket Skiing
Cycling Soccer
Golf Tennis
Health and Fitness Volleyball
Horse Racing
cbs.sportsline.com has won numerous awards during 1996, including the
Internet Services Association's "Outstanding Innovation" award for
Baseball LIVE!; a "Gold Medal" for Outstanding Olympic Coverage from THE
WALL STREET JOURNAL; America Online's "Members' Choice"; and NETGUIDE'S
"Platinum Award" as one of the best sites on the Web.
cbs.sportsline.com's comprehensive approach is exemplified by its coverage
of Major League Baseball. In addition to up-to-date news, scores, standings,
rosters, transaction reports and exclusive editorial commentary,
cbs.sportsline.com features Baseball LIVE!, an online "stadium" that
utilizes Shockwave technology to enable users to view a graphical depiction of
real-time play-by-play action of Major League Baseball games in progress.
Additional baseball coverage includes player and team statistics that are
sortable by position, team and standing; chat rooms and baseball newsgroup links
and contests. Fantasy league enthusiasts also can purchase SportsLine's fantasy
league products, which include Fantasy Baseball and Commissioner. Fantasy
Baseball enables participants to manage their own fantasy- or rotisserie-style
baseball league in season-long and playoff competitions. Participants form
leagues of up to 20 teams and utilize cbs.sportsline.com to administer all
player transactions (for example, drafts, trades, starting lineup selection,
disabled list and minor league moves) and obtain
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weekly summaries of scoring, standings and roster transactions.
cbs.sportsline.com also offers Fantasy Baseball participants the ability to
communicate in specially reserved chat rooms. Commissioner provides fantasy and
rotisserie league participants a fully configurable interface to manage their
own leagues, including customizing rules, scoring and reporting to their own
preferences.
VEGASINSIDER.COM, launched as a separate Web site in March 1997, provides
sports gaming information and features electronic odds on all major sports
events from the Las Vegas casinos, including the Stardust, the Flamingo Hilton,
the MGM Grand and Bally's, plus lines from nationally recognized oddsmakers
"Roxy" Roxborough and Russ Culver. Handicapping information includes
commentary, matchup analysis and picks from some of the nation's leading sports
handicappers. The site's news reporting is focused on a gaming perspective and
provides detailed statistical and matchup analysis tools, including
"against-the-spread" and "straight-up" records, team and player
statistics and injury and weather reports. Live scoreboards provide breaking
news and scores, updates, recaps and boxscores. Most of the content on
vegasinsider.com is available only to paying members.
WEB SITES FOR SPORTS SUPERSTARS AND PERSONALITIES. The Company has created
and maintains Web sites for several sports superstars and personalities,
including Joe Namath, Shaquille O'Neal (shaq.com), Wayne Gretzky (gretzky.com),
Jerry Rice, Cal Ripken, Jr. (2131.com), Pete Sampras (sampras.com), Gabrielle
Reece (gabbyreece.com), Arnold Palmer (arnoldpalmer.com), Mike Schmidt, Bill
Walton, John Daly (gripitandripit.com) and Keyshawn Johnson (keyshawn.com). The
Company also has agreed to create Web sites for Emerson Fittipaldi, Joe Montana,
and Monica Seles, all of which are expected to be launched during 1997. The
Company intends to package these Web sites in a unique and entertaining site
that will include all of SportsLine's athlete spokespersons. The superstar
athlete site will include daily features and insights from athletes, as well as
radio interviews and chat sessions from active and retired athletes around the
world of sports.
OTHER WEB SITES. The Company has created and maintains Web sites for
sports organizations and major sports events, including The Golf Channel
(thegolfchannel.com), Bollettieri Tennis and Sports Academy
(bollettieri.sportsline.com), the FedEx Orange Bowl (orangebowl.org), the
Ironman Triathlon (ironman.sportsline.com), the Women's Professional Volleyball
Association (wpva.com), the United States Ski Team (usskiteam.com) and Golf
Holidays (golfholidays.com). The Company has also entered into an agreement to
create the official Web site for the San Francisco Forty Niners NFL franchise,
which is expected to be launched during the third quarter of 1997.
The Company is responsible for the technical development, production and
maintenance of the Web sites it creates for athletes and sports organizations,
as well as customer service, technical support and billing associated with the
sale of premium features or merchandise. The Company generally is entitled to
receive a percentage of the sponsorship, advertising and other revenue generated
from third party Web sites it develops, although to date revenue from this
source has been insignificant. The Company intends to capitalize on its Web site
production capabilities and generate incremental revenue by building Web sites
for other sports superstars, personalities, organizations and affinity groups
that seek to establish a Web presence.
OTHER DISTRIBUTION CHANNELS
The Company leverages its news gathering capabilities to create sports
content for third party Web sites (delta-air.com, divein.com, excite.com,
netscape.com, quote.com, talkcity.com and yahoo.com), high speed modem trials
(@Home, a joint venture of Telecommunications, Inc. and Kleiner Perkins Caufield
& Byers, and Highway1, a product of Continental Cablevision) and other
Internet-based products (Air Media Live, Audible Words and PointCast). The
Company believes that its original sports radio shows have broad appeal and is
pursuing opportunities to syndicate its radio programming, both on the Internet
and nationally to sports talk radio stations. The Company also intends to
develop distribution and revenue opportunities in other media, including online
services, news wire services, publications and e-mail.
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ADVERTISING AND SALES
The Company currently derives, and expects to continue to derive, a
substantial portion of its revenue from advertising on its Web sites. The
Company sells "banner" advertisements that let interested readers link
directly to the advertisers' own Web sites or to promotional sites created by
the Company. The Company also offers sponsorship opportunities that enable
advertisers to associate their corporate messages with the Company's coverage
of marquee events (such as the World Series, the Super Bowl, the NBA Playoffs
and the Stanley Cup Playoffs), special features of the Company's Web sites
(including ScoreCenters or Baseball LIVE!) and special promotions, contests and
events. The Company targets traditional sports advertisers, such as consumer
product and service companies, sporting goods manufacturers and automobile
companies, as advertisers on its Web sites.
Advertising revenue has been derived principally from short-term
advertising contracts on a per impression basis or for a fixed fee based on a
minimum number of impressions. The Company's advertising rates generally range
from $20.00 to $50.00 per thousand impressions. To enable advertisers to verify
the number of impressions received by their advertisements and monitor their
advertisements' effectiveness, the Company provides its advertisers with third
party audit reports showing data on impressions received by their
advertisements.
The Company's in-house sales staff develops and implements its advertising
strategies, including identifying strategic accounts and developing
presentations and promotional materials. In addition, the Company has retained
the services of Cox Interactive Media, Inc., a national rep firm with experience
in online and Internet advertising, to sell advertising on a commission basis.
The Company also capitalizes on its cross-marketing relationships with sports
superstars, personalities, organizations and affinity groups by seeking
sponsorships and advertising from their sponsors. Pursuant to the CBS agreement,
the Company and CBS's television network advertising sales personnel will
coordinate advertising sales efforts for cbs.sportsline.com.
During 1996 and the three months ended March 31, 1997, more than 95
organizations from various industries advertised on the Company's Web sites.
Representative advertisers during this period included:
AUTOMOTIVE PUBLISHING AND ENTERTAINMENT
Ford Columbia House
General Motors DirecTV
Honda Men's Health & Fitness
Oldsmobile Paramount Pictures
Toyota Sega
Time Warner
CONSUMER
American Greetings TECHNOLOGY
Chivas Regal/Seagrams Excite!
Cigar Aficionado Microsoft
Clearsil PointCast
Coca-Cola Real Audio
Domino's Pizza Sun Microsystems
Hugo Boss Toshiba
Pepsi U.S. Robotics
Perry Ellis
Smirnoff TELECOMMUNICATIONS
1-800-Flowers AT&T
Bell Atlantic
FINANCIAL Bell South
Chase Manhattan Bank GTE
E*Trade Sprint
VISA US WEST
No advertiser accounted for more than 8% of the Company's revenue during
1996 or for the three months ended March 31, 1997.
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MEMBERSHIPS AND PREMIUM OFFERINGS
Although most of the content on the Company's Web sites is free, users can
purchase memberships and premium content and products. The Company also believes
that it will be able to charge fees for access to "pay-per-view" content
such as exclusive interviews, chat sessions or special coverage of major sports
events. In addition, the Company expects to sell online fan clubs in connection
with its planned superstar athlete Web site.
The following table sets forth certain information, as of March 31, 1997,
concerning the Company's membership and premium service offerings:
<TABLE>
<CAPTION>
MEMBERSHIPS DESCRIPTION PRICE RANGE
- ----------- ----------- -----------
<S> <C> <C>
TEAM SPORTSLINE PERSONAL SPORTSPAGE. Member-configured Web pages to
follow selected teams and sports.
PERSONAL SPORTSMAIL. Information on members' favorite
teams and sports delivered daily to their personal e-mail
addresses.
NATIONAL AND REGIONAL NEWS. Breaking news, photos and $4.95 monthly
audio clips from the Associated Press and exclusive stories $39.95 annually
from the Company's in-house editorial staff.
CONTESTS. Sports specific contests with travel, memorabilia
and cash prizes.
SPORTS RADIO. Access to archived radio broadcasts.
DISCOUNTS. Members receive discounts on travel,
entertainment and fantasy league products and services.
VEGAS INSIDER ELECTRONIC ODDS. Fifteen minute delayed odds from premier
Las Vegas casinos.
DETAILED MATCH-UP ANALYSIS. Game logs, "against-the-
spread" and "straight-up" records, team and player statistics,
injury and weather reports and detailed write-ups from
Computer Sports World. $19.95 monthly
$99.95 annually
HANDICAPPING EXPERTS. Picks, match-up analysis and
editorial commentary.
LIVE SCOREBOARDS. Breaking scores, odds, updates, recaps,
box scores and breaking news
PREMIUM SERVICES
- ----------------
FANTASY LEAGUES CHALLENGE GAME. Multi-player leagues featuring overall,
AND FANTASY TOOLS conference, league and weekly prizes. $19.95 - $39.95
FANTASY SOFTWARE/TOOLS. Team and league management,
including sortable stats, Fantasy Scoring Center, Stats
Projector and Trends Analysis.
PUBLICATIONS ONLINE SUBSCRIPTIONS. Ten professional and 26 college sports
publications $5.95 - $59.95
</TABLE>
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MERCHANDISE
The Company currently offers a limited amount of merchandise but intends to
significantly broaden its product offerings during 1997. Merchandise currently
available on the Company's Web sites include licensed merchandise from the
United States Ski Team, the Women's Professional Volleyball Association and the
FedEx Orange Bowl, memorabilia from various sources including Scoreboard and
Upper Deck, and software and statistical services for fantasy league players.
The Company is in the process of establishing relationships with vendors and
licensors to enable it to offer a complete selection of sports-related
merchandise, including books and other sports publications, licensed apparel and
other sports products, videos, specialty products and limited edition
memorabilia and collectors items. To date, merchandise revenue has not been
significant.
STRATEGIC RELATIONSHIPS
The Company has established strategic relationships to provide marketing
and cross promotional opportunities, to increase consumer awareness of the
SportsLine brand, to build traffic on its Web sites and to obtain exclusive
sports content for its Web sites.
CBS. In March 1997, the Company entered into a five-year agreement with
CBS pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." The agreement provides for cbs.sportsline.com to
receive at least $57 million of advertising and on-air promotion during the term
of the agreement, primarily during CBS television sports broadcasts such as the
1998 Winter Olympics, the NCAA Men's Basketball Tournament, NCAA Football, PGA
Tour events, U.S. Open tennis and the Daytona 500. In addition, the Company has
the right to use certain CBS logos and television-related sports content on
cbs.sportsline.com and in connection with the operation and promotion of that
Web site. CBS and the Company will seek to maximize revenue through a joint
advertising sales effort and by creating merchandising opportunities. The
agreement also provides the Company access to certain CBS television-related
sports content and the potential to create distribution and revenue
opportunities with more than 200 CBS affiliates throughout the United States. In
addition, under the terms of the agreement, the Company and CBS will share
advertising revenue on pages of cbs.sportsline.com that relate to certain CBS
broadcast sports events or that contain CBS content. See "Certain
Transactions-CBS Agreement."
SPORTS SUPERSTARS AND PERSONALITIES. The Company has established strategic
relationships with sports superstars and personalities, including Joe Namath,
Shaquille O'Neal, Wayne Gretzky, Jerry Rice, Joe Montana, Cal Ripken, Jr., Pete
Sampras, Arnold Palmer, Gabrielle Reece, Mike Schmidt, Monica Seles, Emerson
Fittipaldi, John Daly, Keyshawn Johnson and Bill Walton, and advisory agreements
with Mark McCormack (Chairman of International Management Group) and Edward
DeBartolo, Jr. and Carmen Policy (the owner and President, respectively, of the
San Francisco Forty Niners). Each of these individuals has agreed to serve as a
spokesperson for the Company, to permit the Company to use his or her name,
likeness and photographs on promotional materials and to be available to the
Company to provide input on business and marketing strategies.
SPORTS ORGANIZATIONS AND AFFINITY GROUPS. cbs.sportsline.com has been
designated the "Official Online Service of the National Football League
Players" by Players, Inc., the for-profit licensing subsidiary of the
National Football League Players Association and has also entered into strategic
relationships with the San Francisco Forty Niners, the United States Ski Team,
the Ironman Triathlon and the Women's Professional Volleyball Association. The
Company engages in cross promotional activities with these organizations and
uses these relationships to increase its access to the organizations'
individual athlete members, some of whom have participated in exclusive chat
sessions on the Company's Web sites. The Company also maintains cross
promotional relationships with other sports organizations and affinity groups
for which it has created Web sites, including Bollettieri Tennis and Sports
Academies, the FedEx Orange Bowl and Sports Careers, a career consulting and
placement service.
IMG. In June 1995, the Company entered into a consulting agreement with
International Merchandising Corporation ("IMG") which provided for IMG to
provide certain services to the
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Company on an exclusive basis, including acting as the Company's representative
and marketing agent in negotiations for the acquisition of rights to programs
and events, access to IMG clients as content providers as well as implementing
marketing plans for obtaining subscribers and sponsors. In June 1996, the
Company and IMG entered into an amended agreement under which IMG also agreed to
act as the Company's agent in negotiations with television broadcasters,
athletes and strategic corporate partners.
OTHER MEDIA RELATIONSHIPS. In addition to promotion on CBS television
sports broadcasts, SportsLine receives television and radio promotion through
its strategic media relationships with The Golf Channel and Sports Byline USA,
the nation's largest syndicated sports radio network, including on-air
commercials and live endorsements by Ron Barr, Sports Byline USA's Emmy Award
winning host. The Company has developed similar cross promotional relationships
with leading sports talk radio stations in several major metropolitan markets
throughout the United States. The Company also receives promotional space within
the print version of each of the publications it distributes through its Web
sites.
INTERNET AND ONLINE RELATIONSHIPS. The Company has entered into a number
of Internet and online strategic relationships to extend its brand and drive
traffic to its Web sites. These relationships have enabled the Company to
receive broader exposure by distributing its proprietary sports content through
third party Web sites (delta-air.com, divein.com, excite.com, netscape.com,
quote.com, talkcity.com and yahoo.com), off-line browsers (Freeloader and
PointCast) and wireless products (Air Media Live, Audible Words and WavePhore),
and by participating in broadband cable modem trials (@Home and Highway1).
MARKETING
The Company employs a variety of methods to promote the SportsLine brand
and attract traffic and new members to its Web sites. In addition to on-air
promotion on CBS television sports broadcasts, The Golf Channel and Sports
Byline USA, the Company advertises on other Web sites, in targeted publications
and on sports talk radio stations, distributes promotional materials at selected
sports events and engages in an ongoing public relations campaign. The Company
is involved in a variety of promotions where links to its Web sites or coupons
offering free trial memberships are bundled into software products distributed
online or through other retail channels. The Company also has conducted limited
direct mail campaigns targeting online or sports-oriented consumers. Whenever
possible, the Company utilizes cross promotional arrangements to secure
advertising and other promotional considerations.
The Company's agreement with CBS provides for cbs.sportsline.com to
receive at least $57 million of advertising and on-air promotion during the term
of the agreement, primarily during CBS sports event broadcasts such as the 1998
Winter Olympics, the NCAA Men's Basketball Tournament, NCAA Football, PGA Tour
events, U.S. Open tennis and the Daytona 500. The Company also receives on-air
promotion on The Golf Channel's cable television programming, on Sports Byline
USA's nationally syndicated radio broadcasts and on sports talk and other radio
stations in several major metropolitan markets.
To date, the most effective source of advertising for the Company has been
Web advertising. The Company has advertised on a number of leading Web sites,
including Excite, InfoSeek, Magellan, Microsoft Network, Netscape, the San Jose
Mercury News, USA Today, WebCrawler and Yahoo! The Company also actively pursues
links to its Web sites from other popular Web sites, and the Company's Web
sites are listed in the directories of most major search engine sites, including
Excite, InfoSeek, Lycos and Yahoo!
The Company's print marketing has consisted primarily of advertisements in
targeted sports publications, including BASEBALL AMERICA, FANTASY BASEBALL,
LINDY'S professional and college football publications, PRO FOOTBALL WEEKLY,
THE SPORTING NEWS, STREET & SMITH and USA TODAY-BASEBALL WEEKLY, and online
publications, including NETGUIDE, HOME PC, ONLINE ACCESS and MULTIMEDIA ONLINE.
The
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Company's print advertisements also appear regularly in THE INSIDER-DALLAS
COWBOYS EDITION and more than 25 college sports publications. Most of the
Company's print advertisements are the result of barter or "per inquiry"
agreements where no initial cash payments to the publication are required.
The Company's agreements with sports organizations and affinity groups
typically provide for the Company to receive exposure in any print, television
and marketing vehicles utilized by the organizations or affinity groups to
promote themselves or their products or services and for the distribution of the
Company's promotional materials at events or industry shows in which they
participate.
MEMBER SERVICE AND SUPPORT
The Company believes that member service and support are important to its
ability to attract and retain members. The Company's member support staff
provides toll free telephone support, responds to customer requests concerning
technical aspects of the Company's Web sites or certain third party software
and conducts inbound and outbound telemarketing on an 18 hour a day, seven day a
week basis. The Company does not charge for service and support.
COMPETITION
The market for Internet services and products is relatively new, intensely
competitive and rapidly changing. Since the Internet's commercialization in the
early 1990's, the number of Web sites on the Internet competing for consumers'
attention and spending has proliferated with no substantial barriers to entry,
and the Company expects that competition will continue to intensify. The Company
competes, directly and indirectly, for advertisers, viewers, members, content
providers, merchandise sales and rights to sports events with the following
categories of companies: (i) Web sites targeted to sports enthusiasts generally
(such as ESPNet SportsZone) or to enthusiasts of particular sports (such as Web
sites maintained by Major League Baseball, the NFL, the NBA and the NHL); (ii)
publishers and distributors of traditional off-line media (such as television,
radio and print), including those targeted to sports enthusiasts, many of which
have established or may establish Web sites; (iii) general purpose consumer
online services such as America Online, CompuServe and Microsoft Network, each
of which provides access to sports-related content and services; (iv) vendors of
sports information, merchandise, products and services distributed through other
means, including retail stores, mail, facsimile and private bulletin board
services; and (v) Web search and retrieval services, such as Excite, InfoSeek,
Lycos and Yahoo!, and other high-traffic Web sites, such as those operated by
C|NET and Netscape. The Company anticipates that the number of its direct and
indirect competitors will increase in the future. Management believes that the
Company's most significant competition is ESPNet SportsZone, a Web site which
offers a variety of sports content.
The Company believes that the principal competitive factors in attracting
and retaining users and members are the depth, breadth and timeliness of
content, the ability to offer compelling and entertaining content and brand
recognition. Other important factors in attracting and retaining users include
ease of use, service quality and cost. The Company believes that the principal
competitive factors in attracting and retaining content providers and
merchandisers is the Company's ability to offer sufficient incremental revenue
from licensing fees, bounties and online sales of product or services. The
Company believes that the principal competitive factors in attracting
advertisers include the number of users and members of the Company's Web sites,
the demographics of the Company's user and membership bases, price and the
creative implementation of advertisement placements. There can be no assurance
that the Company will be able to compete favorably with respect to these
factors.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, significantly greater name recognition and substantially larger user
or membership bases than the Company and, therefore, have a significantly
greater ability to attract advertisers and users. In addition, many of these
competitors may be able to respond more quickly than the Company to new or
emerging technologies and changes in Internet user
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requirements and to devote greater resources than the Company to the
development, promotion and sale of their services. There can be no assurance
that the Company's current or potential competitors will not develop products
and services comparable or superior to those developed by the Company or adapt
more quickly than the Company to new technologies, evolving industry trends or
changing Internet user preferences. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which would
materially and adversely affect the Company's business, results of operations
and financial condition. In addition, as the Company expands internationally, it
may face new competition. There can be no assurance that the Company will be
able to compete successfully against current and future competitors, or that
competitive pressures faced by the Company would not have a material adverse
effect on its business, results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Company is subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. There are currently few laws
or regulations directly applicable to access to or commerce on commercial online
services or the Internet. However, due to the increasing popularity and use of
commercial online services and the Internet, it is possible that a number of
laws and regulations may be adopted with respect to commercial online services
and the Internet. Such laws and regulations may cover issues such as user
privacy, pricing and characteristics and quality of products and services. The
Telecommunications Act of 1996, which was recently enacted and the judicial
interpretation of which is uncertain, imposes criminal penalties for
transmission of or allowing access to certain obscene communications over the
Internet and other computer services and contains additional provisions intended
to protect minors. The adoption of this law, and any similar laws or regulations
in the future, may decrease the growth of commercial online services and the
Internet, which could in turn decrease the demand for the Company's services
and products and increase the Company's costs of doing business or otherwise
have an adverse effect on the Company's business, operating results and
financial condition. Moreover, the applicability to commercial online services
and the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain and could expose the Company to
substantial liability, for which the Company might not be indemnified by content
providers.
The Company's contests and sweepstakes may be subject to state and federal
laws governing lotteries and gambling. The Company seeks to design its contest
and sweepstakes rules to fall within exemptions from such laws and restricts
participation to individuals over 18 years of age who reside in jurisdictions
within the United States and Canada in which the contests and sweepstakes are
lawful. There can be no assurance that the Company's contests and sweepstakes
will be exempt from such laws or that the applicability of such laws to the
Company would not have a material adverse effect on the Company's business,
results of operations and financial condition.
INTELLECTUAL PROPERTY
The Company's performance and ability to compete are dependent to a
significant degree on its internally developed content and technology. The
Company relies on a combination of copyright and trademark laws, trade secret
protection, contractual provisions, and confidentiality and non-disclosure
agreements with its employees and with third parties and contractual provisions
to establish and protect its proprietary rights. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate, that the Company will be able to secure trademark registrations for
all of its marks in the United States and/or foreign countries, or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, service marks and similar proprietary rights. In addition, effective
copyright and trademark protection may be unenforceable or limited in certain
foreign countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of the Company's services. In the future,
litigation may be necessary to enforce and protect the Company's trade secrets,
copyrights and other intellectual property rights.
On March 25, 1997, Weatherline, a company that provides pre-recorded
weather and sports information by telephone, filed a complaint against the
Company in the United States District Court for
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the Eastern District of Missouri. Weatherline owns a United States trademark
registration for the mark "Sportsline" for use in promoting the goods and
services of others by making sports information available to customers of
participating businesses through the telephone, and claims to have used the mark
for this purpose since 1968. The complaint alleges that the Company's use of
the mark "SportsLine USA" and other marks utilizing the term
"SportsLine" infringes upon and otherwise violates Weatherline's rights
under its registered trademark and damages Weatherline's reputation. The
complaint seeks a preliminary and permanent injunction against the Company from
using marks containing the term "Sportsline" or any other similar name or
mark which would be likely to cause confusion with Weatherline's mark. The
complaint also seeks actual and punitive damages and attorneys' fees. The
Company believes that its use of the "SportsLine" mark and "SportsLine"
derivative marks does not infringe upon or otherwise violate Weatherline's
trademark rights, and the Company intends to vigorously defend itself against
the action. The legal costs that may be incurred by the Company in defending
itself against this action could be substantial, and the litigation could be
protracted and result in diversion of management and other resources of the
Company. In a separate matter, a request for an extension of time to oppose the
Company's application to register the current version of the SportsLine USA logo
has been filed by Weatherline with the USPTO. There can be no assurance that the
Company will prevail in the lawsuit or any related opposition proceeding at the
USPTO, and an adverse decision in this lawsuit could result in the Company being
prohibited from further use and registration of the "SportsLine" mark and
"SportsLine" derivative marks and being ordered to pay substantial damages and
attorneys' fees to Weatherline, either of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
There can be no assurance that third parties will not bring copyright or
trademark infringement claims against the Company in addition to the lawsuit
filed by Weatherline referred to above, or claim that the Company's use of
certain technologies violates a patent. If it is determined that the Company has
infringed a third party's proprietary rights, there can be no assurance that
any necessary licenses or rights could be obtained on terms satisfactory to the
Company, if at all. The inability to obtain any required license on satisfactory
terms could have a material adverse effect on the Company's business, results
of operations and financial condition. The Company may also be subject to
litigation to defend against claims of infringement of the rights of others or
to determine the scope and validity of the intellectual property rights of
others. If competitors of the Company prepare and file applications in the
United States that claim trademarks used or registered by the Company, the
Company may oppose those applications and have to participate in proceedings
before the USPTO to determine priority of rights to the trademark, which could
result in substantial costs to the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could require the Company to
license disputed rights from third parties or to cease using such trademarks.
Any such litigation would be costly and divert management's attention, either
of which could have a material adverse effect on the Company's business,
results of operations and financial condition. Adverse determinations in such
litigation could result in the loss of certain of the Company's proprietary
rights, subject the Company to significant liabilities, require the Company to
seek licenses from third parties, or prevent the Company from selling its
services, any one of which could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
inasmuch as the Company licenses a substantial portion of its content from third
parties, its exposure to copyright infringement actions may increase; because
the Company must rely upon such third parties for information as to the origin
and ownership of such licensed content. The Company generally obtains
representations as to the origins and ownership of such licensed content and
generally obtains indemnification to cover any breach of any such
representations; however, there can be no assurance that such representations
will be accurate or that such indemnification will provide adequate compensation
for any breach of such representations.
In 1996, the Company was issued a United States trademark registration for
its former SportsLine USA logo. The Company has applied to register in the
United States its current SportsLine USA logo and a number of other marks,
several of which include the term "SportsLine." The Company has filed
applications to register "SportsLine" marks in Australia and the United
Kingdom. There can be no assurance that the Company will be able to secure
adequate protection for these trademarks in the United States or in foreign
countries. Many foreign countries have a "first-to-file" trademark
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registration system; and thus the Company may be prevented from registering its
marks in certain countries if third parties have previously filed applications
to register or have registered the same or similar marks. It is possible that
competitors of the Company or others will adopt product or service names similar
to the Company's, thereby impeding the Company's ability to build brand
identity and possibly leading to customer confusion. The inability of the
Company to protect its "SportsLine" mark and other marks adequately could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company grants users of cbs.sportsline.com a license to use the
Company's service under an agreement that prohibits the unauthorized
reproduction or distribution of the Company's licensed and proprietary content.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's service or to obtain and
use information that the Company or its content providers regard as proprietary.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's copyrights, trademarks, service marks and similar
proprietary rights.
EMPLOYEES
The Company had 156 full-time employees at March 31, 1997, of which 37 were
in editorial and operations, 64 were in technical and product development, 36
were in sales and marketing, and 19 were in finance and administration. The
Company's future success depends in large part upon its ability to attract and
retain highly qualified employees. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to retain its senior
management or other key employees or that it will be able to attract and retain
additional qualified personnel in the future. The Company's employees are not
represented by any collective bargaining organization, and the Company considers
its relations with its employees to be good.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company makes its Web sites available through multiple servers,
primarily Sun Microsystems models Ultra 2 (18) , Ultra 4000 (2) and Sparc 1000E
(4), as well as two Silicon Graphics and eight IBM-compatible PC servers. The
Company's servers run on Microsoft Windows and Microsoft NT operating systems.
The Company uses the Netscape family of Commercial Applications Software for its
Web servers, publishing systems, merchandise systems and secure credit card
capture and billing. The Company has worked closely with Netscape in the
implementation of the Company's Web sites. Capabilities in place include
bulletin boards, mail, chat (including regular text based chat as well as
Virtual Reality worlds with integrated chat), news groups, merchandising,
streaming audio and video, and interactive Java and Shockwave applications.
The Company maintains all of its computer systems at its Fort Lauderdale,
Florida corporate headquarters. The Company's operations are dependent on its
ability to protect its systems against damage from fire, hurricanes, power loss,
telecommunications failure, break-ins, computer viruses and other events beyond
the Company's control. The Company maintains access to the Internet through two
third-party providers, each of which maintains a DS3 connection running at 45
megabits per second connected to an independent router in the Company's
facility. Redundant fiber optic cables from the Company's building connect with
each local Internet provider's fiber network. The Company's Internet
connections are fully redundant, so that if a failure in the network or
equipment of one service provider occurs, traffic is automatically routed
through to the other provider. All of the Company's computer equipment is
powered by an uninterruptible power supply ("UPS"), which is backed up by
a diesel generator designed to provide power to the UPS within seconds of a
power outage. In addition, all of the Company's production systems are copied
to backup tapes each night and stored at a third party, off-site storage
facility. All of the Company's computer equipment is insured at replacement
cost and the Company has developed a comprehensive, out-of-state disaster
recovery plan to respond to system failures. The Company has an arrangement with
Comdisco Disaster Recovery Services ("CDRS") which provides that in the
event the Company's facility cannot provide service for any reason, the
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Company's backup tapes would be shipped to Comdisco's New Jersey facility
where they will be loaded to replicate and restore the Company's service.
Moreover, the Company has leased space in CDRS's Business Recovery Center in
Atlanta, Georgia. In the event of a system failure, the Company's engineering
and content production staff would have access to hardware and software in
Atlanta similar to that used at the Company's facility. The equipment in
Atlanta is connected to the production systems in New Jersey via Comdisco's
private high speed network. Notwithstanding the precautions taken by the
Company, any disruption in the Company's Internet access, failure of the
Company's third party providers to handle higher volumes of users or damage or
failure that causes system disruptions or other significant interruptions in the
Company's operations could have a material adverse effect on the Company's
business, results of operations and financial condition.
FACILITIES
The Company's corporate headquarters are located in Fort Lauderdale,
Florida. The Company leases approximately 20,000 square foot in two adjacent
buildings under two leases, which expire in June 2000 and September 2001,
respectively, with an option to extend the latter lease for a five-year term.
The Company believes that its existing facilities are adequate for its current
requirements and that additional space can be obtained on commercially
reasonable terms to meet its future requirements.
LEGAL PROCEEDINGS
On March 25, 1997, a lawsuit alleging various trademark infringement claims
was filed against the Company. See "-Intellectual Property."
From time to time, the Company may be involved in other litigation relating
to claims arising out of its operations in the normal course of business. The
Company is not currently a party to any other legal proceedings, the adverse
outcome of which, individually or in the aggregate, would have a material
adverse effect on the Company's financial position or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Michael Levy ............... 50 Chairman of the Board, President and
Chief Executive Officer
Ronald L. Tolliver ...... 49 Chief Financial Officer and Secretary
Mark J. Mariani ......... 40 Executive Vice President, Sales
G. Kenneth Dotson ......... 36 Vice President, Marketing
Thomas C. Eastwood ...... 42 Chief Technology Officer
Andrew S. Sturner ......... 32 Vice President, Business Development
Ross Levinsohn ............ 34 Vice President, Programming and Enterprises
Thomas Wargo ............ 42 Vice President, Program Management
Thomas Jessiman ......... 37 Vice President, International
Thomas Cullen ............ 38 Director
Stephen Fleming ......... 35 Director
Gerry Hogan ............... 51 Director
Richard B. Horrow ......... 42 Director
Joseph Lacob ............ 41 Director
Sean McManus ............ 42 Director
Andrew Nibley ............ 46 Director
Liesl Pike ............... 31 Director
Derek Reisfield ......... 34 Director
James C. Walsh ............ 56 Director
Michael P. Schulhof ...... 54 Director Nominee
MICHAEL LEVY has served as the President, Chief Executive Officer and
Chairman of the Board of the Company since its inception in February 1994. From
February 1978 through March 1993, Mr. Levy served as President, Chief Executive
Officer and as a director of Lexicon Corporation, a high technology company
specializing in data communications and signal processing technology. From
January 1988 to June 1993, Mr. Levy also served as Chairman of the Board and
Chief Executive Officer of Sports-Tech International, Inc., a company engaged in
the development, acquisition, integration and sale of computer software,
equipment and computer-aided video systems used by professional, collegiate and
high school sports programs. Between June 1993 and February 1994, Mr. Levy was a
private investor.
RONALD L. TOLLIVER has served as the Company's Chief Financial Officer
since May 1996. From June 1992 to May 1996, Mr. Tolliver served as Chief
Financial Officer of Intermedia Communications of Florida, Inc., a
telecommunications company. Mr. Tolliver was also appointed Senior Vice
President and Secretary of Intermedia Communications, Inc. ("Intermedia
Communications") in June 1993. From January 1991 to June 1992, Mr. Tolliver
served as Director of Governmental and Regulatory Affairs for Intermedia
Communications. From July 1989 to January 1991, Mr. Tolliver was the owner and
founder of Tolliver and Company, a consulting company. Prior to starting his own
company, Mr. Tolliver served as a Vice President of Gold Key Incentives, a
marketing incentives company, from April 1989 to July 1989. From 1981 to 1989,
Mr. Tolliver held various executive positions in government and regulatory
affairs at United Telephone System.
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MARK J. MARIANI has served as the Company's Executive Vice President,
Sales since April 1996. From August 1991 to March 1996, Mr. Mariani served as
Executive Vice President of Sports Sales for Turner Broadcasting Sales, Inc.
From June 1990 to August 1991, Mr. Mariani served as Senior Vice President and
National Sales Manager for CNN in New York, and from May 1986 to June 1990, Mr.
Mariani served as Vice President for CNN Sales Midwest. Prior to joining Turner
Broadcasting, Mr. Mariani served as an Account Executive for WBBM, an owned and
operated CBS television station in Chicago, Illinois.
G. KENNETH DOTSON has served as the Company's Vice President, Marketing
since its inception in February 1994. From March 1992 to May 1993, Mr. Dotson
served as Regional Marketing Manager for the Smart Corporation, a software and
information management services company. From February 1991 to March 1992, Mr.
Dotson served as a strategic marketing planning consultant for Personal Blood
Storage of America, an FDA licensed blood products laboratory and storage
center. Between May 1993 and February 1994, Mr. Dotson was a consultant.
THOMAS C. EASTWOOD has served as the Company's Chief Technology Officer
since December 1994. From January 1992 to December 1994, Mr. Eastwood served as
Advanced Concepts Development Manager in the Online Services Division of Apple
Computer Company. From January 1981 to January 1992, Mr. Eastwood served in
various management capacities in the Information Services Division of General
Electric Corporation.
ANDREW S. STURNER has served as the Company's Vice President, Business
Development since June 1995. From May 1994 to June 1995, Mr. Sturner served as
Vice President of Business Development for MovieFone, Inc., an interactive
telephone service company. From March 1993 to May 1994, Mr. Sturner served as
President of Interactive Services, an interactive audiotext development company
which he co-founded in 1992. From August 1990 to March 1993, Mr. Sturner was a
bankruptcy associate at the law firm of Stroock & Stroock & Lavan.
ROSS LEVINSOHN has served as the Company's Vice President, Programming and
Enterprises since May 1996. From August 1990 to May 1996, Mr. Levinsohn served
as Director of Production and Marketing Enterprises for Home Box Office
("HBO"), and from September 1990 to September 1992, Mr. Levinsohn served
as HBO's Manager of Sports Marketing and Worldwide Public Relations.
THOMAS WARGO has served as the Company's Vice President, Program
Management since September 1995. Mr. Wargo served as the Company's Director of
Program Management from March 1995 to August 1995. From April 1993 to May 1994,
Mr. Wargo served as Director of Process Automation for Computer Products, Inc.
an industrial automation company. From November 1989 to March 1993, Mr. Wargo
served as a Senior Products Manager for Computer Products. Between May 1994 and
March 1995, Mr. Wargo was a consultant.
THOMAS JESSIMAN has served as the Company's Vice President, International
since March 1997. From November 1995 to March 1997, Mr. Jessiman served as the
Director of Business Development for US WEST Media Group's Interactive Services
Division and from September 1994 to November 1995, Mr. Jessiman served as
Director of Business Development in the US WEST Multimedia Group. From January
1992 to September 1994, Mr. Jessiman served as Manager in IBM's Multimedia
Group.
THOMAS CULLEN, appointed a director of the Company in April 1997, has
served as President of US WEST Media Group's Interactive Services Division
since April 1997. Prior thereto, Mr. Cullen held various positions with US WEST
since 1981, including Vice President, Business Development for Interactive
Services Group from April 1992 to April 1997. Mr. Cullen serves as a member of
the Board of Directors of Better Business Online.
STEPHEN FLEMING, appointed a director of the Company in March 1996, has
served as a General Partner of Alliance Technology Ventures, L.P. since January
1995. From January 1993 to January 1995, Mr. Fleming served as Associate Vice
President of Global Marketing for the Broadband Networks
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Group of Northern Telecom. From June 1991 to January 1993, Mr. Fleming served as
Director of Headquarters Staff for the Strategic Marketing Division of Northern
Telecom and from August 1989 to June 1991, Mr. Fleming served as Eastern Region
Director of the Technology Marketing Division of Northern Telecom.
GERRY HOGAN, appointed a director of the Company in November 1996, served
as President and Chief Executive Officer of the Home Shopping Network from
February 1993 to August 1995. Prior thereto, Mr. Hogan served as vice chairman
of Whittle Communications, L.P. from October 1990 to February 1993. From October
1971 to September 1987, Mr. Hogan held various positions at Turner Entertainment
Networks and most recently served as President. Mr. Hogan serves as a member of
the Board of Directors of the Hard Rock Hotel & Casinos and London Fog
Industries, Inc., and as a member of the Board of Trustees of Eckerd College.
RICHARD B. HORROW, appointed a director of the Company in September 1994,
is an attorney and sports development consultant and has served as President of
Horrow Sports Ventures, Inc., a sports consulting firm, since its inception in
May 1988. Since July 1994, Mr. Horrow has been the host of the weekly television
show "The Sports Business Report," which is distributed nationally through
Prime Network/Sports Channel/New Sport affiliates, and has also hosted the
weekly radio show "The Sports Professor," aired nationally on Prime Radio.
Mr. Horrow also currently serves as a consultant for various sports-related
matters to The City of Oklahoma City, the National Football League, the Ladies
Professional Golf Association, the Baltimore Orioles and the National
Association of Professional Baseball Leagues. From March 1991 to March 1992, Mr.
Horrow served as the Executive Director of Golden Bear Sports Management, a
sports management firm.
JOSEPH LACOB, appointed a director of the Company in May 1995, has served
as a general partner of Kleiner Perkins Caufield & Byers, an investment firm,
since May 1987. Mr. Lacob also serves as the Chairman of the Board of CellPro,
Inc., a cell therapy device company, and Microcide Pharmaceuticals, Inc. a
anti-microbial drug manufacturer.
SEAN MCMANUS, appointed a director of the Company in March 1997, has served
as President of CBS Sports since December 1996. From October 1987 to December
1996, Mr. McManus was Senior Vice President U.S. Television Sales and
Programming at Trans World International, the television division of
International Management Group. From August 1981 to October 1987, Mr. McManus
was Vice President Planning and Development at NBC Sports. From September 1979
to August 1981, Mr. McManus served as Associate Producer and Producer at NBC
Sports and from August 1977 to September 1979 he was a Production Assistant to
the Associate Producer at ABC Sports.
ANDREW NIBLEY, appointed a director of the Company in March 1996, has
served as a director and as the Editor and Executive Vice President of Reuters
NewMedia, Inc. since January 1994. From January 1989 to January 1994, Mr. Nibley
was the Editor, America for Reuters America, Inc. He was also named the Senior
Vice President, News and Television of Reuters America, Inc. in July 1993.
LIESL PIKE, appointed a director of the Company in September 1996, has
served as Vice President of TCI Interactive, a venture investment group for TCI
Internet Services, Inc. and Vice President of TCI Music, Inc., a division of TCI
that focuses on the delivery of audio services through cable distribution since
March 1995. From June 1993 to February 1995, Ms. Pike served as Director of
Business Development for US WEST Multimedia Communications Group. From September
1991 to June 1993, Ms. Pike attended Harvard Business School and graduated with
a Master of Business Administration. From June 1987 to June 1991, Ms. Pike was
an Account Executive for MCI.
DEREK REISFIELD, appointed a director of the Company in March 1997, has
served as Director of Strategic Management of Westinghouse Electric Corporation
since April 1996. Prior thereto, Mr. Reisfield held various positions at
Mitchell Madison Group, a management consulting firm, and most recently as a
Partner of the firm's Media and Communications Practice, the Consumer Marketing
Practice and Mitchell Madison's Venture Capital Group from June 1995 to April
1996. From August
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1987 to June 1995, Mr. Reisfield held various positions, most recently as a
Senior Manager at McKinsey & Company, a management consulting firm.
JAMES C. WALSH, appointed a director of the Company in August 1994, is an
attorney who has been engaged in the private practice of law since 1968. Mr.
Walsh has also served as the President of Namanco Productions, Inc., a sports
marketing and management firm, since 1969. Namanco Productions, Inc. is the
agent and manager of NFL Hall of Fame quarterback Joe Namath.
MICHAEL P. SCHULHOF has been nominated and has agreed to become a director
of the Company upon the completion of this offering. Currently, Mr. Schulhof is
a private investor. From June 1979 to January 1997, Mr. Schulhof held various
positions at Sony Corporation of America, Inc. and most recently served as
President and Chief Executive Officer from June 1993 to January 1996. Mr.
Schulhof is a trustee of the Museum of Television and Radio, Brandeis
University, Lincoln Center for the Performing Arts, Inc., New York University
Medical Center and the Brookings Institute, serves on the Board of Directors of
the Center on Addiction and Substance Abuse at Columbia University, is a member
of the Council on Foreign Relations and a member of the Investment and Services
Policy Advisory Committee to the U.S. Trade Representative.
Messrs. Fleming, Lacob, Nibley and Cullen and Ms. Pike were elected to the
Board of Directors pursuant to a voting agreement among the Company and the
holders of its outstanding Common Stock and preferred stock, which will
terminate upon completion of this offering. Messrs. McManus and Reisfield were
elected to the Board of Directors pursuant to an agreement between the Company
and CBS, certain provisions of which, including CBS's right to appoint
directors to the Company's Board of Directors, will terminate upon completion
of this offering.
Upon completion of this offering, the Board of Directors will be divided
into three classes, and each director will serve for a staggered three-year
term, or until successors of such class have been elected and qualified. Messrs.
Fleming, Nibley and Walsh and Ms. Pike will initially serve as Class I directors
until the annual meeting of shareholders held in 1998, or until their respective
successors have been elected and qualified. Messrs. Cullen, Lacob, Horrow and
Reisfield will initially serve as Class II directors until the annual meeting of
shareholders held in 1999, or until their respective successors have been
elected and qualified. Messrs. Hogan, Levy, McManus and Schulhof will initially
serve as Class III directors until the annual meeting of shareholders held in
2000, or until their respective successors have been elected and qualified. At
each annual meeting of shareholders, a class of directors will be elected for a
three-year term to succeed the directors or director of the same class whose
terms are then expiring. To the extent there is an increase in the number of
directors, additional directorships resulting therefrom will be distributed
among the three classes so that, as nearly as possible, each class will consist
of an equal numbers of directors.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. There are no family
relationships among any of the executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors intends to establish, immediately after
the completion of this offering, an Audit Committee which will be composed of
three non-employee directors. The Audit Committee will be responsible for
reviewing audit functions, including accounting and financial reporting
practices of the Company, the adequacy of the Company's system of internal
accounting control, the quality and integrity of the Company's financial
statements and relations with independent auditors. The Company also plans to
establish, immediately after the completion of this offering, a Compensation
Committee which will be responsible for establishing the compensation of the
Company's directors, officers and employees, including salaries, bonuses,
commission, and benefit plans, and administering the Company's stock plans and
other forms of or matters relating to compensation.
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DIRECTOR COMPENSATION
The Company will reimburse its directors for out-of-pocket expenses
incurred in connection with their rendering of services as directors. The
Company currently does not intend to pay cash fees to its directors for
attendance at meetings. Non-employee directors will be eligible to receive
options under the Company's 1997 Incentive Compensation Plan. See "-Stock
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee, the Board of
Directors made all determinations with respect to executive officer
compensation.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the year
ended December 31, 1996 by the Company's Chief Executive Officer and its other
four most highly compensated executive officers (the "Named Executive
Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
NAME AND PRINCIPAL POSITION COMPENSATION (1) COMPENSATION AWARDS
- ----------------------------------------------- -------------------------- ----------------------
SECURITIES ALL OTHER
SALARY BONUS UNDERLYING OPTIONS COMPENSATION
----------- ---------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Michael Levy,
President and Chief Executive Officer ...... $178,250 $50,000 - $ 22,922 (2)
Mark J. Mariani,
Executive Vice President, Sales ............ 104,038 10,000 200,000 8,205 (3)
G. Kenneth Dotson,
Vice President, Marketing .................. 133,125 10,000 - -
Thomas C. Eastwood,
Chief Technology Officer .................. 120,000 20,000 25,000 -
Andrew S. Sturner,
Vice President, Business Development ...... 120,083 10,000 - -
<FN>
- ----------------
(1) The column for "Other Annual Compensation" has been omitted because
there is no compensation required to be reported in such column. The
aggregate amount of perquisites and other personal benefits provided to each
Named Executive Officer is less than 10% of the total annual salary and
bonus of such officer.
(2) Represents premiums paid for life and disability insurance policies for the
benefit of Mr. Levy.
(3) Represents reimbursement of moving expenses.
</FN>
</TABLE>
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The following table sets forth certain information concerning grants of
stock options made during 1996 to each Named Executive Officer.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES EXERCISE PRICE ---------------------
NAME GRANTED (1) IN FISCAL YEAR PER SHARE EXPIRATION DATE 5% 10%
- ---- -------------- ----------------- -------------- --------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy ............ - - $ - - $ - $ -
Mark J. Mariani ......... 200,000 23.0 0.25 4/22/2006 31,445 79,687
G. Kenneth Dotson ...... - - - - - -
Thomas C. Eastwood ...... 25,000 2.9 2.00 5/14/2006 31,445 79,687
Andrew S. Sturner ...... - - - - - -
<FN>
- ----------------
(1) All such options were granted under the Company's 1995 Stock Option Plan
and become exercisable in installments over a period of four years. Under the
1995 Stock Option Plan, these options will become immediately exercisable in
the event of certain change of control transactions involving the Company.
See "-Stock Plans."
(2) In accordance with the rules of the Commission, the potential realizable
values for such options shown in the table are based on assumed rates of
stock price appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration date. These assumed rates
of appreciation do not represent the Company's estimate or projection of the
appreciation of shares of Common Stock of the Company.
</FN>
</TABLE>
The following table sets forth information concerning exercisable and
unexercisable stock options held as of December 31, 1996 by each of the Named
Executive Officers. No options were exercised by the Named Executive Officers in
1996.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN 1996
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 (1) DECEMBER 31, 1996 (2)
----------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Michael Levy ............ - - $ - $ -
Mark J. Mariani ......... - 200,000 - 350,000
G. Kenneth Dotson ...... 80,729 44,271 141,276 77,474
Thomas C. Eastwood ...... 31,250 93,750 54,687 120,313
Andrew S. Sturner ......... 43,750 76,250 76,563 98,438
<FN>
- ----------------
(1) Exercisable in accordance with the provisions described in Note (1) to the
table entitled "Option Grants in Fiscal Year 1996."
(2) The fair market value of the Company's Common Stock at December 31, 1996 is
estimated to have been approximately $2.00 per share.
</FN>
</TABLE>
STOCK PLANS
1995 STOCK OPTION PLAN. The Company's 1995 Stock Option Plan (the
"1995 Plan") was adopted by the Board of Directors in August 1995 and
approved by the Company's stockholders in March 1996. The 1995 Plan provides
for the grant of "incentive stock options," within the meaning of the
Internal Revenue Code, to employees and officers of the Company, and
non-qualified stock options to employees, consultants, directors and officers of
the Company. Up to 2,100,000 shares of Common Stock are authorized for issuance
under the 1995 Plan. As of March 31, 1997, options to purchase a total of
2,037,792 shares of Common Stock at a weighted average exercise price of $0.85
were outstanding under the 1995 Plan (of which options to purchase 395,504
shares were then exercisable).
The 1995 Plan is administered by the Board of Directors, which has the
authority to select the optionees and determine the terms of the options
granted, including (i) the number of shares subject to
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<PAGE>
each option, (ii) option exercise terms, (iii) the exercise price of the option
(which in the case of an incentive stock option cannot be less that the fair
market value of the Common Stock as of the date of grant), (iv) the duration of
the option, and (v) the time, manner and form of payment upon exercise of an
option. An option is not transferable by the optionholder except by will or by
the laws of descent and distribution. Generally, no incentive stock option may
be exercised more than three months following termination of employment, unless
the termination is due to death or disability, in which case the option is
exercisable for a maximum of twelve months after such termination or unless the
termination is due to the employee's misconduct, in which case the option shall
terminate immediately.
1997 INCENTIVE COMPENSATION PLAN. The Company has adopted, effective upon
completion of this offering, the Incentive Plan which is designed to assist the
Company in attracting, motivating, retaining and rewarding high-quality
executives and other employees, officers, directors and independent contractors
(collectively, the "Participants") by enabling the Participants to acquire
or increase a proprietary interest in the Company, as well as providing the
Participants with annual and long term performance incentives to expend their
maximum efforts in the creation of shareholder value. Pursuant to the Incentive
Plan, the Company may grant Participants stock options, stock appreciation
rights, restricted stock, deferred stock, other stock-related awards and
performance or annual incentive awards that may be settled in cash, stock or
other property (collectively, "Awards"). A committee comprised of at least
two non-employee directors (the "Committee"), or in the absence thereof
the Board of Directors, administers and interprets the Incentive Plan and is
authorized to grant Awards to all eligible Participants.
The total number of shares of Common Stock that may be subject to the
granting of Awards under the Incentive Plan shall be equal to: (i) 2,000,000
shares, plus (ii) the number of shares with respect to Awards previously granted
under the Incentive Plan that terminate without being exercised, expire, are
forfeited or canceled, and the number of shares of Common Stock that are
surrendered in payment of any Awards or any tax withholding requirements. No
Awards have been granted under the Incentive Plan.
The following is a description of the types of Awards that may be granted
under the Incentive Plan:
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Committee is authorized
to grant stock options, including incentive and non-qualified stock options,
and stock appreciation rights ("SARs") entitling the Participant to
receive the amount by which the fair market value of a share of Common Stock
on the date of exercise exceeds the grant price of the SAR. The exercise
price per share subject to an option and the grant price of a SAR are
determined by the Committee, but must not be less than the fair market value
of a share of Common Stock on the date of grant. Each option is exercisable
after the period or periods specified in the related option agreement, but no
option may be exercised after the expiration of ten years from the date of
grant. Options granted to an individual who owns (or is deemed to own) at
least 10% of the total combined voting power of all classes of stock of the
Company must have an exercise price of at least 110% of the fair market value
of the Common Stock on the date of grant and a term of no more than five
years. Options may be exercised by payment of the exercise price in cash,
shares of Common Stock, outstanding Awards or other property having a fair
market value equal to the exercise price, as the Committee may determine from
time to time.
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to grant
restricted stock and deferred stock. Restricted stock is a grant of shares of
Common Stock which may not be sold or disposed of, and which may be forfeited
in the event of certain terminations of employment, prior to the end of a
restricted period specified by the Committee. A Participant granted
restricted stock generally has all the rights of a shareholder of the
Company, unless otherwise determined by the Committee. An Award of deferred
stock confers upon the Participant the right to receive shares of Common
Stock at the end of a specified deferral period, subject to possible
forfeiture of the Award in the event of certain terminations of employment
prior to the end of a specified restricted period. Prior to settlement, an
Award of deferred stock carries no voting or dividend rights. The restricted
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or deferral period for restricted stock or deferred stock Awards may not be
less than three years unless the Award is subject to performance conditions,
in which case the period will not be less than one year.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS-The Committee is
authorized to grant shares of Common Stock as a bonus, free of restrictions,
or to grant shares of Common Stock or other Awards in lieu of cash under the
Incentive Plan, subject to such terms as the Committee may specify.
OTHER STOCK-BASED AWARDS-The Committee is authorized to grant Awards that
are denominated or payable in, valued by reference to, or otherwise based on
or related to shares of Common Stock. Such Awards might include convertible
or exchangeable debt securities, other rights convertible or exchangeable
into shares of Common Stock, purchase rights for shares of Common Stock,
Awards with value and payment contingent upon performance by the Company or
any other factors designated by the Committee, and Awards valued by reference
to the book value of shares of Common Stock or the value of securities of or
the performance of specified subsidiaries or business units. The Committee
determines the terms and conditions of such Awards.
The right of a Participant to exercise or receive a grant or settlement of
an Award, and the timing thereof, may be subject to such performance conditions
(including subjective individual goals) as may be specified by the Committee. In
addition, the Incentive Plan authorizes specific annual incentive Awards, which
represent a conditional right to receive cash, shares of Common Stock or other
Awards upon achievement of certain pre-established performance goals and
subjective individual goals during a specified fiscal year.
Awards may be settled in the form of cash, shares of Common Stock, other
Awards or other property in the discretion of the Committee. The Committee may
condition any payment relating to an Award on the withholding of taxes and may
provide that a portion of any shares of Common Stock or other property to be
distributed will be withheld (or previously acquired shares of Common Stock or
other property surrendered by the Participant) to satisfy withholding and other
tax obligations. Awards granted under the Incentive Plan generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
Participant's death, except that the Committee may, in its discretion, permit
transfers for estate planning or other purposes subject to any applicable
restrictions.
The Incentive Plan also provides that each non-employee director who is not
affiliated with or a designee of a beneficial owner of more than 5% of the
Common Stock will automatically receive (i) for those directors elected or
appointed after the completion of the offering, an option to purchase 12,000
shares of Common Stock on the date of his or her election or appointment and
(ii) for all directors, on the date of the Company's annual meeting of
shareholders, an option to purchase 3,000 shares of Common Stock. Such options
have a term of 10 years and become exercisable at the rate of 25% per year
commencing on the first anniversary of the date of grant; provided, however,
that the options shall be fully exercisable in the event that, while serving as
a director, the non-employee director dies, suffers a "disability," or
"retires" (within the meaning of such terms as defined in the Incentive
Plan). The per share exercise price of options granted to non-employee directors
will be equal to the fair market value of a share of Common Stock on the date
such option is granted. Unless otherwise extended in the sole discretion of the
Compensation Committee, the unexercised portion of any formula option grant will
become null and void (i) three months after the date on which the non-employee
director ceases to be a director for any reason other than the non-employee
director's willful misconduct or negligence, disability, death or retirement,
(ii) immediately in the event of the non-employee director's willful misconduct
or negligence, (iii) at the expiration of its original term if the non-employee
ceases to be a director by reason or his or her retirement, or (iv) one year
after the non-employee director ceases to be a director by reason of his or her
disability or death.
EMPLOYEE STOCK PURCHASE PLAN. The Company has reserved for issuance
500,000 shares of Common Stock under the Company's 1997 Employee Stock Purchase
Plan (the "Purchase Plan"), which
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<PAGE>
will become effective upon completion of the offering. All eligible employees
(as defined therein), other than holders of stock or options to purchase 5% or
more of the Company's Common Stock, employed by the Company from time to time
may elect to participate in the Purchase Plan. Under the Purchase Plan,
participants are granted a purchase right to acquire shares of Common Stock at
semi-annual intervals, during 12-month offering periods, the first of which will
commence on the date of this offering and end on June 30, 1998. The purchase
price for the shares under the Purchase Plan will be paid by the employee
through periodic payroll deductions and/or lump sum payments not to exceed 25%
of the participant's total annual compensation. The purchase price per share
will be equal to 85% of the lower of (i) the fair market value of the Common
Stock at the beginning of the offering period (which, in the case of the first
offering period, would equal the initial public offering price of the Common
Stock) or, if greater, the fair market value of the Common Stock on the date the
participant enrolls in the Purchase Plan, or (ii) the fair market value per
share of the Common Stock on the purchase date. In no event may a participant
purchase more than $25,000 of Common Stock pursuant to the Purchase Plan in any
calendar year.
401(K) PLAN
The Company maintains a 401(k) retirement savings plan (the "401(k)
Plan"). All employees of the Company, meeting certain minimum eligibility
requirements, are eligible to participate in the 401(k) Plan. The 401(k) Plan
provides that each participant may contribute up to 15% of his or her pre-tax
gross compensation (but not greater than a statutorily prescribed annual limit).
The percentage elected by certain highly compensated participants may be
required to be lower. The 401(k) Plan permits, but does not require, additional
contributions to the 401(k) Plan by the Company. All amounts contributed by
employee participants in conformance with plan requirements and earnings on such
contributions are fully vested at all times.
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<PAGE>
CERTAIN TRANSACTIONS
CBS AGREEMENT
On March 5, 1997, the Company entered into a five-year agreement with CBS,
pursuant to which, among other things, the Company's flagship Internet site was
renamed "cbs.sportsline.com." The term of the CBS agreement expires on
December 31, 2001. The CBS agreement provides for cbs.sportsline.com to receive
certain minimum amounts of advertising and on-air promotion, including at least
$7 million of advertising and promotion during the remainder of 1997, at least
$11 million during 1998 and 1999 and at least $14 million during 2000 and 2001.
The Company has the right to use certain CBS logos and television-related sports
content on cbs.sportsline.com and in connection with the operation and promotion
of that Web site.
In consideration of CBS's advertising and promotional efforts and its
license to the Company of the right to use certain CBS logos and
television-related sports content, CBS will receive 7,750,000 shares of Common
Stock over the term of the CBS agreement (1,880,683, 1,839,506, 1,397,470,
1,418,948 and 1,213,393 shares in 1997, 1998, 1999, 2000 and 2001,
respectively). CBS will also have the right to receive 60% of the Company's
advertising revenue on cbs.sportsline.com pages related to certain "signature
events" (such as the NCAA Men's Basketball Tournament, the 1998 Winter
Olympics, U.S. Open tennis, PGA Tour events and the Daytona 500) and 50% of the
Company's advertising revenue on cbs.sportsline.com pages containing other CBS
television-related sports content. The CBS agreement also provides that the
Company shall issue to CBS on the first business day of each contract year
warrants to purchase 950,000 shares of Common Stock at per share exercise prices
ranging from $4.00 in 1997 to $12.00 in 2001. Such warrants are exercisable at
any time during the contract year in which they are granted.
US WEST AGREEMENT
In connection with its September 1996 investment in Series C Preferred
Stock, US WEST Interactive Services, Inc. ("US WEST") and the Company
entered into a two-year agreement that provides for the Company and US WEST to
(i) establish hypertext links and certain cross promotional pages between the
Company's Web sites and US WEST's "Dive In" local Internet sites, (ii)
jointly develop original local sports content for the "Dive In" service
and (iii) engage in certain joint promotional activities. The Company also
agreed to offer US WEST the right of first refusal to provide any "yellow
page" offering that the Company considers launching during the term of the
agreement. The agreement also provides for the Company to pay US WEST royalties
based on the number of customers referred from US WEST's Web sites who purchase
memberships on the Company's Web sites. The Company also issued US WEST
warrants to purchase 2,400,000 shares of Common Stock at an exercise price of
$3.30 per share. Such warrants were exercised in March 1997.
REUTERS NEWMEDIA AGREEMENT
In March 1996, the Company and Reuters NewMedia, Inc. ("Reuters
NewMedia") entered into an agreement pursuant to which the Company agreed to
provide Reuters NewMedia a 60-day exclusive negotiation period with respect to
(i) the provision of non-U.S. sports news and information for any Internet,
wireless or other proprietary online service marketed to foreign countries or
regions that the Company considers launching, (ii) the branding of such service
and (iii) an investment in such service. The Company also agreed to provide
Reuters NewMedia a reasonable opportunity to match the terms for such an
agreement offered by another party if such terms are equivalent or less
favorable to the Company than those offered by Reuters NewMedia. The Company
also agreed (i) subject to technological feasibility, to negotiate an agreement
to develop a customized version of cbs.sportsline.com available only to Reuters
NewMedia subscribers through a Reuters NewMedia product, (ii) to grant Reuters
NewMedia the exclusive right to redistribute the Company's news and information
content within a Reuters NewMedia product as part of a sports news service,
subject to negotiation of royalties and the agreement of the Company's third
party content providers and (iii) to
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provide Reuters NewMedia an opportunity to license to the Company content
specifically related to sports outside the United States, if such content is
already owned, licensed or produced by Reuters NewMedia, and to license such
content from Reuters NewMedia if its proposal is equivalent to or better than
proposals received from third parties.
KLEINER PERKINS CAUFIELD & BYERS GUARANTY
In December 1995, Kleiner Perkins Caufield & Byers VII ("KPCB VII")
guaranteed a $1,500,000 loan the Company received from Silicon Valley Bank. In
return for executing the guaranty, the Company issued KPCB VII warrants to
purchase 75,000 shares of Common Stock, which are exercisable until December 13,
2000 at a price of $1.00 per share.
HORROW CONSULTING AGREEMENT
In September 1994, the Company and Horrow Sports Ventures, an entity owned
by Richard Horrow, a director of the Company, entered into a consulting
agreement that, among other things, provides for Horrow Sports Ventures and Mr.
Horrow to assist the Company in obtaining access to representatives of
professional sports leagues, college sports associations and television networks
and developing strategic, promotional and marketing plans. In consideration of
the services rendered pursuant to the agreement, Mr. Horrow received warrants to
purchase 25,000 shares of Common Stock at an exercise price of $2.00 per share
in August 1994 and received warrants to purchase an additional 25,000 shares of
Common Stock at an exercise price of $2.00 per share in January 1997. Horrow
Sports Ventures currently receives a consulting fee of $5,000 per month.
SCHULHOF CONSULTING AGREEMENT
In June 1996, the Company and Michael P. Schulhof entered into a two year
consulting agreement that provides for Mr. Schulhof to consult with and advise
the Company from time to time with respect to corporate, business and marketing
strategy. In consideration of the services to be rendered pursuant to the
agreement, Mr. Schulhof received warrants to purchase 100,000 shares of Common
Stock at an exercise price of $2.00 per share.
PLANNED LICENSING AGREEMENT
In August 1994, the Company and Planned Licensing, Inc., a wholly owned
subsidiary of Namanco Productions, Inc. ("Planned Licensing"), entered
into a five-year agreement pursuant to which Planned Licensing agreed to cause
Joe Namath to provide certain services for the Company, including endorsements
of the Company's products. James C. Walsh, a director of the Company, is the
president and sole stockholder of Namanco Productions, Inc. The Company has the
right to renew the agreement for three additional five-year terms. Under the
agreement, the Company is obligated to pay Planned Licensing royalties equal to
$0.15 per month for each individual who becomes a member during the term of the
agreement and remains a member for three months, plus, during each renewal term,
an additional $0.05 per month per member if the total royalties during the last
calendar year prior to the renewal term were less than $500,000. The royalties
paid to Planned Licensing for the period from inception (February 23, 1994) to
December 31, 1994, the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1997 were $0, $932, $18,645 and $11,724, respectively.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of March 31, 1997, and
as adjusted to reflect the sale of the Common Stock offered hereby, by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each director, director nominee
and Named Executive Officer of the Company and (iii) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING (2) AFTER THE OFFERING (2)
--------------------------- ---------------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT NUMBER PERCENT
- ---------------------------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
US WEST Interactive Services, Inc. ......... 4,989,630 19.7% 4,989,630
Kleiner Perkins Caufield & Byers (3) ...... 4,880,556 18.7 4,880,556
Michael Levy .............................. 3,800,000 15.0 3,800,000
CBS Inc. (4) .............................. 2,830,683 10.8 2,830,683
Estate of Burk Zanft (5) .................. 2,500,000 9.7 2,500,000
Reuters NewMedia, Inc. ..................... 2,114,182 8.4 2,114,182
TCI Online Sports Holdings, Inc. (6) ...... 1,666,667 6.6 1,666,667
Mark J. Mariani (7) ........................ 54,167 * 54,167
G. Kenneth Dotson (8) ..................... 185,937 * 185,937
Thomas C. Eastwood (9) ..................... 41,667 * 41,667
Andrew S. Sturner (10) ..................... 47,917 * 47,917
Thomas Cullen (11) ........................ 4,989,630 19.7 4,989,630
Stephen Fleming (12) ..................... 1,203,401 4.8 1,203,401
Gerry Hogan (13) ........................... - * -
Richard B. Horrow (14) ..................... 25,000 * 25,000
Joseph Lacob (15) ........................... 4,880,556 18.7 4,880,556
Andrew Nibley (16) ........................ 2,114,182 8.4 2,114,182
Sean McManus .............................. - * -
Liesl Pike ................................. - * -
Derek Reisfield ........................... - * -
James C. Walsh (17) ........................ 500,000 2.0 500,000
Michael P. Schulhof (18) .................. - * -
All directors and executive officers
as a group (19 persons) (19) ............ 17,914,957 67.1 17,914,957
<FN>
- ----------------
* Less than 1% of the outstanding Common Stock.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o SportsLine USA, Inc., 6340 N.W. 5th Way, Fort Lauderdale,
Florida 33309. Except as otherwise indicated, such beneficial owners have
sole voting and investment power with respect to all shares of Common Stock
owned by them, except to the extent such power may be shared with a spouse.
(2) The number of shares of Common Stock deemed outstanding prior to this
offering includes (i) 10,798,078 shares of Common Stock outstanding as of
March 31, 1997, (ii) an aggregate of 14,496,109 shares of Common Stock
issuable upon conversion of all outstanding shares of preferred stock and
(iii) shares issuable pursuant to options and warrants held by the
respective person or group which may be exercised within 60 days after
March 31, 1997 ("presently exercisable stock options" and
"presently exercisable warrants," respectively), as set forth below.
Pursuant to the rules of the Securities and Exchange Commission, presently
exercisable stock options and presently exercisable warrants are deemed to
be outstanding and to be beneficially owned by the person or group holding
such options or warrants for the purpose of computing the percentage
ownership of such person or group, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group.
55
<PAGE>
(3) Reflects (i) 3,612,834 shares held of record and 734,250 shares subject to
presently exercisable warrants held by Kleiner Perkins Caufield & Byers
VII, (ii) 341,333 shares held of record and 72,000 shares subject to
presently exercisable warrants held by KPCB VII Founders Fund and (iii)
101,389 shares held of record and 18,750 shares subject to presently
exercisable warrants held by KPCB Information Sciences Zaibatsu Fund II.
The address of Kleiner Perkins Caufield & Byers is 2750 Sand Hill Road,
Menlo Park, California 94025.
(4) Reflects (i) 1,880,683 shares held of record and (ii) 950,000 shares
subject to presently exercisable warrants. Does not include any additional
shares of Common Stock and warrants to purchase Common Stock to be issued
to CBS after March 31, 1997 pursuant to the CBS agreement. See "Certain
Transactions-CBS Agreement." The address of CBS is 51 West 52nd Street,
New York, New York 10019.
(5) Reflects (i) 2,000,000 shares held of record and (ii) 500,000 shares
subject to presently exercisable warrants. The address of the Estate of
Burk Zanft is 745 Downing Street, Teaneck, New Jersey 07666.
(6) The address of TCI Online Sports Holdings, Inc. is 5619 DTC Parkway,
Englewood, Colorado 80111.
(7) Includes 54,167 shares subject to presently exercisable stock options.
Excludes 145,833 shares issuable upon exercise of stock options held by Mr.
Mariani not exercisable within 60 days.
(8) Reflects (i) 100,000 shares held of record and (ii) 85,937 shares subject
to presently exercisable stock options. Excludes 39,063 shares issuable
upon exercise of stock options held by Mr. Dotson not exercisable within 60
days.
(9) Includes 41,667 shares subject to presently exercisable stock options.
Excludes 83,333 shares issuable upon exercise of stock options held by Mr.
Eastwood that are not exercisable within 60 days.
(10) Includes 47,917 shares subject to presently exercisable stock options.
Excludes 72,083 shares issuable upon exercise of stock options held by Mr.
Sturner that are not exercisable within 60 days.
(11) Reflects shares held of record by US WEST of which Mr. Cullen is President.
Mr. Cullen disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. The address of US WEST and Mr.
Cullen is 9000 East Nichols, Englewood, Colorado 80122.
(12) Reflects shares held of record by Alliance Technology Ventures, L.P. and
ATV/MFJ Parallel Fund, L.P. of which Mr. Fleming is a general partner of
both of these entities. Mr. Fleming disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein.
(13) Excludes 100,000 shares issuable upon exercise of warrants held by Mr.
Hogan that are not exercisable within 60 days.
(14) Includes 25,000 shares subject to presently exercisable warrants . Excludes
25,000 shares issuable upon exercise of warrants held by Mr. Horrow that
are not exercisable within 60 days.
(15) Reflects shares held of record and shares subject to presently exercisable
warrants held by various funds associated with Kleiner Perkins Caufield &
Byers of which Mr. Lacob is a general partner. Mr. Lacob disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. See note (3) above. The address of Mr. Lacob is 2750 Sand
Hill Road, Menlo Park, California 94025.
(16) Reflects shares held of record by Reuters NewMedia of which Mr. Nibley is a
director, the Editor and Executive Vice President. Mr. Nibley disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. The address of Reuters NewMedia and Mr. Nibley is 1700
Broadway, New York, New York 10019.
(17) Reflects (i) 250,000 shares held of record and (ii) 250,000 shares subject
to presently exercisable warrants.
(18) Excludes 100,000 shares issuable upon exercise of warrants held by Mr.
Schulhof that are not exercisable within 60 days.
(19) Includes the information in the notes above, as applicable. Reflects (i)
16,512,769 shares held of record, (ii) 302,188 shares subject to presently
exercisable stock options and (iii) 1,100,000 shares subject to presently
exercisable warrants . Excludes (i) 672,812 shares issuable upon exercise
of stock options and (ii) 125,000 shares issuable upon exercise of warrants
not exercisable within 60 days.
</FN>
</TABLE>
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the completion of this offering, the authorized capital
stock of the Company will consist of 50,000,000 shares of Common Stock, $0.01
par value per share, and 1,000,000 shares of preferred stock, $0.01 par value
per share.
COMMON STOCK
As of March 31, 1997, there were 25,294,187 shares of Common Stock
outstanding and held of record by 26 stockholders, after giving effect to the
conversion of all outstanding shares of preferred stock upon the closing of this
offering. Based upon the number of shares outstanding as of that date and giving
effect to the issuance of the shares of Common Stock offered hereby,
there will be shares of Common Stock outstanding upon the completion
of this offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. Upon the completion of this offering, there
will be no shares of preferred stock outstanding.
PREFERRED STOCK
As of the date of this Prospectus, there are outstanding 3,000,000 shares
of Series A Preferred Stock, 6,162,776 shares of Series B Preferred Stock and
5,333,333 shares of Series C Preferred Stock. All outstanding shares of
preferred stock will be converted into an aggregate of 14,496,109 shares of
Common Stock upon the completion of this offering and such shares of preferred
stock will no longer be authorized, issued or outstanding.
Upon the completion of this offering, the Board of Directors will be
authorized, without further shareholder approval, to issue from time to time up
to an aggregate of 1,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. See "-Anti-takeover Effects of Certain
Provisions of Delaware Law and the Company's Certificate of Incorporation and
Bylaws." The Company has no present plans to issue any shares of preferred
stock.
OPTIONS AND WARRANTS
As of March 31, 1997, options to purchase a total of 2,037,792 shares
("Option Shares") of Common Stock were outstanding; approximately of
the Options Shares are subject to lock-up agreements. Beginning 90 days after
the date of this Prospectus, approximately Option Shares which are not
subject to lock-up agreements will be eligible for sale in reliance on Rule 701.
The total number of shares of Common Stock that may be subject to the granting
of Awards under the Incentive Plan shall be equal to: (i) 2,000,000 shares, plus
(ii) the number of shares with respect to Awards
57
<PAGE>
previously granted under the Incentive Plan that terminate without being
exercised, expire, are forfeited or canceled, and the number of shares of Common
Stock that are surrendered in payment of any Awards or any tax withholding
requirements. No Awards have been granted under the Incentive Plan. See
"Management-Stock Plans" and "Shares Eligible for Future Sale."
As of March 31, 1997, warrants to purchase a total of 3,991,500 shares
("Warrant Shares") of Common Stock were outstanding; approximately of
the Warrant Shares are subject to lock-up agreements. Approximately Warrant
Shares which are not subject to lock-up agreements will be eligible for
immediate sale in reliance on Rule 144 or Rule 701, beginning 90 days after the
date of this Prospectus. See "Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Upon the completion of this offering, certain securityholders of the
Company (the "Rightsholders") will be entitled to require the Company to
register under the Securities Act up to a total of shares (the
"Registrable Shares") of outstanding Common Stock and Common Stock
issuable upon the exercise of outstanding warrants, pursuant to the terms of an
Amended and Restated Investors' Rights Agreement (the "Investors' Rights
Agreement"). The Investors' Rights Agreement provides that in the event the
Company proposes to register any of its securities under the Securities Act at
any time or times, the Rightsholders, subject to certain exceptions, shall be
entitled to include Registrable Shares in such registration. However, the
managing underwriter of any such offering may exclude for marketing reasons some
of such Registrable Shares from such registration. In addition, certain
Rightsholders have additional rights, subject to certain conditions and
limitations, to require the Company to prepare and file a registration statement
under the Securities Act with respect to their Registrable Shares. The Company
is generally required to bear the expenses of all such registrations, except
underwriting discounts and commissions. The Company has also granted CBS
registration rights for all shares issuable to CBS pursuant to the CBS agreement
(or upon the exercise of warrants granted pursuant to the CBS agreement) on
terms and conditions similar to the registration rights held by the
Rightsholders under the Investors' Rights Agreement.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions,
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained such status
with the approval of the Board of Directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
This statute could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
In addition, certain provisions of the Certificate and Bylaws, which will
be in effect upon completion of this offering and are summarized in the
following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by shareholders.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors will be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. These provisions, when coupled with the provision of the Certificate
authorizing only the Board of Directors to fill vacant directorships or increase
the size of the Board, may deter a shareholder from removing incumbent directors
and simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
58
<PAGE>
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS. The Certificate
provides that shareholders may not take action by written consent, but only at
duly called annual or special meetings of shareholders. The Certificate further
provides that special meetings of shareholders of the Company may be called only
by the Chairman of the Board of Directors or a majority of the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to
or mailed and received at the principal executive offices of the Company, not
less than 120 days nor more than 150 days prior to the first anniversary of the
date of the Company's notice of annual meeting provided with respect to the
previous year's annual meeting; provided, that if no annual meeting was held in
the previous year or the date of the annual meeting has been changed to be more
than 30 calendar days earlier than or 60 calendar days after such anniversary,
notice by the stockholder, to be timely, must be so received not more than 90
days nor later than the later of (i) 60 days prior to the annual meeting or (ii)
the close of business on the 10th day following the date on which notice of the
date of the meeting is given to stockholders or made public, whichever first
occurs. The Bylaws also specify certain requirements for a shareholder's notice
to be in proper written form. These provisions may preclude shareholders from
bringing matters before the shareholders at an annual meeting or from making
nominations for directors at an annual meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and preferred stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and preferred stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of the Company's management.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage
The Certificate requires the affirmative vote of the holders of at least
80% of the combined voting power of the outstanding shares of capital stock of
the Company entitled to vote for the election of directors to amend or repeal
any of the foregoing Certificate provisions. Such 80% shareholder vote is also
required to amend or repeal any of the foregoing Bylaws provisions, although
such Bylaws provisions may also be amended or repealed by a majority vote of the
entire Board of Directors. Such 80% shareholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any preferred stock that might be outstanding at the time any such amendments
are submitted to stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Certificate contains certain provisions permitted under the DGCL
relating to the liability of directors. These provisions eliminate a director's
liability for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Certificate also contains
provisions indemnifying the directors and officers of the Company to the fullest
extent permitted by the DGCL. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of
Common Stock outstanding (assuming no exercise of outstanding options or
warrants). Of these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by an "affiliate" of the Company, as that
term is defined in Rule 144 ("Rule 144") under the Securities Act (an
"Affiliate"), may generally be sold only in compliance with Rule 144 as
described below.
The remaining 25,294,187 shares of Common Stock will be "restricted
securities" as that term is defined under Rule 144 (the "Restricted
Shares"). Most of the Restricted Shares will be subject to lock-up agreements
as described below. Upon expiration of these agreements 180 days after the date
of this Prospectus, approximately of the Restricted Shares will be
available for sale in the public market, subject to the provisions of Rule 144
under the Securities Act. The balance of the Restricted Shares will become
eligible for sale in the public market at various times thereafter, commencing
in 1998. The holders of approximately of the Restricted Shares
are entitled to registration rights. Sales of Restricted Shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the Common Stock. See "Description of Capital Stock-
Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
shares immediately after this offering) or (ii) the average weekly
trading volume in the Common Stock in the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of such sale is filed with the
Securities and Exchange Commission. Such sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is not an Affiliate and has not been an Affiliate for at least three
months prior to the sale and who has beneficially owned Restricted Shares for at
least two years may resell such shares without regard to the requirements
described above. The Company is unable to estimate accurately the number of
Restricted Shares that ultimately will be sold under Rule 144 because the number
of shares will depend in part on the market price for the Common Stock, the
personal circumstances of the sellers and other factors. See "Risk
Factors-Shares Eligible for Future Sale" and "Risk Factors-No Prior Public
Market; Possible Volatility of Stock Price."
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any employee, officer or director of or consultant or adviser to
the Company who purchased shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this Prospectus before selling
such shares.
Beginning 90 days after the date of this Prospectus, approximately
Option Shares and approximately Warrant Shares which are not subject to
lock-up agreements will be eligible for sale in reliance on Rule 701. See
"Description of Capital Stock-Options and Warrants."
The Company intends to file a registration statement under the Securities
Act on Form S-8 to register all shares of Common Stock subject to outstanding
stock options and Common Stock issuable pursuant to the Company's stock plans,
promptly upon expiration of the 180-day lock-up period described below.
Following the filing of the Form S-8, shares issued under the Company's stock
plans will be eligible for sale in the public markets upon vesting and exercise
of options or awards, subject to the Rule 144 volume restrictions applicable to
affiliates.
60
<PAGE>
All executive officers and directors of the Company and certain of the
Company's shareholders, who upon the completion of this offering will hold in
the aggregate shares of Common Stock and options and warrants to purchase
shares of Common Stock, have agreed that they will not, without the prior
written consent of Robertson, Stephens & Company LLC, directly or indirectly,
offer to sell, sell, contract to sell or otherwise dispose of any shares of
Common Stock beneficially owned by them for a period of 180 days after the date
of this Prospectus, subject to certain exceptions. Robertson, Stephens & Company
LLC may, in its sole discretion and at any time, without notice, release all or
any portion of the securities subject to lock-up agreements.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock and could impair the Company's future ability to obtain capital through
an offering of equity securities.
61
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Cowen & Company and Montgomery Securities
(the "Representatives"), have severally agreed with the Company, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all shares if any
are purchased.
NUMBER OF
UNDERWRITER SHARES
----------- ----------
Robertson, Stephens & Company LLC ......
Cowen & Company ........................
Montgomery Securities ..................
----------
Total ..............................
==========
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which $
may be reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the same price per share as the Company
will receive for the shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Pursuant to the terms of lock-up agreements, the holders of
shares of the Company's Common Stock (including shares of preferred
stock that are convertible into shares of Common Stock) have agreed, for a
period of up to 180 days after the date of this Prospectus, that, subject to
certain exceptions, they will not contract to sell or otherwise dispose of any
shares of Common Stock, any options or warrants to purchase shares of Common
Stock or any securities convertible into, or exchangeable for, shares of Common
Stock, owned directly by such holders or with respect to which they have the
power of disposition, without the prior written consent of Robertson, Stephens &
Company LLC. Robertson, Stephens & Company LLC may, in its sole discretion, and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements.
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<PAGE>
Approximately shares of Common Stock subject to the lock-up agreements
will be eligible for sale in the public market upon the expiration of the
lock-up agreements, subject to Rule 144.
In addition, the Company has agreed that until 180 days after the date of
this Prospectus, the Company will not, without prior written consent of
Robertson, Stephens & Company LLC, subject to certain exceptions, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, any options
or warrants to purchase any share of Common Stock or any securities convertible
into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of shares of Common
Stock upon the exercise of outstanding options and warrants and the conversion
of shares of preferred stock and the grant of options to purchase shares of
Common Stock under existing employee stock option or stock purchase plans. See
"Shares Eligible For Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby was determined through negotiations among the
Company and the Representatives. Among the factors considered in such
negotiations were prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the Common Stock on behalf of the Underwriters
for the purpose of fixing or maintaining the price of the Common Stock. A
"syndicate covering transaction" is the bid for or the purchase of the
Common Stock on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with the offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New
York, New York.
EXPERTS
The Financial Statements of the Company included in this Prospectus and
Registration Statement to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent certified public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said report.
63
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all
amendments thereto, the "Registration Statement") under the Securities Act
of 1933, as amended, with respect to the shares of Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information contained in the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance,
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from such office upon payment of the prescribed fees. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as the
Company, that file electronically with the Commission. Information concerning
the Company is also available for inspection at the offices of the Nasdaq
National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006
64
<PAGE>
SPORTSLINE USA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Certified Public Accountants ........................ F-2
Balance Sheets as of December 31, 1995 and 1996 and
March 31, 1997 (unaudited) ............................................. F-3
Statements of Operations for the period from Inception (February 23, 1994)
through December 31, 1994, the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1996 and 1997 (unaudited) ............... F-4
Statements of Changes in Shareholders' Equity (Deficit) for the period
from Inception (February 23, 1994) to December 31, 1994,
the years ended December 31, 1995 and 1996 and
the three months ended March 3l, 1997 (unaudited) ........................ F-5
Statements of Cash Flows for the period from Inception (February 23, 1994)
to December 31, 1994, the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1996 and 1997 (unaudited) ............ F-6
Notes to Financial Statements .......................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
SportsLine USA, Inc.:
We have audited the accompanying balance sheets of SportsLine USA, Inc. (a
Delaware corporation) as of December 31, 1995 and 1996, and the related
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the period from inception (February 23, 1994) to December 31, 1994 and
for the years ended December 31, 1995 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SportsLine USA, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from inception (February 23, 1994) to December 31, 1994 and for
the years ended December 31, 1995 and 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 31, 1997.
F-2
<PAGE>
SPORTSLINE USA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1995 1996 1997
------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 183,948 $ 13,993,785 $ 17,731,706
Deferred advertising and content costs .................. - - 7,336,297
Accounts receivable ....................................... 3,087 561,390 494,067
Prepaid expenses and other current assets ............... 132,639 391,386 1,516,730
----------- ------------ ------------
Total current assets .................................... 319,674 14,946,561 27,078,800
RESTRICTED CERTIFICATES OF DEPOSIT ........................ 578,067 138,601 138,601
PROPERTY AND EQUIPMENT, net .............................. 1,300,199 2,241,630 2,786,045
OTHER ASSETS ............................................. 298,146 522,950 851,511
----------- ------------ ------------
$ 2,496,086 $ 17,849,742 $ 30,854,957
=========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable .......................................... $ 663,559 $ 631,712 $ 351,053
Accrued liabilities ....................................... 289,924 1,332,140 2,479,954
Term loan ................................................ 973,000 - -
Current portion of long-term borrowings .................. 118,242 224,522 224,522
Current portion of capital lease obligations ............ 172,156 200,945 162,938
Deferred revenue .......................................... 47,050 778,286 801,350
----------- ------------ ------------
Total current liabilities .............................. 2,263,931 3,167,605 4,019,817
LONG-TERM BORROWINGS, net of current portion ............... 354,726 280,652 224,522
CAPITAL LEASE OBLIGATIONS, net of current portion ......... 329,382 128,080 86,188
----------- ------------ ------------
Total liabilities ....................................... 2,948,039 3,576,337 4,330,527
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, $0.01 par value,
3,000,000 shares authorized, issued and outstanding
as of December 31, 1995 and 1996 and March 31, 1997 ...... 30,000 30,000 30,000
Series B convertible preferred stock, $0.01 par value,
6,162,776 shares authorized, issued and outstanding
as of December 31, 1996 and March 31, 1997 ............... - 61,628 61,628
Series C convertible preferred stock, $0.01 par value,
5,333,333 shares authorized, issued and outstanding
as of December 31, 1996 and March 31, 1997 ............... - 53,333 53,333
Common stock, $0.01 par value, 50,000,000 shares
authorized, 6,500,000, 6,504,687 and 10,798,078
issued and outstanding as of December 31, 1995
and 1996 and March 31, 1997, respectively ............... 65,000 65,047 107,981
Additional paid-in capital .............................. 5,186,761 32,652,485 49,463,480
Accumulated deficit ....................................... (5,733,714) (18,589,088) (23,191,992)
----------- ------------ ------------
Total shareholders' equity (deficit) ................... (451,953) 14,273,405 26,524,430
----------- ------------ ------------
$ 2,496,086 $ 17,849,742 $ 30,854,957
=========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
SPORTSLINE USA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 23, YEAR ENDED THREE MONTHS ENDED
1994) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------ ----------------------------
1994 1995 1996 1996 1997
-------------- -------------- --------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE ........................ $ - $ 52,097 $ 2,436,690 $ 96,202 $ 1,253,165
COST OF REVENUE .................. - 756,874 3,319,291 603,397 1,298,902
--------- ----------- ------------ ----------- -----------
GROSS MARGIN (DEFICIT) ......... - (704,777) (882,601) (507,195) (45,737)
OPERATING EXPENSES:
Product development ............ 57,809 632,659 939,463 223,444 269,113
Sales and marketing ............ 59,306 1,179,106 5,568,550 632,913 1,602,394
General and administrative ...... 308,472 2,662,269 4,870,118 844,059 1,521,584
Depreciation and amortization . 15,958 192,869 823,653 126,525 1,315,538
--------- ----------- ------------ ----------- -----------
Total operating expenses ...... 441,545 4,666,903 12,201,784 1,826,941 4,708,629
--------- ----------- ------------ ----------- -----------
LOSS FROM OPERATIONS ............ (441,545) (5,371,680) (13,084,385) (2,334,136) (4,754,366)
INTEREST EXPENSE .................. - 50,074 136,309 57,960 13,942
INTEREST AND OTHER
INCOME, net ..................... 37,734 91,851 365,320 18,423 165,404
--------- ----------- ------------ ----------- -----------
NET LOSS ........................ $(403,811) $(5,329,903) $(12,855,374) $(2,373,673) $(4,602,904)
========= =========== ============ =========== ===========
NET LOSS PER SHARE
(see Note 2) .................. $ $ $ $ $
========= =========== ============ =========== ===========
WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING (see Note 2) .........
========= ========== ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-4
<PAGE>
SPORTSLINE USA, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from issuance of common
stock, February 23, 1994 ......... - $ - - $ - - $ -
Property and equipment contributed
as capital ........................ - - - - - -
Net proceeds from issuance of
common stock and common
stock warrants .................. - - - - - -
Issuance of common stock pursuant
to consulting agreements and
services (primarily non-cash) ... - - - - - -
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - - - - -
Net loss ........................... - - - - - -
---------- ------- ---------- ------- ---------- -------
Balance, December 31, 1994 ......... - - - - - -
Net proceeds from issuance of
Series A convertible preferred
stock ........................... 3,000,000 30,000 - - - -
Net proceeds from issuance of
common stock warrants ............ - - - - - -
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - - - - -
Net loss ........................... - - - - - -
---------- ------- ---------- ------- ---------- -------
Balance, December 31, 1995 ......... 3,000,000 30,000 - - - -
Net proceeds from issuance of
Series B convertible
preferred stock .................. - - 6,162,776 61,628 - -
Net proceeds from issuance of
Series C convertible
preferred stock .................. - - - - 5,333,333 53,333
Issuance of common stock pursuant
to exercise of options ............ - - - - - -
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - - - - -
Net loss ........................... - - - - - -
---------- ------- ---------- ------- ---------- -------
Balance, December 31, 1996 ......... 3,000,000 30,000 6,162,776 61,628 5,333,333 53,333
Non-cash issuance of common stock
and common stock warrants
pursuant to CBS agreement
(unaudited) ..................... - - - - - -
Non-cash issuance of common
stock warrants pursuant to
consulting agreements
(unaudited) ..................... - - - - - -
Proceeds from exercise of common
stock warrants (unaudited) ...... - - - - - -
Issuance of common stock
pursuant to exercise of options
(unaudited) ..................... - - - - - -
Net loss (unaudited) ............... - - - - - -
---------- ------- ---------- ------- ---------- -------
Balance, March 31, 1997 (unaudited) 3,000,000 $30,000 6,162,776 $61,628 5,333,333 $53,333
========== ======= ========== ======= ========== =======
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Proceeds from issuance of common
stock, February 23, 1994 ......... 3,800,000 $38,000 $ 135,884 $ - $ 173,884
Property and equipment contributed
as capital ........................ - - 26,116 - 26,116
Net proceeds from issuance of
common stock and common
stock warrants .................. 2,000,000 20,000 1,893,900 - 1,913,900
Issuance of common stock pursuant
to consulting agreements and
services (primarily non-cash) ... 700,000 7,000 138,000 - 145,000
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - 55,000 - 55,000
Net loss ........................... - - - (403,811) (403,811)
----------- -------- ----------- ------------ ------------
Balance, December 31, 1994 ......... 6,500,000 65,000 2,248,900 (403,811) 1,910,089
Net proceeds from issuance of
Series A convertible preferred
stock ........................... - - 2,883,361 - 2,913,361
Net proceeds from issuance of
common stock warrants ............ - - 37,500 - 37,500
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - 17,000 - 17,000
Net loss ........................... - - - (5,329,903) (5,329,903)
----------- -------- ----------- ------------ ------------
Balance, December 31, 1995 ......... 6,500,000 65,000 5,186,761 (5,733,714) (451,953)
Net proceeds from issuance of
Series B convertible
preferred stock .................. - - 11,031,369 - 11,092,997
Net proceeds from issuance of
Series C convertible
preferred stock .................. - - 15,873,367 - 15,926,700
Issuance of common stock pursuant
to exercise of options ............ 4,687 47 1,125 - 1,172
Non-cash issuance of common
stock warrants pursuant to
consulting agreements ............ - - 559,863 - 559,863
Net loss ........................... - - - (12,855,374) (12,855,374)
----------- -------- ----------- ------------ ------------
Balance, December 31, 1996 ......... 6,504,687 65,047 32,652,485 (18,589,088) 14,273,405
Non-cash issuance of common stock
and common stock warrants
pursuant to CBS agreement
(unaudited) ..................... 1,880,683 18,807 8,081,754 - 8,100,561
Non-cash issuance of common
stock warrants pursuant to
consulting agreements
(unaudited) ..................... - - 830,191 - 830,191
Proceeds from exercise of common
stock warrants (unaudited) ...... 2,400,000 24,000 7,896,000 - 7,920,000
Issuance of common stock
pursuant to exercise of options
(unaudited) ..................... 12,708 127 3,050 - 3,177
Net loss (unaudited) ............... - - - (4,602,904) (4,602,904)
----------- -------- ----------- ------------ ------------
Balance, March 31, 1997 (unaudited) 10,798,078 $107,981 $49,463,480 $(23,191,992) $ 26,524,430
=========== ======== =========== ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-5
<PAGE>
SPORTSLINE USA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(FEBRUARY 23, YEAR ENDED THREE MONTHS ENDED
1994) TO DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- --------------- ---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss .............................. $(403,811) $ (5,329,903) $ (12,855,374) $ (2,373,673) $ (4,602,904)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ......... 15,598 192,869 823,653 126,525 1,315,538
Provision for doubtful accounts ...... - - 22,045 - 13,200
Changes in operating assets
and liabilities:
Accounts receivable .................. - (3,087) (580,348) (41,022) 54,123
Prepaid expenses and other
current assets ...................... (52,850) (197,888) (66,404) (5,036) (44,735)
Accounts payable and accrued
liabilities ......................... 52,051 901,432 1,010,369 (75,069) (315,314)
Deferred revenue ..................... - 47,050 731,236 21,282 23,064
--------- ------------ ------------- ------------ ------------
Net cash used in operating
activities .......................... (389,012) (4,389,527) (10,914,823) (2,346,993) (3,557,028)
--------- ------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment ... (42,302) (868,150) (1,622,368) (67,929) (492,199)
Net redemption (purchase) of restricted
certificates of deposit ............... - (578,067) 439,466 (2,525,787) -
--------- ------------ ------------- ------------ ------------
Net cash used in investing
activities .......................... (42,302) (1,446,217) (1,182,902) (2,593,716) (492,199)
--------- ------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds (repayment) of term loan ...... - 973,000 (973,000) (973,000) -
Proceeds from long-term borrowings ...... - 472,968 144,468 - -
Repayment of long-term borrowings ...... - - (112,262) - (56,130)
Repayment of capital lease obligations.... - (43,607) (172,513) (42,640) (79,899)
Proceeds from issuance of common
stock and common stock warrants ........ 2,097,784 37,500 1,172 - 7,923,177
Proceeds from issuance of convertible
preferred stock ........................ - 2,913,361 27,019,697 11,092,997 -
--------- ------------ ------------- ------------ ------------
Net cash provided by financing
activities .......................... 2,097,784 4,353,222 25,907,562 10,077,357 7,787,148
--------- ------------ ------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents ..................... 1,666,470 (1,482,522) 13,809,837 5,136,648 3,737,921
CASH AND CASH EQUIVALENTS,
beginning of period ..................... - 1,666,470 183,948 183,948 13,993,785
--------- ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period ........................... $1,666,470 $ 183,948 $ 13,993,785 $ 5,320,596 $ 17,731,706
========= ============ ============= ============ ============
</TABLE>
(CONTINUED)
F-6
<PAGE>
SPORTSLINE USA, INC.
STATEMENTS OF CASH FLOWS-(CONTINUED)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
(FEBRUARY 23, YEAR ENDED THREE MONTHS ENDED
1994) TO DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------- ---------------------------------
1994 1995 1996 1996 1997
------------- --------------- ---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for consulting
agreements and services rendered ............ $145,000 $ - $ - $ - $7,471,852
======== ======== ======== ======= ===========
Issuance of common stock warrants pursuant
to consulting agreements ..................... $ 55,000 $ 17,000 $559,863 $ 5,000 $1,458,900
======== ======== ======== ======= ===========
Amounts representing capital leases ......... $ - $545,145 $ - $ - $ -
======== ======== ======== ======= ===========
Property and equipment contributed as capital $ 26,116 $ - $ - $ - $ -
======== ======== ======== ======= ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest ........................ $ - $ 50,074 $121,027 $57,960 $ 29,224
======== ======== ======== ======= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-7
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(1) NATURE OF OPERATIONS:
SportsLine USA, Inc. (the "Company") was incorporated on February 23,
1994 ("Inception") and was a development stage company until the Company
began recognizing revenue from its operations in September 1995. The Company is
an Internet-based sports media company that provides branded, interactive
information and programming as well as merchandise to sports enthusiasts
worldwide. cbs.sportsline.com, the Company's flagship site on the World Wide
Web (the "Web") delivers real-time, in-depth and compelling sports content
and programming that capitalizes on the Web's unique graphical and interactive
capabilities.
The Company distributes a broad range of up-to-date news, scores, player
and team statistics and standings, photos and audio and video clips obtained
from leading sports news organizations; produces and distributes entertaining,
interactive and original programming such as editorials and analyses from its
in-house staff and freelance journalists; produces and offers contests, games
and fantasy league products; and sells sports-related merchandise and
memorabilia. The Company also owns and operates a state-of-the-art radio studio
from which it produces the only all-sports radio programming broadcast
exclusively over the Internet.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents at December 31, 1996 primarily consists of one short-term U.S.
Treasury Bill.
LICENSE AND CONSULTING AGREEMENTS
The cost of license and consulting agreements is being amortized using the
straight-line method over the term of the related agreements (from one to five
years) beginning in August 1995, when cbs.sportsline.com (known at that time as
sportsline.com) first became commercially available. Such costs totaled
approximately $222,000, $782,000 and $1,575,000 as of December 31, 1995 and 1996
and March 31, 1997, respectively. Accumulated amortization on such amounts was
approximately $40,000, $200,000 and $454,000 at December 31, 1995 and 1996 and
March 31, 1997, respectively. The current portion of such amounts is reflected
in prepaid expenses and other current assets and the long-term portion in other
assets in the accompanying balance sheets. Amortization expense under these
agreements amounted to approximately $40,000, $160,000, $32,000 and $254,000 for
the years ended December 31, 1995 and 1996 and for the three months ended March
31, 1996 and 1997, respectively, and is included in depreciation and
amortization expense in the accompanying statements of operations.
PROPERTY AND EQUIPMENT
Property and equipment is carried at historical cost and is being
depreciated and amortized using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease period. Maintenance and
repairs are charged to expense when incurred; betterments are capitalized. Upon
the sale or retirement of assets, the cost and accumulated depreciation are
removed from the account and any gain or loss is recognized.
F-8
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:-(CONTINUED)
REVENUE RECOGNITION
Through December 31, 1995, the Company's revenue was derived solely from
membership revenue. The Company began recognizing advertising revenue in March
1996. Revenue recognition policies for both membership and advertising revenue
are set forth below.
MEMBERSHIP REVENUE
The Company offers monthly and yearly memberships to its Web sites.
Potential members are offered a 30-day free trial membership. If such trial
membership is not cancelled within the first 30 days, the member is charged and
revenue is recognized. For additional fees, members are also eligible to
participate in sports contests to win cash prizes and merchandise and join
celebrity fan clubs.
Revenue relating to monthly memberships is recognized in the month the
service is provided, except for trial memberships as noted above. Revenue
relating to yearly memberships and sports contests is recognized ratably over
the life of the membership agreement or contest period. Accordingly, amounts
received for which services have not yet been provided are reflected as deferred
revenue in the accompanying balance sheets.
ADVERTISING REVENUE
Advertising revenue is derived from the sale of advertising on the
Company's Web sites. Advertising revenue is recognized in the period the
advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of a minimum number of
"impressions," or times that any advertisement is viewed by users of the
Company's Web sites.
In 1996, the Company recognized advertising revenue as a result of barter
transactions primarily with certain other Internet-related companies. Such
revenue is recognized based on the fair value of the consideration received,
which consists of advertising displayed on the other companies' Web sites.
Barter revenue and the corresponding expense is recognized in the period the
advertising is displayed.
F-9
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:-(CONTINUED)
REVENUE BY TYPE
Revenue by type for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------- -------------------------
1995 1996 1996 1997
----------- ------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Membership ............... $ 52,097 $ 886,099 $66,202 $ 519,849
Advertising - cash ......... - 1,048,118 30,000 700,642
Advertising - barter ...... - 502,473 - 14,500
Other ..................... - - - 18,174
--------- ---------- -------- ----------
$ 52,097 $2,436,690 $96,202 $1,253,165
========= ========== ======== ==========
</TABLE>
COST OF REVENUE
Cost of revenue consists primarily of content and royalty fees, payroll and
related expenses for the editorial and operations staff, telecommunications and
computer related expenses for the support and delivery of the Company's
services. Royalty payments are paid to certain content providers and technology
and marketing partners based on membership levels subject, in certain instances,
to specified minimum amounts.
PRODUCT DEVELOPMENT COSTS
Statement of Financial Accounting Standards ("SFAS") No. 86,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED, requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of a working model and the point at which the product is ready for
general release have not been significant.
SALES AND MARKETING
Sales and marketing expense includes member acquisition costs relating to
the direct costs of member solicitation, including advertising on Web sites,
printing, production and shipping of member kits and the costs of obtaining
qualified prospects by various targeted direct marketing programs (i.e., direct
marketing response cards and mailing lists) and from third parties. No indirect
costs are included in member acquisition costs. In accordance with Statement of
Position 93-7, REPORTING ON ADVERTISING COSTS, the Company may in the future
capitalize such direct-response advertising costs if historical evidence is
available to indicate that the advertising results in a future benefit. The
Company will determine an appropriate amortization period for such costs if
capitalization begins. Until that time, all such costs are expensed as incurred.
All other advertising and marketing costs are charged to expense at the time the
advertising takes place.
F-10
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:-(CONTINUED)
PER SHARE AMOUNTS
Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Pursuant to
the requirements of the Securities and Exchange Commission, such computations
shall include all common and common equivalent shares issued within 12 months
immediately preceding the Company's expected initial public offering
("IPO") filing date in April 1997 if priced below the estimated public
offering price per share, as if they were outstanding for all periods presented
using the treasury stock method, even if antidilutive. The Company's
Registration Statement on Form S-1 relating to the initial public offering of
the Company's common stock does not yet contain an estimated offering price or
range of pricing. Accordingly, the Company has been unable to quantify the
effect on weighted average common and common equivalent shares outstanding and
net loss per share of any common and common equivalent shares that may have been
issued in the preceding 12 months at less than the IPO price. Weighted average
common and common equivalent shares outstanding and net loss per share will be
included herein when an IPO price has been determined.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, primarily consisting of cash and cash
equivalents, accounts receivable, restricted certificates of deposit, accounts
payable and borrowings, approximate fair value due to their short-term nature
and/or market rates of interest.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
and accounts receivable. The Company's cash management and investment policies
restrict investments to low risk, highly-liquid securities and the Company
performs periodic evaluations of the credit standing of the financial
institutions with which it deals. Accounts receivable from customers outside the
United States were not material to the Company's financial position or results
of operations. The Company performs ongoing credit evaluations and generally
requires no collateral. The Company maintains reserves for potential credit
losses and such losses have not been significant and have been within
management's expectations. The allowance for doubtful accounts amounted to $0,
$22,045 and $35,245 at December 31, 1995 and 1996 and March 31, 1997,
respectively. As of December 31, 1995 and 1996 and March 31, 1997, management
believes that the Company had no significant concentrations of risk.
F-11
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:-(CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, was issued. SFAS No. 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the carrying
amount of the assets. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted SFAS No. 121 in
1996. The effect of adoption was not material.
In October 1995, SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, was
issued. SFAS No. 123 allows either adoption of a fair value based method of
accounting for employee stock options and similar equity instruments or
continuation of the measurement of compensation cost relating to such plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. The
Company has elected to continue to use the intrinsic value based method.
Accordingly, pro forma disclosures required to be presented by SFAS No. 123 for
companies continuing to utilize the intrinsic value based method are presented
in Note 6.
In February 1997, SFAS No. 128, EARNINGS PER SHARE, was issued. SFAS No.
128 simplifies the methodology of computing earnings per share and requires the
presentation of basic and diluted earnings per share. The Company's basic and
diluted earnings per share are the same, as the Company's common stock
equivalents are antidilutive. In addition, the Company's basic and diluted
earnings per share are the same as that computed under APB No. 15, EARNINGS PER
SHARE, as presented in the accompanying Statements of Operations. SFAS No. 128
must be adopted for the year ending December 31, 1997 and be retroactively
reflected in the financial statements.
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited condensed interim financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of March 31, 1997, and the results of its operations and cash flows for the
three months ended March 31, 1996 and 1997.
F-12
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(3) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------------------- MARCH 31,
(YEARS) 1995 1996 1997
--------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment ............ 2-3 $1,294,417 $2,561,692 $ 3,286,418
Furniture, fixtures and leasehold
improvements .................. 3-7 186,572 538,717 625,151
---------- ---------- -----------
1,480,989 3,100,409 3,911,569
Less-accumulated depreciation and
amortization .................. (180,790) (858,779) (1,125,524)
---------- ---------- -----------
$1,300,199 $2,241,630 $ 2,786,045
========== ========== ===========
</TABLE>
Included in property and equipment is equipment acquired under capital
leases amounting to approximately $545,000 as of December 31, 1995 and 1996,
less accumulated amortization amounting to $75,000 and $261,000, respectively.
Depreciation and amortization expense on property and equipment amounted to
approximately $6,000, $174,000 and $680,000 for the period from inception
(February 23, 1994) to December 31, 1994, and for the years ended December 31,
1995 and 1996, respectively.
(4) BORROWINGS:
In October 1995, the Company entered into a $1,500,000 equipment line of
credit with a bank (the "Equipment Line"). The Equipment Line carries
interest at the prime rate plus 1.5% (10% at December 31, 1996) and is payable
monthly, interest only through June 1996, and thereafter in 33 equal monthly
principal plus interest payments. In addition, the Company is required to comply
with certain restrictive covenants which include, among other things,
maintenance of certain financial ratios and a cash balance equal to the amount
of the outstanding balance of the line of credit. The Company is in compliance
with such requirements. The Equipment Line is collateralized by substantially
all of the Company's assets. Amounts outstanding under this loan mature as
follows at December 31, 1996:
MATURITY AMOUNT
- -------------- -----------
1997 ...... $ 224,522
1998 ...... 224,522
1999 ...... 56,130
----------
$ 505,174
==========
In December 1995, the Company entered into a $1,500,000 Term Loan with a
bank, bearing interest payable monthly at the prime rate plus 1% (9.5% as of
December 31, 1995). As of December 31, 1995, $973,000 was outstanding under the
Term Loan, which was repaid in March 1996. The Term Loan required the Company to
hold a restricted certificate of deposit in the amount of $472,968 at December
31, 1995.
(5) SHAREHOLDERS' EQUITY (DEFICIT):
The Company was originally capitalized with cash of $173,884 and property
and equipment valued at $26,116 from its founding shareholder. In August 1994,
the Company's certificate of incorporation
F-13
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(5) SHAREHOLDERS' EQUITY (DEFICIT):-(CONTINUED)
was amended to authorize the issuance of up to 25,000,000 shares of common stock
$0.01 par value per share and 1,000,000 shares of preferred stock $0.01 par
value per share. In May 1995, the Company's certificate of incorporation was
amended and restated to increase the authorized preferred stock to 3,000,000
shares and designate such authorized stock as Series A convertible preferred
stock. In March 1996, the Company's certificate of incorporation was amended to
increase the authorized preferred stock to 9,162,776 shares, and to designate
6,162,776 shares as Series B convertible preferred stock. In September 1996, the
Company's certificate of incorporation was amended to increase the authorized
common stock to 50,000,000 shares and to increase the authorized preferred stock
to 14,496,109 shares and to designate 5,333,333 shares as Series C convertible
preferred stock.
In 1994, the Company issued 700,000 shares of common stock pursuant to
consulting agreements and raised net proceeds of $1,913,900 from the issuance of
2,000,000 shares of common stock and warrants to purchase 500,000 shares of
common stock at $2.00 to an individual investor. Such warrants were immediately
exercisable and expire in August 1999.
In May 1995, the Company entered into a stock subscription agreement with a
venture capital firm that raised net proceeds of $2,950,861 and resulted in the
issuance of 3,000,000 shares of Series A convertible preferred stock and
warrants to purchase 750,000 shares of common stock with an exercise price of
$2.00 per share. Such warrants were immediately exercisable and expire in May
2000.
In March 1996, the Company entered into a stock subscription agreement with
two venture capital firms and other investors that raised net proceeds of
$11,092,997 and resulted in the issuance of 6,162,776 shares of Series B
convertible preferred stock. In connection with this offering, an investor was
issued warrants to acquire 2,528,194 common shares at an exercise price of $2.00
per share, which expired unexercised in September 1996.
In October 1996, the Company entered into a stock subscription agreement
with two venture capital firms and other investors that raised net proceeds of
$15,926,700 and resulted in the issuance of 5,333,333 shares of Series C
convertible preferred stock.
The convertible preferred stock carries liquidation rights equal to the
original issue price plus any declared but unpaid dividends. In the event of any
liquidation of the Company, the priority of distribution of available funds to
shareholders is as follows: Series C convertible preferred to the indicated
preference; then Series B convertible preferred to the indicated preference;
then Series A convertible preferred to the indicated preference, with the
remainder to the common shareholders. The convertible preferred stock bears
noncumulative dividends at the rate of $0.08 per annum for Series A, $0.18 per
annum for Series B and $0.30 per annum for Series C. No preferred dividends have
been declared or paid.
All convertible preferred stock carries the same voting rights as common
stock and are convertible at any time at the request of the holder into the same
number of shares of common stock, subject to certain antidilution provisions.
Also, upon the closing of a firm commitment of an underwritten public offering
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended, with an aggregate public offering price equal to or
exceeding $10,000,000 and a public
F-14
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(5) SHAREHOLDERS' EQUITY (DEFICIT):-(CONTINUED)
offering price per share equal to or exceeding $5.00 per share, as adjusted,
both before underwriters' discounts and commissions, the convertible preferred
stock will automatically convert into the same number of shares of common stock.
In December 1995, an investor guaranteed the $1,500,000 Term Loan (see Note
4) to the Company by a bank. In return for the guarantee, the Company issued
warrants to the investor to purchase 75,000 shares of common stock at a price of
$1.00 per share, which were immediately exercisable and expire in December 2000.
In September 1996, the Company entered into an agreement with an investor
to issue warrants to acquire up to 2,400,000 shares of common stock at an
exercise price of $3.30 per share, contingent upon the investor meeting certain
conditions. These conditions included providing assistance with new technologies
and business expansion opportunities. The Company did not value such warrants at
December 31, 1996 as it was unable to estimate if and when the contingencies
would be met. On January 30, 1997, the Company's Board of Directors concluded
that the warrants were exercisable and placed a value on them of $227,000 using
the Black-Scholes option pricing model. The Company expects to benefit from the
new technologies relating to the warrant issuance over a two year period and,
accordingly, is charging the cost to expense over a two-year period. In March
1997, the investor exercised the warrants resulting in net proceeds to the
Company of $7,920,000 and the issuance of 2,400,000 shares of common stock.
In March 1997, the Company entered into a five-year agreement with CBS Inc.
("CBS"). In consideration of the advertising and promotional efforts of
CBS and its license to the Company of the right to use certain CBS logos and
television-related sports content, CBS will receive 7,750,000 shares of common
stock over the term of the agreement (1,880,683, 1,839,506, 1,397,470, 1,418,948
and 1,213,393 shares in 1997, 1998, 1999, 2000 and 2001, respectively). CBS will
also have the right to receive 60% of the Company's advertising revenue on
cbs.sportsline.com pages related to certain "signature events" (such as
the NCAA Men's Basketball Tournament, the 1998 Winter Olympics, U.S. Open
tennis, PGA Tour events and the Daytona 500) and 50% of the Company's
advertising revenue on other cbs.sportsline.com pages containing CBS
television-related sports content. The CBS agreement also provides that the
Company shall issue to CBS on the first business day of each contract year
warrants to purchase 950,000 shares of common stock at per share exercise prices
ranging from $4.00 in 1997 to $12.00 in 2001. Such warrants are exercisable at
any time during the contract year in which they are granted. As such common
shares and warrants to purchase common stock and the content and advertising
pursuant to the CBS agreement are firmly committed under the CBS agreement, and
are not contingent upon any future events, such shares and warrants issued and
to be issued are valued based on the fair value of the Company's common stock
upon execution of the CBS agreement. The value recorded upon execution of the
CBS agreement for shares and warrants issued in March 1997 and for each
subsequent contract year, will be recorded on the balance sheet as deferred
advertising and content costs and amortized to depreciation and amortization
expense over each related contract year. Amounts amortized to expense in the
three months ended March 31, 1997 totaled $815,000.
F-15
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(5) SHAREHOLDERS' EQUITY (DEFICIT):-(CONTINUED)
The Company has reserved sufficient shares of its common stock to cover
conversion of the convertible preferred stock, issuance of common stock under
the CBS agreement, exercise of common stock warrants and the stock option,
incentive compensation and employee stock purchase plans discussed in Notes 6
and 9.
The Equipment Line discussed in Note 4 contains covenants that restrict the
Company from paying dividends in excess of $750,000 without the lender's prior
written consent.
(6) WARRANTS, STOCK OPTIONS AND RETIREMENT PLAN:
Common stock warrants issued in 1995 and 1996 to non-employees for services
rendered primarily under consulting agreements were valued on the date of grant
using the Black-Scholes option pricing model. The following is a summary of
warrants granted, canceled and outstanding and the assumptions utilized
involving the grants in 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---------------------------------- -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------ ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Warrants outstanding,
beginning of year ...... 1,075,000 $2.00 2,025,000 $2.05
Granted ............... 950,000 2.12 625,000 2.18
Canceled ............... - - (32,500) 2.00
----------- ----------
Warrants outstanding,
end of year ............ 2,025,000 2.05 2,617,500 2.09
=========== ==========
</TABLE>
The range of exercise prices of warrants outstanding at December 31, 1996
was $1.00 - $5.00. The weighted average fair value of warrants granted during
1995 and 1996 was $0.09 and $0.90, respectively. There were 2,417,500 warrants
exercisable at December 31, 1996. Warrants to acquire 2,400,000 common shares
subject to certain contingencies referred to in Note 5 have not been included in
the above information.
During the three months ended March 31, 1997, an additional 1,374,000
warrants were granted, including 950,000 warrants granted under the CBS
agreement. Such warrants have exercise prices ranging from $2.00 to $4.00.
Warrants outstanding at March 31, 1997 totaled 3,991,500, of which 3,469,000
were then exercisable.
Assumptions utilized to value warrants are as follows:
<TABLE>
<CAPTION>
RISK-FREE
VOLATILITY DIVIDEND YIELD INTEREST RATES ESTIMATED LIVES
------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1995 grants ...... 40% 0% 5.6% - 7.0% 4-6 years
1996 grants ...... 40% 0% 5.3% - 6.6% 4-7 years
</TABLE>
Common stock warrants issued for services rendered under consulting
agreements prior to January 1, 1995 were valued by management based on their
evaluation of the services rendered and
F-16
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(6) WARRANTS, STOCK OPTIONS AND RETIREMENT PLAN:-(CONTINUED)
management's estimated fair value of the securities issued, which would not be
materially different than results obtained by applying the methodology utilized
in valuing the warrants in 1995 and 1996.
In 1995, the Company adopted the SportsLine USA, Inc. 1995 Stock Option
Plan (the "1995 Plan") under which the Company is authorized to issue a
total of 2,100,000 incentive stock options and nonqualified stock options to
purchase common stock to be granted to employees, nonemployee members of the
Board of Directors and certain consultants or independent advisors who provide
services to the Company. Under the 1995 Plan, options to purchase common stock
may be granted at prices less than, equal to or in excess of the market value of
the Company's common stock, as determined by the Board of Directors. Options
become exercisable for 25% of the option shares upon the optionee's completion
of one year of service, as defined, with the balance vesting in successive equal
monthly installments upon the optionee's completion of each of the next 36
months of service. The maximum term of the options is 10 years.
A summary of the Company's stock option plan as of December 31, 1995 and
1996, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1995 1996
--------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ------------------- ----------- ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ...... - $ - 848,000 $0.25
Granted .............................. 848,000 0.25 870,750 0.83
Exercised ........................... - - (4,687) 0.25
Forfeited ........................... - - (63,313) 0.25
-------- ---------
Outstanding at end of year ............ 848,000 0.25 1,650,750 0.55
======== =========
Options exercisable at end of year 83,000 0.25 287,949 0.25
======== =========
</TABLE>
The weighted average fair value of options granted during 1995 and 1996 was
$0.10 and $0.44, respectively.
During the three months ended March 31, 1997, an additional 416,000 options
were granted with an exercise price ranging from $2.00 to $4.00. As of March 31,
1997, options to purchase a total of 2,037,792 shares of common stock were
outstanding, of which 395,504 were then exercisable.
F-17
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(6) WARRANTS, STOCK OPTIONS AND RETIREMENT PLAN:-(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------------
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1996 LIFE EXERCISE PRICE 1996 EXERCISE PRICE
- ------------------ ----------------- -------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.25 1,367,000 8.74 $0.25 287,949 $0.25
2.00 283,750 9.70 2.00 - -
----------- ---------
0.25 to 2.00 1,650,750 8.90 0.55 287,949 0.25
=========== =========
</TABLE>
Pro forma information is required by SFAS No. 123 and has been determined
as if the Company had accounted for its stock-based compensation plans under the
fair value method. The fair value of each option grant was estimated at the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1995 and 1996, respectively:
risk-free interest rates of 5.4% to 6.5% and 6.0% to 6.6%, dividend yield of 0%
for both years, expected volatility of 40% for both years and expected life of
4.39 for both years. The Company's pro forma information follows for the years
ended December 31,:
<TABLE>
<CAPTION>
1995 1996
--------------------- --------------------
<S> <C> <C>
Net loss - As reported $ (5,329,903) $ (12,970,982)
Pro forma (5,340,470) (13,017,564)
Net loss per share - As reported (see Note 2)
Pro forma (see Note 2)
</TABLE>
In January 1996, the Company adopted the SportsLine USA, Inc. Retirement
Plan that qualifies under Section 401(k) of the Internal Revenue Code. Under
this plan, participating employees, as defined, may defer a portion of their
pretax earnings, up to the Internal Revenue Service annual contribution limits.
There is currently no matching of employee contributions by the Company.
(7) INCOME TAXES:
No provision for Federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1996. At December
31, 1996, the Company had approximately $18,000,000 of net operating loss
carryforwards for Federal income tax reporting purposes available to offset
future taxable income; such carryforwards expire from 2009 to 2011. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50% over a three year period. At
December 31, 1996, the effect of such limitation, if imposed, is not expected to
be significant.
Deferred tax assets at December 31, 1995 and 1996 consist primarily of the
tax effect of net operating loss carryforwards which amounted to approximately
$1,925,000 and $6,335,000, respectively.
F-18
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(7) INCOME TAXES:-(CONTINUED)
Other deferred tax assets and liabilities are not significant. The Company has
provided a full valuation allowance on the deferred tax assets at December 31,
1995 and 1996 as it is management's belief that realization of such amounts do
not meet the criteria required by generally accepted accounting principles.
Management will review the valuation allowance requirement periodically and make
adjustments as warranted.
(8) COMMITMENTS AND CONTINGENCIES:
The Company leases its office facility and computer and communications
equipment under noncancellable leases that expire on various dates through 2001.
The office leases require the Company to pay operating costs, including property
taxes and maintenance and include rent adjustment clauses.
Under the terms of one office lease, the Company has provided a letter of
credit to the landlord. The letter of credit is secured by a restricted
certificate of deposit of approximately $139,000 as of December 31, 1996.
Rent expense amounted to approximately $81,000, $97,000 and $80,000 for the
years ended December 31, 1995 and 1996, and for the three months ended March 31,
1997, respectively.
Future minimum lease payments for all leases are as follows as of December
31, 1996:
CAPITAL OPERATING
----------- ------------
1997 .................................... $232,516 $ 250,000
1998 .................................... 132,142 252,000
1999 .................................... - 241,000
2000 .................................... - 182,000
2001 .................................... - 97,000
-------- ----------
Total minimum lease payments ............ 364,658 $1,022,000
==========
Less: amount representing interest ...... (35,633)
--------
Lease obligations reflected as current
($200,945) and noncurrent ($128,080) ...... $329,025
========
In January 1997, the Company paid the balance of its telecommunication
capital lease; this payment is reflected in the 1997 payment above.
F-19
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES:-(CONTINUED)
The Company has entered into various licensing, royalty and consulting
agreements with various content providers, vendors and sports celebrities. The
remaining terms of these agreements range from one to five years. These
agreements provide for the payment of royalties, bounties and certain guaranteed
amounts on a per member and/or a minimum dollar amount basis. Minimum guaranteed
payments required under such agreements are as follows as of December 31, 1996:
1997 ...... $537,000
1998 ...... 341,000
1999 ...... 20,000
2000 ...... 11,000
---------
$909,000
=========
On March 25, 1997, Weatherline, Inc. ("Weatherline"), a company that
provides pre-recorded weather and sports information by telephone, filed a
complaint against the Company in the United States District Court for the
Eastern District of Missouri. Weatherline owns a United States trademark
registration for the mark "Sportsline" for use in promoting the goods and
services of others by making sports information available to customers of
participating businesses through the telephone; and claims to have used the mark
for this purpose since 1968. The complaint alleges that the Company's use of
the mark "SportsLine USA" and other marks utilizing the term
"SportsLine" infringes upon and otherwise violates Weatherline's rights
under its registered trademark and damages Weatherline's reputation. The
complaint seeks a preliminary and permanent injunction against the Company from
using marks containing the term "Sportsline" or any other similar name or
mark which would be likely to cause confusion with Weatherline's mark. The
complaint also seeks actual and punitive damages and attorneys' fees. The
Company believes that its use of the "SportsLine" mark and
"SportsLine" derivative marks does not infringe upon or otherwise violate
Weatherline's trademark rights, and the Company intends to vigorously defend
itself against the action. The legal costs that may be incurred by the Company
in defending itself against this action could be substantial, and the litigation
could be protracted and result in diversion of management and other resources of
the Company. In a separate matter, a request for an extension of time to oppose
the Company's application to register the current version of the SportsLine USA
logo has been filed by Weatherline with the United States Patent and Trademark
Office.
From time to time, the Company may be involved in other litigation relating
to claims arising out of its operations in the normal course of business. The
Company is not currently a party to any other legal proceedings, the adverse
outcome of which, individually or in the aggregate, would have a material
adverse effect on the Company's financial position or results of operations.
(9) SUBSEQUENT EVENTS:
On April 14, 1997, the Company's Board of Directors authorized the filing
of a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock in connection with an
initial public offering ("IPO"). If the offering satisfies the conditions
described in Note 5, each share of the Series A, B and C Convertible Preferred
Stock outstanding at the completion of the offering will automatically convert
into one share of common stock upon completion of the IPO.
F-20
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1997 ARE UNAUDITED)
(9) SUBSEQUENT EVENTS:-(CONTINUED)
On April 14, 1997, the Board of Directors authorized the filing of an
Amended and Restated Certificate of Incorporation upon the completion of the
IPO. Pursuant to the terms of the Amended and Restated Certificate of
Incorporation, the Board of Directors will be authorized to issue up to an
aggregate of 1,000,000 shares of preferred stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or designations of
such series. The Company has no present plans to issue any shares of preferred
stock.
On April 14, 1997, the Company adopted the 1997 Incentive Compensation Plan
(the "Incentive Plan"). Pursuant to the Incentive Plan, the total number
of shares of common stock that may be subject to the granting of awards shall be
equal to: (i) 2,000,000 shares, plus (ii) the number of shares with respect to
awards previously granted under the Incentive Plan that terminate without being
exercised, expire, are forfeited or canceled, and the number of shares of common
stock that are surrendered in payment of any awards or any tax withholding
requirements. The Incentive Plan will become effective upon completion of the
IPO. The Incentive Plan provides for grants of stock options, stock appreciation
rights, restricted stock, deferred stock, other stock-related awards and
performance or annual incentive awards at not less than the fair market value of
the underlying common stock that may be settled in cash, stock or other
property.
On April 14, 1997, the Company also adopted the Employee Stock Purchase
Plan (the "Stock Purchase Plan") under which 500,000 shares of common
stock are reserved. The Stock Purchase Plan will become effective upon
completion of the IPO. The Stock Purchase Plan provides eligible employees, as
defined therein, the right to purchase shares of common stock. The purchase
price per share is equal to 85% of the fair market value as of certain
measurement dates. Such purchases are limited in any calendar year to the lower
of 25% of the employee's total annual compensation or $25,000.
F-21
<PAGE>
[RESERVED FOR ARTWORK]
<PAGE>
[SPORTSLINE USA LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
Securities and Exchange Commission registration fee ............. $13,940
NASD filing fee ................................................. 5,100
Nasdaq National Market listing fee ............................... *
Printing expenses .............................................. *
Accounting fees and expenses ..................................... *
Legal fees and expenses ........................................ *
Fees and expenses (including legal fees) for qualifications
under state securities laws ..................................... *
Road show expenses .............................................. *
Transfer Agent's fees and expenses ............................. *
Miscellaneous .................................................... *
--------
Total .......................................................... *
========
- ----------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 145 of the Delaware General
Corporations Law to indemnify its directors and officers to the extent provided
in such statute. The Company's Amended and Restated Certificate of
Incorporation, filed as Exhibit 3.2 to this Registration Statement, provides
that the Company shall indemnify its executive officers and directors to the
fullest extent permitted by law either now or hereafter. The Company has also
entered into an agreement with each of its directors and certain of its
officers, in the form attached to this Registration Statement as Exhibit 10.2,
wherein it has agreed to indemnify each of them to the fullest extent permitted
by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
The Company intends to obtain prior to the closing of this offering
directors and officers liability insurance for the benefit of its directors and
certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has issued and sold the following securities without
registration under the Securities Act:
(1) On February 23, 1994, the registrant issued 3,800,000 shares of Common
Stock to Michael Levy for cash consideration of $173,884. In addition, Mr. Levy
subsequently contributed to the registrant as additional capital property and
equipment valued at $26,116.
II-1
<PAGE>
(2) In August 1994, the registrant issued to each of Joseph W. Namath and
James C. Walsh 250,000 shares of Common Stock and warrants to purchase 250,000
shares of Common Stock, in each case in consideration of consulting services
rendered and the execution of a license agreement between the registrant and a
corporation controlled by such individuals.
(3) In August 1994, the registrant issued to four individuals a total of
200,000 shares of Common Stock, in each case in consideration of consulting
services rendered and, in the case of one such individual, an additional $10,000
in cash.
(4) In August 1994, the registrant issued to a private investor 2,000,000
shares of Common Stock and warrants to purchase 500,000 shares of Common Stock
for aggregate cash consideration of $2,000,000.
(5) In May 1995, the registrant issued to two investors a total of
3,000,000 shares of Series A Preferred Stock and warrants to purchase 750,000
shares of Common Stock for aggregate cash consideration of $3,000,000.
(6) In March 1996, the registrant issued to 13 investors a total of
6,162,776 shares of Series B Preferred Stock for aggregate cash consideration of
$11,092,996. The registrant also issued to one of such investors warrants to
purchase an additional 2,528,914 shares of Common Stock, which warrants expired
unexercised in September 1996.
(7) In September 1996, the registrant issued to 13 investors a total of
5,333,333 shares of Series C Preferred Stock for aggregate cash consideration of
$15,999,999. The registrant also issued to one of such investors warrants to
purchase 2,400,000 shares of Common Stock, which warrants were exercised in
March 1997.
(8) In March 1997, the registrant issued to CBS 1,880,683 shares of Common
Stock and warrants to purchase 950,000 shares of Common Stock. The consideration
for such shares and warrants consisted of licenses to CBS logos and content and
CBS's agreement to provide the registrant specified minimum amounts of
advertising and promotion.
(9) Between August 1994 and March 31, 1997, the registrant issued warrants
to purchase a total of 3,041,500 shares of Common Stock to 30 individuals and
entities principally in exchange for advisory and consulting services and, in
the case of warrants issued to two entities, for providing the registrant
equipment financing and guaranteeing debt incurred by the registrant,
respectively.
(10) Between August 1995 and March 31, 1997, the registrant issued options
to purchase a total of 2,037,792 shares of Common Stock to employees pursuant to
the registrant's 1995 Stock Option Plan.
No underwriter was involved in any of the above sales of securities. All of
the above securities were issued in reliance upon the exemption set forth in
Section 4(2) of the Securities Act on the basis that they were issued under
circumstances not involving a public offering, or, in the case of certain
options and warrants to purchase Common Stock, Rule 701 of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -----------
<S> <C>
1.1 Proposed form of Underwriting Agreement*
3.1 Form of Amended and Restated Certificate of Incorporation**
3.2 Form of Amended and Restated Bylaws**
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of
the Common Stock being registered*
10.1 Registrant's 1995 Stock Option Plan**
10.2 Form of Indemnification Agreement between the Registrant and each of its directors and
executive officers**
10.3 Registrant's 1997 Incentive Compensation Plan**
10.4 Registrant's Employee Stock Purchase Plan**
10.5 Amended and Restated Investors' Rights Agreement dated as of September 25, 1996, among
the Registrant, the holders of the Registrant's Series A, Series B and Series C Preferred
Stock, The Estate of Burk Zanft and Michael Levy*
10.6 Agreement dated March 5, 1997 between the Registrant and CBS Inc.*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its
opinion to be filed as Exhibit 5.1)*
23.2 Consent of Arthur Andersen LLP**
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of
Attorney contained therein**
24.2 Secretary's Certificate of resolution of Board of Directors*
27.1 Financial Data Schedule**
<FN>
- ----------------
* To be filed by amendment.
** Filed herewith.
</FN>
</TABLE>
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission")
are not required under the related instructions, the required information is
contained in the financial statements and notes thereto or are not applicable,
and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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 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.
II-3
<PAGE>
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on April 16, 1997.
SPORTSLINE USA, INC.
By: /s/ MICHAEL LEVY
--------------------------------
Michael Levy, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael Levy and Ronald L. Tolliver his
true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, or any registration
statement relating to this offering to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, 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 substitutes, each acting alone, may lawfully 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 by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ MICHAEL LEVY President, Chief Executive Officer and Director April 16, 1997
- ----------------------- (principal executive officer)
Michael Levy
/s/ RICHARD TOLLIVER Chief Financial Officer (principal financial and April 16, 1997
- ----------------------- accounting officer
Ronald L. Tolliver
/s/ THOMAS CULLEN Director April 16, 1997
- -----------------------
Thomas Cullen
/s/ STEPHEN FLEMING Director April 16, 1997
- -----------------------
Stephen Fleming
/s/ GERRY HOGAN Director April 16, 1997
- -----------------------
Gerry Hogan
/s/ RICHARD B. HORROW Director April 16, 1997
- -----------------------
Richard B. Horrow
Director April 16, 1997
- -----------------------
Joseph Lacob
Director April 16, 1997
- -----------------------
Sean McManus
/s/ ANDREW NIBLEY Director April 16, 1997
- -----------------------
Andrew Nibley
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ LIESL PIKE Director April 16, 1997
- -----------------------
Liesl Pike
Director April 16, 1997
- -----------------------
Derek Reisfield
/s/ JAMES C. WALSH Director April 16, 1997
- -----------------------
James C. Walsh
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ----------- --------------
<S> <C> <C>
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated Bylaws
10.1 Registrant's 1995 Stock Option Plan
10.2 Form of Indemnification Agreement between the Registrant and each of its
directors and executive officers
10.3 Registrant's 1997 Incentive Compensation Plan
10.4 Registrant's Employee Stock Purchase Plan
23.2 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SPORTSLINE USA, INC.
(ORIGINALLY INCORPORATED ON FEBRUARY 23, 1994)
ARTICLE I
The name of the corporation is SPORTSLINE USA, INC. (hereinafter called
the "Company").
ARTICLE II
The address of the Company's registered office in the State of Delaware
is 32 Lookerman Square, Suite L-100, City of Dover, County of Kent and the name
of its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
The purpose for which the Company is formed is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
This Amended and Restated Certificate of Incorporation shall be
effective at ____ a.m. on ____________, 1997.
ARTICLE V
The aggregate number of shares of all classes of capital stock which
this Company shall have authority to issue is 51,000,000, consisting of (i)
50,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), and (ii) 1,000,000 shares of preferred stock, par value $0.01 per share
(the "Preferred Stock").
<PAGE>
The designations and the preferences, limitations and relative rights
of the Preferred Stock and the Common Stock of the Company are as follows:
A. PROVISIONS RELATING TO THE PREFERRED STOCK.
1. The Preferred Stock may be issued from time to time in
one or more classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications, limitations
and restrictions thereof as are stated and expressed herein and in the
resolution or resolutions providing for the issue of such class or series
adopted by the Board of Directors (the "Board") as hereinafter prescribed.
2. Authority is hereby expressly granted to and vested in
the Board to authorize the issuance of the Preferred Stock from time to time in
one or more classes or series, to determine and take necessary proceedings fully
to effect the issuance and redemption of any such Preferred Stock, and, with
respect to each class or series of the Preferred Stock, to fix and state by the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(a) whether or not the class or series is to have
voting rights, full or limited, or is to be without voting rights;
(b) the number of shares to constitute the class or
series and the designations thereof;
(c) the preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
(d) whether or not the shares of any class or series
shall be redeemable and if redeemable the redemption price or prices, and the
time or times at which and the terms and conditions upon which such shares shall
be redeemable and the manner of redemption;
(e) whether or not the shares of a class or series
shall be subject to the operation of retirement or sinking funds to be applied
to the purchase or redemption of such shares for retirement, and if such
retirement or sinking fund or funds be established, the annual amount thereof
and the terms and provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable
in cash, stock of the Company, or other property, the conditions upon which and
the times when such dividends are payable, the preference to or the relation to
the payment of the dividends payable on any other class or classes or series of
stock, whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
2
<PAGE>
(g) the preferences, if any, and the amounts thereof
which the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of, or upon any distribution of
the assets of, the Company;
(h) whether or not the shares of any class or series
shall be convertible into, or exchangeable for, the shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Company and the conversion price or prices or ratio or ratios or
the rate or rates at which such conversion or exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
(i) such other special rights and protective
provisions with respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other series thereof in any or all of the foregoing respects.
The Board may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock designated
for such class or series, and the shares so subtracted shall become authorized,
unissued and undesignated shares of the Preferred Stock.
B. PROVISIONS RELATING TO THE COMMON STOCK.
1. Except as otherwise required by law or as may be provided
by the resolutions of the Board authorizing the issuance of any class or series
of Preferred Stock, as hereinabove provided, all rights to vote and all voting
power shall be vested exclusively in the holders of the Common Stock.
2. Subject to the rights of the holders of the Preferred
Stock, the holders of the Common Stock shall be entitled to receive when, as and
if declared by the Board, out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled (if any) or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the Company shall be distributed pro rata
to the holders of the Common Stock in accordance with their respective rights
and interests to the exclusion of the holders of the Preferred Stock.
3
<PAGE>
C. GENERAL PROVISIONS.
1. Except as may be provided by the resolutions of the Board
authorizing the issuance of any class or series of Preferred Stock, as
hereinabove provided, cumulative voting by any stockholder is hereby expressly
denied.
2. No stockholder of the Company shall have, by reason of
its holding shares of any class or series of stock of the Company, any
preemptive or preferential rights to purchase or subscribe for any other shares
of any class or series of the Company now or hereafter to be authorized, and any
other equity securities, or any notes, debentures, warrants, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of any class, now or hereafter to be authorized, whether or not the issuance of
any such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend, voting or other rights of such stockholder.
ARTICLE VI
A. NUMBER AND TERM OF DIRECTORS. The Company's Board shall consist of
not less than three directors, with the exact number to be fixed from time to
time by resolution of the Board. The number of directors may be decreased at any
time and from time to time by a majority of the directors then in office, but
only to eliminate vacancies existing by reason of the death, resignation,
removal or expiration of the term of one or more directors. No decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. The Board shall be divided into three classes, Class I,
Class II and Class III. The number of directors elected to each class shall be
determined by the Board and shall be as nearly equal in number as possible. The
Board shall apportion any increase or decrease in the number of directorships
among the classes so as to make the number of directors in each class as nearly
equal as possible. Each director in Class I shall be elected to an initial term
to expire at the annual meeting next ensuing, each director in Class II shall be
elected to an initial term to expire one year thereafter, and each director in
Class III shall be elected to an initial term to expire two years thereafter, in
each case and until his or her successor is duly elected and qualified or until
his or her earlier resignation, death or removal from office. Upon the
expiration of the initial terms of office for each class of directors,
respectively, the directors of each class shall be elected for a term of three
years to serve until their successors are duly elected and qualified or until
their earlier resignation, death or removal from office.
B. DIRECTOR VACANCIES; REMOVAL. Whenever any vacancy on the Board
shall occur due to death, resignation, retirement, disqualification, removal,
increase in the number of directors, or otherwise, only a majority of directors
in office, although less than a quorum of the entire Board, may fill the vacancy
or vacancies for the balance of the unexpired term or terms, at which time a
successor or successors shall be duly elected by the stockholders and qualified.
Stockholders shall not, and shall have no power to, fill any vacancy on the
Board. Stockholders may remove a director from office prior to the expiration of
his or her term, but only for "cause" by an affirmative vote of at least eighty
percent (80%) of the combined voting power of the
4
<PAGE>
outstanding shares of capital stock of the Company entitled to vote for the
election of directors, voting together as a single class.
C. AMENDMENT, ALTERATION OR REPEAL. The affirmative vote of at least
eighty percent (80%) of the combined voting power of the outstanding shares of
capital stock of the Company entitled to vote for the election of directors,
voting together as a single class, shall be required to amend, alter or repeal,
or adopt any provision inconsistent with, this Article VI.
ARTICLE VII
A. ACTION BY STOCKHOLDERS WITHOUT MEETING. Any action required or
permitted to be taken by the stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders of the Company and may not
be effected by any consent in writing by such stockholders.
B. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of stockholders
of the Company may be called only by the Chairman of the Board or the Chief
Executive Officer of the Company or by the Board pursuant to a resolution
approved by a majority of the entire Board. Only business within the purpose or
purposes described in the notice required by Section 222 of the Delaware General
Corporation Law may be conducted at a special meeting of stockholders.
C. STOCKHOLDER NOMINATIONS AND PROPOSALS. Advance notice of stockholder
nominations for the election of directors and of business to be brought by
stockholders before any meeting of stockholders of the Company shall be given in
the manner provided by the ByLaws of the Company.
D. AMENDMENT, ALTERATION OR REPEAL. The affirmative vote of at least
eighty percent (80%) of the combined voting power of the outstanding shares of
capital stock of the Company entitled to vote for the election of directors,
voting together as a single class, shall be required to amend, alter or repeal,
or adopt any provision inconsistent with, this Article VII.
ARTICLE VIII
No director of the Company shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of the law, (iii)
under ss. 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper benefit. It is the
intent that this provision be interpreted to provide the maximum protection
against liability afforded to directors under the Delaware General Corporation
Law in existence either now or hereafter.
5
<PAGE>
ARTICLE IX
The Company shall indemnify and shall advance expenses to its officers
and directors to the fullest extent permitted by law in existence either now or
hereafter.
ARTICLE X
The Directors of the Company shall have the power to adopt, amend or
repeal the bylaws of the Company.
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation, which restates and integrates and further amends
the Amended and Restated Certificate of Incorporation as heretofore amended and
supplemented, and which has been duly adopted and approved pursuant to Section
242 and 245 of the Delaware General Corporation Law to be signed by Michael
Levy, its President, this _____ day of ______________, 1997.
SPORTSLINE USA, INC.
By:
---------------------
Michael Levy
President
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
SPORTSLINE USA, INC.
(A DELAWARE CORPORATION)
(APRIL 1997)
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
PAGE
NUMBER
------
<S> <C>
ARTICLE ONE - OFFICES....................................................................1
Section 1. Registered Office...................................................1
Section 2. Other Offices.......................................................1
ARTICLE TWO- MEETINGS OF STOCKHOLDERS....................................................1
Section 1. Place...............................................................1
Section 2. Time of Annual Meeting..............................................1
Section 3. Call of Special Meetings............................................1
Section 4. Conduct of Meetings.................................................1
Section 5. Notice and Waiver of Notice.........................................2
Section 6. Business of Special Meeting.........................................2
Section 7. Quorum..............................................................2
Section 8. Required Vote.......................................................2
Section 9. Voting of Shares....................................................3
Section 10. Proxies.............................................................3
Section 11. Stockholder List....................................................3
Section 12. Action Without Meeting..............................................3
Section 13. Fixing Record Date..................................................3
Section 14. Inspectors and Judges...............................................3
Section 15. Advance Notice of Stockholder Proposed Business at Annual
Meeting.............................................................4
ARTICLE THREE - DIRECTORS................................................................5
Section 1. - Number, Election and Term...............................................5
Section 2. Vacancies; Removal..................................................5
Section 3. Powers..............................................................5
Section 4. Place of Meetings...................................................5
Section 5. Annual Meeting......................................................5
Section 6. Regular Meetings....................................................6
Section 7. Special Meetings and Notice.........................................6
Section 8. Quorum and Required Vote............................................6
Section 9. Action Without Meeting..............................................6
Section 10. Telephone Meetings..................................................6
Section 11. Committees..........................................................7
Section 12. Compensation of Directors...........................................7
Section 13. Chairman of the Board...............................................7
Section 14. Stockholder Nominations of Director Candidates......................7
ARTICLE FOUR - OFFICERS..................................................................8
Section 1. Positions...........................................................8
Section 2. Election of Specified Officers by Board.............................8
Section 3. Election or Appointment of Other Officers...........................8
Section 4. Salaries............................................................8
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Section 5. Term................................................................9
Section 6. President...........................................................9
Section 7. Vice Presidents.....................................................9
Section 8. Secretary...........................................................9
ARTICLE FIVE - CERTIFICATES FOR SHARES...................................................9
Section 1. Issue of Certificates...............................................9
Section 2. Legends for Preferences and Restrictions on Transfer...............10
Section 3. Facsimile Signatures...............................................10
Section 4. Lost Certificates..................................................10
Section 5. Transfer of Shares.................................................11
Section 6. Registered Stockholders............................................11
ARTICLE SIX - GENERAL PROVISIONS........................................................11
Section 1. Dividends..........................................................11
Section 2. Reserves...........................................................11
Section 3. Checks.............................................................11
Section 4. Fiscal Year........................................................11
Section 5. Seal...............................................................11
ARTICLE SEVEN - AMENDMENTS OF BYLAWS....................................................12
</TABLE>
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SPORTSLINE USA, INC.
AMENDED AND RESTATED BYLAWS
---------------------------
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of SPORTSLINE USA,
INC., a Delaware corporation (the "Corporation"), shall be located in the City
of Dover, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Delaware, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All annual meetings of stockholders shall be held at
such place, within or without the State of Delaware, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of stockholders may be held at such
place, within or without the State of Delaware, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of stockholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided, that there shall be an annual meeting held every
calendar year at which the stockholders shall elect a board of directors and
transact such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of stockholders
of the Company may be called only by the Chairman of the Board or by the Board
pursuant to a resolution approved by a majority of the entire Board.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and
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special meetings of stockholders and shall be given full discretion in
establishing the rules and procedures to be followed in conducting the meetings,
except as otherwise provided by law or in these Bylaws.
Section 5. NOTICE AND WAIVER OF NOTICE. Written or printed notice
stating the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the day of
the meeting, either personally or by first-class mail, by or at the direction of
the President, the Secretary, or the officer or person calling the meeting, to
each stockholder of record entitled to vote at such meeting. If the notice is
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid. If a
meeting is adjourned to another time and/or place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the Board of Directors, after
adjournment, fixes a new record date for the adjourned meeting or if the
adjournment is for more than 30 days. Notice need not be given to any
stockholder who submits a written waiver of notice by him before or after the
time stated therein. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when a stockholder attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
Section 6. BUSINESS OF SPECIAL MEETING. Only business within the
purpose or purposes described in the notice required by Section 222 of the
Delaware General Corporation Law may be conducted at a special meeting of
stockholders.
Section 7. QUORUM. The holders of a majority of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at meetings
of stockholders except as otherwise provided in the Corporation's certificate of
incorporation (the "Certificate of Incorporation"). If, however, a quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders present in person or represented by proxy shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally notified
and called. The stockholders present at a duly organized meeting may continue to
transact business notwithstanding the withdrawal of some stockholders prior to
adjournment, but in no event shall a quorum consist of the holders of less than
one-third (1/3) of the shares entitled to vote and thus represented at such
meeting.
Section 8. REQUIRED VOTE. The vote of the holders of a majority of the
shares entitled to vote and represented at a meeting at which a quorum is
present shall be the act of the Corporation's stockholders, unless the vote of a
greater number is required by law, the Certificate of Incorporation, or these
Bylaws.
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Section 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to vote on each matter submitted to a vote at a meeting
of stockholders, except to the extent that the voting rights of the shares of
any class are limited or denied by the Certificate of Incorporation or the
General Corporation Law of Delaware.
Section 10. PROXIES. A stockholder may vote in person or by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No proxy shall be voted or acted upon after three (3) years
from the date of its execution unless otherwise provided in the proxy. Each
proxy shall be revocable unless expressly provided therein to be irrevocable,
and unless otherwise made irrevocable by law.
Section 11. STOCKHOLDER LIST. The officer or agent having charge of the
Corporation's stock transfer books shall make, at least ten (10) days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of, and the number and class and series, if any, of shares held
by each. Such list, for a period of ten (10) days prior to such meeting, shall
be subject to inspection by any stockholder at any time during the usual
business hours at the place where the meeting is to be held. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any stockholder during the whole time of the
meeting. The original stock transfer books shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer book or to
vote at any such meeting of stockholders.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the stockholders of the Company must be effected at a duly called
annual or special meeting of stockholders of the Company and may not be effected
by any consent in writing by such stockholders.
Section 13. FIXING RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of stockholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of stockholders.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section, such determination shall
apply to any adjournment thereof, except where the Board of Directors fixes a
new record date for the adjourned meeting.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as
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the case may be, to act at the meeting or any adjournment thereof. If any
inspector or inspectors, or judge or judges, are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors or
judges. In case any person who may be appointed as an inspector or judge fails
to appear or act, the vacancy may be filled by the Board of Directors in advance
of the meeting, or at the meeting by the person presiding thereat. The
inspectors or judges, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots and consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate
votes, ballots and consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. ADVANCE NOTICE OF STOCKHOLDER PROPOSED BUSINESS AT ANNUAL
MEETING. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board, (b) otherwise properly brought before the meeting by or at the
direction of the Board, or (c) otherwise properly brought before the meeting by
a stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Company. To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company, not less than one
hundred twenty (120) days nor more than one hundred fifty (150) days prior to
the first anniversary of the date of the Company's notice of annual meeting
provided with respect to the previous year's annual meeting; provided, however,
that if no annual meeting was held in the previous year or the date of the
annual meeting has been changed to be more than thirty (30) calendar days
earlier than or sixty (60) calendar days after such anniversary, such notice by
the stockholder to be timely must be so received not more than ninety (90) days
nor later than the later of (i) sixty (60) days prior to the annual meeting or
(ii) the close of business on the tenth (10th) day following the date on which
notice of the date of the annual meeting is given to stockholders or made
public, whichever first occurs. Such stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of capital stock of the Company
which are beneficially owned by the stockholder, and (iv) any material interest
of the stockholder in such business. The Chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the requirements of this
Article Two, Section 15, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be transacted.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article Two, Section
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15; provided, however, that nothing in this Article Two, Section 15 shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure.
ARTICLE THREE
DIRECTORS
---------
Section 1. - NUMBER, ELECTION AND TERM NUMBER, ELECTION AND TERM. The
number of directors of the Corporation shall be fixed from time to time, within
the limits specified by the Certificate of Incorporation, by resolution of the
Board of Directors; provided, however, no director's term shall be shortened by
reason of a resolution reducing the number of directors. The directors shall be
divided into classes and be elected and hold office for such term or terms as
provided in the Certificate of Incorporation. Directors need not be residents of
the State of Delaware, stockholders of the Corporation or citizens of the United
States.
Section 2. VACANCIES; REMOVAL. A director may resign at any time by
giving written notice to the Board of Directors or the Chairman of the Board.
Such resignation shall take effect at the date of receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Whenever any vacancy on the Board shall occur due to death, resignation,
retirement, disqualification, removal, increase in the number of directors, or
otherwise, only a majority of directors in office, although less than a quorum
of the entire Board, may fill the vacancy or vacancies for the balance of the
unexpired term or terms, at which time a successor or successors shall be duly
elected by the stockholders and qualified. Stockholders shall not, and shall
have no power to, fill any vacancy on the Board. Stockholders may remove a
director from office prior to the expiration of his or her term, but only for
"cause" by an affirmative vote of at least eighty percent (80%) of the combined
voting power of the outstanding shares of capital stock of the Company entitled
to vote for the election of directors, voting together as a single class.
Section 3. POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised and done by the stockholders.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Delaware.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of stockholders.
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Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board and shall be called by
the Secretary on the written request of any two directors. Written notice of
special meetings of the Board of Directors shall be given to each director at
least twenty-four (24) hours before the meeting. Except as required by law,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. Notices to directors shall be in writing and
delivered personally or mailed to the directors at their addresses appearing on
the books of the Corporation. Notice by mail shall be deemed to be given at the
time when the same shall be received. Notice to directors may also be given by
telegram, and shall be deemed delivered when the same shall be deposited at a
telegraph office for transmission and all appropriate fees therefor have been
paid. Whenever any notice is required to be given to any director, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a director at a meeting shall constitute a
waiver of notice of such meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 8. QUORUM AND REQUIRED VOTE. A majority of the directors shall
constitute a quorum for the transaction of business and the act of the majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless a greater number is required by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present. At such adjourned meeting at which a quorum shall be
present, any business may be transacted that might have been transacted at the
meeting as originally notified and called.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.
Section 10. TELEPHONE MEETINGS. Directors and committee members may
participate in and hold a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meetings shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground the meeting is not lawfully called or convened.
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Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the whole Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Vacancies in the membership of a committee shall be filled by the
Board of Directors at a regular or special meeting of the Board of Directors.
The executive committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
stockholders and of the directors. The Chairman of the Board shall have such
other powers and shall perform such other duties as shall be designated by the
Board of Directors. The Chairman of the Board shall be a member of the Board of
Directors but no other officers of the Corporation need be a director. The
Chairman of the Board shall serve until his successor is chosen and qualified,
but he may be removed at any time by the affirmative vote of a majority of the
Board of Directors.
Section 14. STOCKHOLDER NOMINATIONS OF DIRECTOR CANDIDATES. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation. Nominations of persons
for election to the Board at an annual or special meeting of stockholders may be
made by or at the direction of the Board by any nominating committee or person
appointed by the Board or by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article Three, Section 14; provided, however, that
nominations of persons for election to the Board at a special meeting may be
made only if the election of directors is one of the purposes described in the
special meeting notice required by Section 222 of the Delaware General
Corporation Law. Nominations of persons for election at annual meetings, other
than nominations made by or at the direction of the Board, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company, not less than one hundred twenty
(120) days nor more than one hundred fifty (150) days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting; provided, however, that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed to be more than thirty (30) calendar days earlier than or sixty
(60) calendar days after such anniversary, such notice by the
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stockholder to be timely must be so received not more than ninety (90) days nor
later than the later of (i) sixty (60) days prior to the annual meeting or (ii)
the close of business on the tenth (10th) day following the date on which notice
of the date of the annual meeting is given to stockholders or made public,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of the proposed nominee, (ii) the principal occupation or
employment of the proposed nominee, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the proposed
nominee, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice, (i) the name and record address of
stockholder, and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as director of the Corporation. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth herein. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE FOUR
OFFICERS
--------
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents and a Secretary and, if elected by the
Board of Directors by resolution, a Chairman of the Board. Any two or more
offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of stockholders shall
elect a President, one or more Vice Presidents and a Secretary.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
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Section 5. TERM. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors or the President of the Corporation may be
removed, with or without cause, by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officers or agents appointed by the President of the Corporation
pursuant to Section 3 of this Article Four may also be removed from such officer
positions by the President, with or without cause. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise shall be
filled by the Board of Directors, or, in the case of an officer appointed by the
President of the Corporation, by the President or the Board of Directors.
Section 6. PRESIDENT. The Chief Executive Officer shall have general
and active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. In the
absence of the Chairman of the Board or in the event the Board of Directors
shall not have designated a chairman of the board, the Chief Executive Officer
shall preside at meetings of the stockholders and the Board of Directors.
Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the stockholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
ARTICLE FIVE
CERTIFICATES FOR SHARES
-----------------------
Section 1. ISSUE OF CERTIFICATES. The shares of the Corporation shall
be represented by certificates, provided that the Board of Directors of the
Corporation may provide by reso1lution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates (and upon request every holder of uncertificated shares) shall
be entitled to have a certificate signed by, or in the name of the Corporation
by the chairman or vice-chairman of the Board of Directors, or the
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President or Vice President, and by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, representing the
number of shares registered in certificate form.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. If the
Corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
A written restriction on the transfer or registration of transfer of a
security of the Corporation, if permitted by law and noted conspicuously on the
certificate representing the security may be enforced against the holder of the
restricted security or any successor or transferee of the holder including an
executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security, a restriction, even
though permitted by law, is ineffective except against a person with actual
knowledge of the restriction. If the Corporation issues any shares that are not
registered under the Securities Act of 1933, as amended, and registered or
qualified under the applicable state securities laws, the transfer of any such
shares shall be restricted substantially in accordance with the following
legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. FACSIMILE SIGNATURES. Any and all signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of the issue.
Section 4. LOST CERTIFICATES. The Corporation may issue a new
certificate of stock in place of any certificate therefore issued by it, alleged
to have been lost, stolen or
10
<PAGE>
destroyed, and the Corporation may require the owner of the lost, stolen, or
destroyed certificate, or his legal representative to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of the State
of Delaware.
ARTICLE SIX
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Certificate of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
11
<PAGE>
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
--------------------
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting;
provided, however, that the affirmative vote of either (i) at least eighty
percent (80%) of the combined voting power of the outstanding shares of capital
stock of the Company entitled to vote for the election of directors, voting
together as a single class, or (ii) the majority of the entire Board of
Directors, shall be required to alter, amend or repeal, or adopt any provision
inconsistent with, Sections 3, 6, 12 or 15 of Article Two, Sections 1, 2 or 14
of Article Three or this Article Seven.
12
EXHIBIT 10.1
SPORTSLINE USA, INC.
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the Lnterests of
SportsLine USA, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee members
of the board of directors of any Parent or Subsidiary, and
<PAGE>
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine which
eligible persons are to receive option grants under the Plan, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 1,000,000
shares.
B. shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regent provisions of Article
Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan and (ii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
2.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator and may be less than, equal to or greater than the Fair Market
Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Three and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the exercise price may
also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (A) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal state and local income and
employment taxes required to be withheld by the Corporation by reason
of such exercise and (B) to the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
3.
<PAGE>
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Permanent Disability or death, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option
held by such Optionee.
(ii) Should such Service terminate by reason of Permanent
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to
exercise each outstanding option held by such Optionee.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of
descent and distribution shall have a period of twelve (12) months
following the date of the Optionee's death during which to exercise
each such option.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shaL1
terminate immediately and cease to be outstanding.
(v) Under no circumstances, however, shall any such option
be exercisable after the specified expiration of the option term.
(vi) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease
4.
<PAGE>
to be outstanding to the extent it is not exercisable for vested shares
on the date of such cessation of Service.
(vii) In the event of a Corporate Transaction, the
provisions of Section III of this Article Two shall govern the period
for which the outstanding options are to remain exercisable following
the Optionee's cessation of Service and shall supersede any provisions
to the contrary in this section.
2. The Plan Administrator shall have the discretion, exercisable either
at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, all or
(at the discretion of the Corporation and with the consent of the Optionee) any
of those unvested shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is first
registered under Section l2(g) of the 1934 Act, the Corporation shall have the
right of first refusal with respect to any proposed disposition by the Optionee
(or any successor in interest) of any shares of Common Stock issued under the
Plan. Such right of first refusal
5.
<PAGE>
shall be exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II all the provisions of
the Plan shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one hundred percent (100a) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (l) calendar year shall
not exceed the sum of one Hundred Thousand Dollars (S100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred
6.
<PAGE>
ten percent (110%) of the Fair Market Value per share of Common Stock on the
option grant date and the option term shall not exceed five (5) years measured
from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option under the Plan shall not so accelerate if and to
the extent: (i) such option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof)' or (ii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at the
time of the option grant. The determination of option comparability shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and- class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction shall remain exercisable as an Incentive Option only to
the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent
7.
<PAGE>
such dollar limitation is exceeded, the accelerated portion of such option
shall be exercisable as a Non-Statutory Option under the Federal tax laws.
F. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
8.
<PAGE>
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. In all events, the maximum credit available to the Optionee may
not exceed the sum of (i) the aggregate option exercise price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee in connection with the option exercise.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the Plan, then all
options previously granted under the Plan shall terminate and cease to be
outstanding and no further options shall be granted. Subject to such limitation,
the Plan Administrator may grant options under the Plan at any time after the
effective date of the Plan and before the date fixed herein for termination of
the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration of
the ten (10)-year period measured from the date the Plan is adopted by the
30ard, (ii) the date on which all shares available for issuance under the Plan
shall have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all options
and unvested stock issuances outstanding under the Plan shall continue to have
full force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall, without the consent of the Optionees, adversely affect their
rights and obligations under their outstanding options. In addition, the Board
shall not, without the approval of the Corporation's stockholders, (i) increase
the maximum number of shares issuable under the Plan, except for permissible
adjustments in the event of certain changes
9.
<PAGE>
in the Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options may be granted under the Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided any such options actually granted may not be exercised until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan If
such stockholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the shares of Common Stock issued pursuant to
it.
VI. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining the Optionee) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate the Optionee's Service at
any time for any reason, with or without cause.
10.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. Corporate Transaction shall mean either of the following stockholder
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean SportsLine USA, Inc., a Delaware corporation.
G. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1.
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq
Nationa1 Market, then the Fair Market Value shall be the closing
selling price per share of Common stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq Nationa1 Market or any successor system. If there
is no closing selling price for the Common Stock on the' date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common stock as such price is officially quoted in the composite tape
of transaCtionS on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) If the Common Stock is at the time neither listed on
any Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
K. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
any non-discretionary and objective-standard incentive payment or bonus
award) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (S0) miles,
provided and only if such change, reduction or relocation is effected
without the individual's consent. .
M. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of
A-2.
<PAGE>
confidential information or trade secrets of the Corporation (or any Parent or
subsidiary)' or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the; Service of the Corporation (or any
Parent or Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
Q. PARENT shall mean any corporation (other than the corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50-o) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PERMANENT DISABILITY shall mean the inability of the Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
S. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
T. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
U. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
V. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
W. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
A-3.
<PAGE>
X. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporationS beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
Y. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
A-4.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of the ____ day of
___________, 1997, between SPORTSLINE USA, INC., a Delaware corporation (the
"Company"), and NAME, a resident of the State of STATE (the "Indemnitee").
RECITALS
A. [The Indemnitee is currently an officer and/or director of the
Company.] [The Company desires to retain the services of the Indemnitee as [an
officer][a director] of the Company.
B. As a condition to the Indemnitee's agreement to [continue to] serve
the Company, the Indemnitee requires that he be indemnified from liability to
the fullest extent permitted by law.
C. The Company is willing to indemnify the Indemnitee to the fullest
extent permitted by law to [obtain the benefit of the continued services
of][retain the services of] the Indemnitee.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
SECTION 1. MANDATORY INDEMNIFICATION IN PROCEEDINGS OTHER THAN THOSE
BY OR IN THE RIGHT OF THE COMPANY. Subject to Section 4 hereof, the Company
shall indemnify and hold harmless the Indemnitee from and against any and all
claims, damages, expenses (including attorneys' fees), judgments, penalties,
fines (including excise taxes assessed with respect to an employee benefit
plan), settlements, and all other liabilities incurred or paid by him in
connection with the investigation, defense, prosecution, settlement or appeal of
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) and to which the Indemnitee was or is a party or is
threatened to be made a party by reason of the fact that the Indemnitee is or
was an officer, director, shareholder, employee or agent of the Company, or is
or was serving at the request of the Company as an officer, director, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, or by reason of anything done
or not done by the Indemnitee in any such capacity or capacities, provided that
the Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
SECTION 2. MANDATORY INDEMNIFICATION IN PROCEEDINGS BY OR IN THE
RIGHT OF THE COMPANY. Subject to Section 4 hereof, the Company shall indemnify
and hold harmless the Indemnitee from and against any and all expenses
(including attorneys' fees) and amounts actually and reasonably incurred or paid
by him in connection with the investigation, defense, prosecution, settlement or
appeal of any threatened, pending or completed action, suit or proceeding by or
in the right of the Company to procure a judgment in
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its favor, whether civil, criminal, administrative or investigative, and to
which the Indemnitee was or is a party or is threatened to be made a party by
reason of the fact that the Indemnitee is or was an officer, director,
shareholder, employee or agent of the Company, or is or was serving at the
request of the Company as an officer, director, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, provided that (i) the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and (ii) no indemnification
shall be made under this Section 2 in respect of any claim, issue or matter as
to which the Indemnitee shall have been adjudged to be liable to the Company for
misconduct in the performance of his duty to the Company unless, and only to the
extent that, the court in which such proceeding was brought (or any other court
of competent jurisdiction) shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
SECTION 3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF
NEGLIGENCE. The Company shall reimburse the Indemnitee for any expenses
(including attorney's fees) and amounts actually and reasonably incurred or paid
by him in connection with the investigation, defense, settlement or appeal of
any action or suit described in Section 2 hereof that results in an adjudication
that the Indemnitee was liable for negligence, gross negligence or recklessness
(but not willful misconduct) in the performance of his duty to the Company;
provided, however, that the Indemnitee acted in good faith and in a manner he
believed to be in the best interests of the Company.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification
under Sections 1 and 2 hereof (unless ordered by a court) and any reimbursement
made under Section 3 hereof SHALL be made by the Company only as authorized in
the specific case upon a determination (the "Determination") that
indemnification or reimbursement of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth in Section 1, 2 or 3 hereof, as the case may be. Subject to Sections
5.6, 5.7 and 8 of this Agreement, the Determination shall be made in the
following order of preference:
(a) first, by the Company's Board of Directors (the
"Board") by majority vote or consent of a quorum consisting of directors
("Disinterested Directors") who are not, at the time of the Determination, named
parties to such action, suit or proceeding; or
(b) next, if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly designated
by the Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors; or
(c) next, if such a committee cannot be designated,
by any independent legal counsel (who may be any outside counsel regularly
employed by the Company) in a written opinion; or
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(d) next, if such legal counsel determination cannot
be obtained, by vote or consent of the holders of a majority of the Company's
common stock.
4.1. NO PRESUMPTIONS. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
4.2. BENEFIT PLAN CONDUCT. The Indemnitee's conduct with
respect to an employee benefit plan for a purpose he reasonably believed to be
in the interests of the participants in and beneficiaries of the plan shall be
deemed to be conduct that the Indemnitee reasonably believed to be not opposed
to the best interests of the Company.
4.3. Reliance as Safe Harbor. For purposes of any
Determination hereunder, the Indemnitee shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, or, with respect to any criminal action or proceeding,
to have had no reasonable cause to believe his conduct was unlawful, if his
action is based on (i) the records or books of account of the Company or another
enterprise, including financial statements, (ii) information supplied to him by
the officers of the Company or another enterprise in the course of their duties,
(iii) the advice of legal counsel for the Company or another enterprise, or (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof,
as the case may be.
4.4. SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Section 1 or 2 hereof, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (i) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of liability or guilt against him, (ii)
the expiration of 120 days after the making of any claim or threat of an action,
suit or proceeding without the institution of the same and without any promise
or payment made to induce a settlement, or (iii) the settlement of any action,
suit or proceeding under Section 1, 2 or 3 hereof pursuant to which the
Indemnitee pays less than $10,000.
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4.5. PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the
Indemnitee is entitled under any provision of this Agreement to indemnification
and/or reimbursement by the Company for some or a portion of the claims,
damages, expenses (including attorneys' fees), judgments, fines or amounts paid
in settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Section 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
SECTION 5. PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE
BEEN SATISFIED.
5.1. COSTS. All costs of making the Determination required
by Section 4 hereof shall be borne solely by the Company, including, but not
limited to, the costs of legal counsel, proxy solicitations and judicial
determinations. The Company shall also be solely responsible for paying (i) all
reasonable expenses incurred by the Indemnitee to enforce this Agreement,
including, but not limited to, the costs incurred by the Indemnitee to obtain
court-ordered indemnification pursuant to Section 8 hereof, regardless of the
outcome of any such application or proceeding, and (ii) all costs of defending
any suits or proceedings challenging payments to the Indemnitee under this
Agreement.
5.2. Timing of the Determination. The Company shall use its
best efforts to make the Determination contemplated by Section 4 hereof
promptly. In addition, the Company agrees:
(a) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later than 15 days
after a written request for a Determination (a "Request") is delivered to the
Company by the Indemnitee;
(b) if the Determination is to be made by independent
legal counsel, such Determination shall be made not later than 30 days after a
Request is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the
stockholders of the Company, such Determination shall be made not later than 90
days after a Request is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a Determination
may be made in advance of (i) the Indemnitee's payment (or incurring) of
expenses with respect to which indemnification or reimbursement is sought,
and/or (ii) final disposition of the action, suit or proceeding with respect to
which indemnification or reimbursement is sought.
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5.3. REASONABLENESS OF EXPENSES. The evaluation and finding
as to the reasonableness of expenses incurred by the Indemnitee for purposes of
this Agreement shall be made (in the following order of preference) within 15
days of the Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
(a) first, by the Board by a majority vote of a
quorum consisting of Disinterested Directors; or
(b) next, if a quorum cannot be obtained under
subdivision (a), by majority vote or consent of a committee duly designated by
the Board (in which designation all directors, whether or not Disinterested
Directors, may participate), consisting solely of two or more Disinterested
Directors; or
5.4. PAYMENT OF INDEMNIFIED AMOUNT. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to be
indemnified and/or reimbursed, as the case may be, without further authorization
or action by the Board; provided, however, that the expenses for which
indemnification or reimbursement is sought have actually been incurred by the
Indemnitee.
5.5. STOCKHOLDER VOTE ON DETERMINATION. Notwithstanding the
provisions of the Delaware Statute, the Indemnitee and any other stockholder who
is a party to the proceeding for which indemnification or reimbursement is
sought shall be entitled to vote on any Determination to be made by the
Company's stockholders, including a Determination made pursuant to Section 5.7
hereof. In addition, in connection with each meeting at which a stockholder
Determination will be made, the Company shall solicit proxies that expressly
include a proposal to indemnify or reimburse the Indemnitee. The Company proxy
statement relating to the proposal to indemnify or reimburse the Indemnitee
shall not include a recommendation against indemnification or reimbursement.
5.6. SELECTION OF INDEPENDENT LEGAL COUNSEL. If the
Determination required under Section 4 is to be made by independent legal
counsel, such counsel shall be selected by the Indemnitee with the approval of
the Board, which approval shall not be unreasonably withheld. The fees and
expenses incurred by counsel in making any Determination (including
Determinations pursuant to Section 5.8 hereof) shall be borne solely by the
Company regardless of the results of any Determination and, if requested by
counsel, the Company shall give such counsel an appropriate written agreement
with respect to the payment of their fees and expenses and such other matters as
may be reasonably requested by counsel.
5.7. RIGHT OF INDEMNITEE TO APPEAL AN ADVERSE DETERMINATION
BY BOARD. If a Determination is made by the Board or a committee thereof that
the Indemnitee did not meet the applicable standard of conduct set forth in
Section 1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a
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new Determination to be made by the Company's stockholders at the next regular
or special meeting of stockholders. Subject to Section 8 hereof, such
Determination by the Company's stockholders shall be binding and conclusive for
all purposes of this Agreement.
5.8. RIGHT OF INDEMNITEE TO SELECT FORUM FOR DETERMINATION.
If, at any time subsequent to the date of this Agreement, "Continuing Directors"
do not constitute a majority of the members of the Board, or there is otherwise
a change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of clause (3) of Section 4 hereof. If none of the legal counsel
selected by the Indemnitee are willing and/or able to make the Determination,
then the Company shall cause the Determination to be made by a majority vote or
consent of a Board committee consisting solely of Continuing Directors. For
purposes of this Agreement, a "Continuing Director" means either a member of the
Board at the date of this Agreement or a person nominated to serve as a member
of the Board by a majority of the then Continuing Directors.
5.9. ACCESS BY INDEMNITEE TO DETERMINATION. The Company
shall afford to the Indemnitee and his representatives ample opportunity to
present evidence of the facts upon which the Indemnitee relies for
indemnification or reimbursement, together with other information relating to
any requested Determination. The Company shall also afford the Indemnitee the
reasonable opportunity to include such evidence and information in any Company
proxy statement relating to a stockholder Determination.
5.10. JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In each
action or suit described in Section 2 hereof, the Company shall cause its
counsel to use its best efforts to obtain from the Court in which such action or
suit was brought (i) an express adjudication whether the Indemnitee is liable
for negligence or misconduct in the performance of his duty to the Company, and,
if the Indemnitee is so liable, (ii) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
SECTION 6. SCOPE OF INDEMNITY. The actions, suits and proceedings
described in Sections 1 and 2 hereof shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of the
Indemnitee both in his official capacities as a Company director or officer and
actions taken in another capacity while serving as director or officer,
including, but not limited to, actions or proceedings involving (i) compensation
paid to the Indemnitee by the Company, (ii) activities by the Indemnitee on
behalf of the Company, including actions in which the Indemnitee is plaintiff,
(iii) actions alleging a misappropriation of a "corporate opportunity," (iv)
responses to a takeover attempt or threatened takeover attempt of the Company,
(v) transactions by the Indemnitee in Company securities, and (vi) the
Indemnitee's preparation for and appearance (or potential appearance) as a
witness in any proceeding relating, directly or indirectly, to the Company. In
addition, the Company agrees that, for purposes of this Agreement, all services
performed by the Indemnitee on behalf of, in connection with or related
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to any subsidiary of the Company, any employee benefit plan established for the
benefit of employees of the Company or any subsidiary, any corporation or
partnership or other entity in which the Company or any subsidiary has a 5%
ownership interest, or any other affiliate shall be deemed to be at the request
of the Company.
SECTION 7. ADVANCE FOR EXPENSES.
7.1. MANDATORY ADVANCE. Expenses (including attorneys' fees)
incurred by the Indemnitee in investigating, defending, settling or appealing
any action, suit or proceeding described in Section 1 or 2 hereof shall be paid
by the Company in advance of the final disposition of such action, suit or
proceeding. The Company shall promptly pay the amount of such expenses to the
Indemnitee, but in no event later than 10 days following the Indemnitee's
delivery to the Company of a written request for an advance pursuant to this
Section 7, together with a reasonable accounting of such expenses.
7.2. UNDERTAKING TO REPAY. The Indemnitee hereby undertakes
and agrees to repay to the Company any advances made pursuant to this Section 7
if and to the extent that it shall ultimately be found that the Indemnitee is
not entitled to be indemnified by the Company for such amounts.
7.3. MISCELLANEOUS. The Company shall make the advances
contemplated by this Section 7 regardless of the Indemnitee's financial ability
to make repayment, and regardless whether indemnification of the Indemnitee by
the Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest-free.
SECTION 8. COURT-ORDERED INDEMNIFICATION. Regardless whether the
Indemnitee has met the standard of conduct set forth in Sections 1, 2 or 3
hereof, as the case may be, and notwithstanding the presence or absence of any
Determination whether such standards have been satisfied, the Indemnitee may
apply for indemnification (and/or reimbursement pursuant to Section 3 or 12
hereof) to the court conducting any proceeding to which the Indemnitee is a
party or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification (and/or reimbursement) if it determines the Indemnitee
is fairly and reasonably entitled to indemnification (and/or reimbursement) in
view of all the relevant circumstances (including this Agreement).
SECTION 9. NONDISCLOSURE OF PAYMENTS. Except as expressly required by
Federal securities laws, neither party shall disclose any payments under this
Agreement unless prior approval of the other party is obtained. Any payments to
the Indemnitee that must be disclosed shall, unless otherwise required by law,
be described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's stockholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
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SECTION 10. COVENANT NOT TO SUE, LIMITATION OF ACTIONS AND RELEASE
OF CLAIMS. No legal action shall be brought and no cause of action shall be
asserted by or on behalf of the Company (or any of its subsidiaries) against the
Indemnitee, his spouse, heirs, executors, personal representatives or
administrators after the expiration of 2 years from the date the Indemnitee
ceases (for any reason) to serve as either an officer or a director of the
Company, and any claim or cause of action of the Company (or any of its
subsidiaries) shall be extinguished and deemed released unless asserted by
filing of a legal action within such 2-year period.
SECTION 11. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Notwithstanding
any other provision of this Agreement, and regardless whether indemnification of
the Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively the "Indemnitee's Estate") against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Section 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
SECTION 12. REIMBURSEMENT OF ALL LEGAL EXPENSES. Notwithstanding any
other provision of this Agreement, and regardless of the presence or absence of
any Determination, the Company promptly (but not later than 30 days following
the Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action described in Section 1 or 2 hereof
(including, but not limited to, the matters specified in Section 6 hereof).
SECTION 13. MISCELLANEOUS.
13.1. NOTICE PROVISION. Any notice, payment, demand or
communication required or permitted to be delivered or given by the provisions
of this Agreement shall be deemed to have been effectively delivered or given
and received on the date personally delivered to the respective party to whom it
is directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2. ENTIRE AGREEMENT. Except for the Company's Certificate
of Incorporation, this Agreement constitutes the entire understanding of the
parties and supersedes all prior understandings, whether written or oral,
between the parties with respect to the subject matter of this Agreement.
13.3. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this
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Agreement, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Agreement; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid, and enforceable.
13.4. APPLICABLE LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware.
13.5. EXECUTION IN COUNTERPARTS. This Agreement and any
amendment may be executed simultaneously or in counterparts, each of which
together shall constitute one and the same instrument.
13.6. COOPERATION AND INTENT. The Company shall cooperate in
good faith with the Indemnitee and use its best efforts to ensure that the
Indemnitee is indemnified and/or reimbursed for liabilities described herein to
the fullest extent permitted by law.
13.7. AMENDMENT. No amendment, modification or alteration of
the terms of this Agreement shall be binding unless in writing, dated subsequent
to the date of this Agreement, and executed by the parties.
13.8. BINDING EFFECT. The obligations of the Company to the
Indemnitee hereunder shall survive and continue as to the Indemnitee even if the
Indemnitee ceases to be a director, officer, employee and/or agent of the
Company. Each and all of the covenants, terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the successors to the Company
and, upon the death of the Indemnitee, to the benefit of the estate, heirs,
executors, administrators and personal representatives of the Indemnitee.
13.9. NONEXCLUSIVITY. The rights of indemnification and
reimbursement provided in this Agreement shall be in addition to any rights to
which the Indemnitee may otherwise be entitled by statute, bylaw,
agreement, vote of stockholders or otherwise.
13.10. EFFECTIVE DATE. The provisions of this Agreement shall
cover claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
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EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
ADDRESS: THE COMPANY:
- ------- -----------
6340 N.W. 5th Way SPORTSLINE USA, INC.
Fort Lauderdale, Florida 33308
Attention: President
By:____________________
Title:_________________
ADDRESS: THE INDEMNITEE:
- ------- --------------
- ------------------------------
- ------------------------------
- ------------------------------ -----------------------------
Name: (NAME)
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SPORTSLINE USA, INC.
1997 INCENTIVE COMPENSATION PLAN
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<TABLE>
<CAPTION>
SPORTSLINE USA, INC.
1997 INCENTIVE COMPENSATION PLAN
<S> <C> <C>
1. Purpose..................................................................................................1
2. Definitions..............................................................................................1
3. Administration...........................................................................................4
(a) Authority of the Committee......................................................................4
(b) Manner of Exercise of Committee Authority.......................................................4
(c) Limitation of Liability.........................................................................5
4. Stock Subject to Plan....................................................................................5
(a) Limitation on Overall Number of Shares Subject to Awards........................................5
(b) Application of Limitations......................................................................5
5. Eligibility; Per-Person Award Limitations................................................................6
6. Specific Terms of Awards.................................................................................6
(a) General.........................................................................................6
(b) Options.........................................................................................6
(c) Stock Appreciation Rights.......................................................................8
(d) Restricted Stock................................................................................9
(e) Deferred Stock.................................................................................10
(f) Bonus Stock and Awards in Lieu of Obligations..................................................10
(g) Dividend Equivalents...........................................................................11
(h) Other Stock-Based Awards.......................................................................11
7. Certain Provisions Applicable to Awards.................................................................11
(a) Stand-Alone, Additional, Tandem, and Substitute Awards.........................................11
(b) Term of Awards.................................................................................12
(c) Form and Timing of Payment Under Awards; Deferrals.............................................12
(d) Exemptions from Section 16(b) Liability........................................................12
8. Performance and Annual Incentive Awards.................................................................12
(a) Performance Conditions.........................................................................12
(b) Performance Awards Granted to Designated Covered Employees.....................................13
(c) Annual Incentive Awards Granted to Designated Covered Employees................................14
(d) Written Determinations.........................................................................15
(e) Status of Section 8(b) and Section 8(c) Awards Under Code Section 162(m).......................15
9. Change in Control.......................................................................................16
(a) Effect of "Change in Control.".................................................................16
(b) Definition of "Change in Control...............................................................16
(c) Definition of "Change in Control Price.".......................................................17
10. General Provisions......................................................................................17
(A) Compliance With Legal and Other Requirements...................................................17
(b) Limits on Transferability; Beneficiaries.......................................................18
(c) Adjustments....................................................................................18
(d) Taxes..........................................................................................19
(e) Changes to the Plan and Awards.................................................................19
(f) Limitation on Rights Conferred Under Plan......................................................20
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(g) Unfunded Status of Awards; Creation of Trusts..................................................20
(h) Nonexclusivity of the Plan.....................................................................20
(i) Payments in the Event of Forfeitures; Fractional Shares........................................20
(j) Governing Law..................................................................................20
(k) Plan Effective Date and Stockholder Approval; Termination of Plan..............................21
</TABLE>
(ii)
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SPORTSLINE USA, INC.
1997 INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of this 1997 Incentive Compensation Plan (the
"Plan") is to assist SportsLine USA, Inc. (the "Company") and its subsidiaries
in attracting, motivating, retaining and rewarding high-quality executives and
other employees, officers, Directors and independent contractors enabling such
persons to acquire or increase a proprietary interest in the Company in order to
strengthen the mutuality of interests between such persons and the Company's
stockholders, and providing such persons with annual and long term performance
incentives to expend their maximum efforts in the creation of shareholder value.
The Plan is also intended to qualify certain compensation awarded under the Plan
for tax deductibility under Section 162(m) of the Code (as hereafter defined) to
the extent deemed appropriate by the Committee (or any successor committee) of
the Board of Directors of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.
(a) "Annual Meeting Date" shall mean the date of the annual
meeting of the Company's stockholders at which the Directors are elected.
(b) "Annual Incentive Award" means a conditional right
granted to a Participant under Section 8(c) hereof to receive a cash payment,
Stock or other Award, unless otherwise determined by the Committee, after the
end of a specified fiscal year.
(c) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(d) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Beneficial Owner", "Beneficially Owning" and
"Beneficial Ownership" shall have the meanings ascribed to such terms in Rule
13d-3 under the Exchange Act and any successor to such Rule.
(f) "Board" means the Company's Board of Directors.
(g) "Change in Control" means Change in Control as defined
with related terms in Section 9 of the Plan.
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(h) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
(j) "Committee" means a committee designated by the Board to
administer the Plan; provided, however, that the Committee shall consist solely
of at least two directors, each of whom shall be (i) a "non-employee director"
within the meaning of Rule 16b-3 under the Exchange Act, unless administration
of the Plan by "non-employee directors" is not then required in order for
exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii) an
"outside director" within the meaning of Section 162(m) of the Code, unless
administration of the Plan by "outside directors" is not then required in order
to qualify for tax deductibility under Section 162(m) of the Code.
(k) "Corporate Transaction" means a Corporate Transaction as
defined in Section 9(b)(i) of the Plan.
(l) "Covered Employee" means an Eligible Person who is a
Covered Employee as specified in Section 8(e) of the Plan.
(m) "Deferred Stock" means a right, granted to a Participant
under Section 6(e) hereof, to receive Stock, cash or a combination thereof at
the end of a specified deferral period.
(n) "Director" means a member of the Board.
(o) "Disability" means a permanent and total disability
(within the meaning of Section 22(e) of the Code), as determined by a medical
doctor satisfactory to the Committee.
(p) "Dividend Equivalent" means a right, granted to a
Participant under Section 6(g) hereof, to receive cash, Stock, other Awards or
other property equal in value to dividends paid with respect to a specified
number of shares of Stock, or other periodic payments.
(q) "Effective Date" means the effective date of the Plan,
which shall be the closing date of the Company's initial public offering of its
securities pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended.
(r) "Eligible Person" means each Executive Officer of the
Company (as defined under the Exchange Act) and other officers, Directors and
employees of the Company or of any Subsidiary, and independent contractors with
the Company or any Subsidiary. The foregoing notwithstanding, (i) only employees
of the Company or any Subsidiary shall be an Eligible Persons for purposes of
receiving any Incentive Stock Options and (ii) no independent contractor shall
be an Eligible Person for purposes of receiving any Awards other than Options
under Section 6(b) of the Plan. An employee on leave of absence may be
considered as still in the employ of the Company or a Subsidiary for purposes of
eligibility for participation in the Plan.
(s) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, including rules thereunder and successor
provisions and rules thereto.
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(t) "Executive Officer" means an executive officer of the
Company as defined under the Exchange Act.
(u) "Fair Market Value" means the fair market value of
Stock, Awards or other property as determined by the Committee or the Board, or
under procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as of
any given date shall be the closing sale price per share reported on a
consolidated basis for stock listed on the principal stock exchange or market on
which Stock is traded on the date as of which such value is being determined or,
if there is no sale on that date, then on the last previous day on which a sale
was reported.
(v) "Formula Grants" means the Formula Grant Options granted
to Non-Employee Directors pursuant to Section 6(b)(iv) of the Plan.
(w) "Incentive Stock Option" or "ISO" means any Option
intended to be designated as an incentive stock option within the meaning of
Section 422 of the Code or any successor provision thereto.
(x) "Incumbent Board" means the Incumbent Board as defined in
Section 9(b)(ii) of the Plan.
(y) "Initial Grant Date" means, for any Non-Employee Director
elected or appointed after the Effective Date, the date on which a Non-Employee
Director is first elected or appointed as a Director.
(z) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
(aa) "Non-Employee Director" shall mean a member of the Board
who is not an employee of the Company or any subsidiary.
(bb) "Option" means a right granted to a Participant under
Section 6(b) hereof, to purchase Stock or other Awards at a specified price
during specified time periods.
(cc) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(dd) "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company, if
each of the corporations in the chain (other than the Company) owns stock
possessing 50% or more of the combined voting power of all classes of stock in
one of the other corporations in the chain.
(ee) "Participant" means a person who has been granted an
Award under the Plan which remains outstanding, including a person who is no
longer an Eligible Person.
(ff) "Performance Award" means a right, granted to a
Eligible Person under Section 8 hereof, to receive Awards based upon performance
criteria specified by the Committee or the Board.
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(gg) "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(hh) "Restricted Stock" means Stock granted to a
Participant under Section 6(d) hereof, that is subject to certain restrictions
and to a risk of forfeiture.
(ii) "Retire" or "Retirement" means termination of service
as a Director after having attained at least age 62 and having served as a
Director for at least 5 years, other than by reason of death, Disability or the
Director's wilful misconduct or negligence.
(jj) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3
and Rule 16a-1(c)(3), as from time to time in effect and applicable to the Plan
and Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act
(kk) "Stock" means the Company's Common Stock, and such
other securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(ll) "Stock Appreciation Rights" or "SAR" means a right
granted to a Participant under Section 6(c) hereof.
(mm) "Subsidiary" means any corporation or other entity in
which the Company has a direct or indirect ownership interest of 50% or more of
the total combined voting power of the then outstanding securities or interests
of such corporation or other entity entitled to vote generally in the election
of directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% or more of the assets on liquidation or
dissolution.
3. ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee; provided, however, that except as otherwise expressly provided
in this Plan or in order to comply with Code Section 162(m) or Rule 16b-3 under
the Exchange Act, the Board may exercise any power or authority granted to the
Committee under this Plan. The Committee or the Board shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee or the Board may deem necessary or advisable
for the administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or
the Board shall not be required to follow past practices, act in a manner
consistent with past practices, or treat any Eligible Person in a manner
consistent with the treatment of other Eligible Persons.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee,
and not the Board, shall exercise sole and exclusive discretion on any matter
relating to a Participant then subject to Section 16 of the Exchange Act with
respect to the Company to the extent necessary in
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order that transactions by such Participant shall be exempt under Rule 16b-3
under the Exchange Act. Any action of the Committee or the Board shall be final,
conclusive and binding on all persons, including the Company, its subsidiaries,
Participants, Beneficiaries, transferees under Section 10(b) hereof or other
persons claiming rights from or through a Participant, and stockholders. The
express grant of any specific power to the Committee or the Board, and the
taking of any action by the Committee or the Board, shall not be construed as
limiting any power or authority of the Committee or the Board. The Committee or
the Board may delegate to officers or managers of the Company or any subsidiary,
or committees thereof, the authority, subject to such terms as the Committee or
the Board shall determine, (i) to perform administrative functions, (ii) with
respect to Participants not subject to Section 16 of the Exchange Act, to
perform such other functions as the Committee or the Board may determine, and
(iii) with respect to Participants subject to Section 16, to perform such other
functions of the Committee or the Board as the Committee or the Board may
determine to the extent performance of such functions will not result in the
loss of an exemption under Rule 16b-3 otherwise available for transactions by
such persons, in each case to the extent permitted under applicable law and
subject to the requirements set forth in Section 8(d). The Committee or the
Board may appoint agents to assist it in administering the Plan.
(c) LIMITATION OF LIABILITY. The Committee and the Board, and
each member thereof, shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any executive officer,
other officer or employee of the Company or a Subsidiary, the Company's
independent auditors, consultants or any other agents assisting in the
administration of the Plan. Members of the Committee and the Board, and any
officer or employee of the Company or a subsidiary acting at the direction or on
behalf of the Committee or the Board, shall not be personally liable for any
action or determination taken or made in good faith with respect to the Plan,
and shall, to the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or determination.
4. STOCK SUBJECT TO PLAN
(a) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO AWARDS.
Subject to adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan shall be the sum of (i) 2,000,000, plus (ii) the number of shares
with respect to Awards previously granted under the Plan that terminate without
being exercised, expire, are forfeited or canceled, and the number of shares of
Stock that are surrendered in payment of any Awards or any tax withholding with
regard thereto. Any shares of Stock delivered under the Plan may consist, in
whole or in part, of authorized and unissued shares or treasury shares. Subject
to adjustment as provided in Section 10(c) hereof, in no event shall the
aggregate number of shares of Stock which may be issued pursuant to ISOs exceed
1,500,000 shares.
(b) APPLICATION OF LIMITATIONS. The limitation contained in
Section 4(a) shall apply not only to Awards that are settleable by the delivery
of shares of Stock but also to Awards relating to shares of Stock but settleable
only in cash (such as cash-only SARs). The Committee or the Board may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
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<PAGE>
adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be
granted under the Plan only to Eligible Persons. In each fiscal year during any
part of which the Plan is in effect, an Eligible Person may not be granted
Awards relating to more than 250,000 shares of Stock, subject to adjustment as
provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f),
6(g), 6(h), 8(b) and 8(c). In addition, the maximum amount that may be earned as
an Annual Incentive Award or other cash Award in any fiscal year by any one
Participant shall be $2,000,000, and the maximum amount that may be earned as a
Performance Award or other cash Award in respect of a performance period by any
one Participant shall be $5,000,000.
6. SPECIFIC TERMS OF AWARDS
(a) GENERAL. Awards may be granted on the terms and conditions
set forth in this Section 6. In addition, the Committee or the Board may impose
on any Award or the exercise thereof, at the date of grant or thereafter
(subject to Section 10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee or the Board
shall determine, including terms requiring forfeiture of Awards in the event of
termination of employment by the Participant and terms permitting a Participant
to make elections relating to his or her Award. The Committee or the Board shall
retain full power and discretion to accelerate, waive or modify, at any time,
any term or condition of an Award that is not mandatory under the Plan. Except
in cases in which the Committee or the Board is authorized to require other
forms of consideration under the Plan, or to the extent other forms of
consideration must be paid to satisfy the requirements of Delaware law, no
consideration other than services may be required for the grant (but not the
exercise) of any Award.
(b) OPTIONS. The Committee and the Board each is authorized to
grant Options to Participants on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee or the Board, provided that such exercise price
shall not, in the case of Incentive Stock Options, be less
than 100% of the Fair Market Value of the Stock on the date of
grant of the Option and shall not, in any event, be less than
the par value of a share of Stock on the date of grant of such
Option. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the
Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation and
an Incentive Stock Option is granted to such employee, the
option price of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less
than 110% of the Fair Market Value of the Stock on the date
such Incentive Stock Option is granted.
(ii) TIME AND METHOD OF EXERCISE. The Committee or
the Board shall determine the time or times at which or the
circumstances under which an Option may be exercised in whole
or in part (including based on achievement of performance
goals and/or future service requirements), the time or times
at which
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<PAGE>
Options shall cease to be or become exercisable following
termination of employment or upon other conditions, the
methods by which such exercise price may be paid or deemed to
be paid (including in the discretion of the Committee or the
Board a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Stock, other
Awards or awards granted under other plans of the Company or
any subsidiary, or other property (including notes or other
contractual obligations of Participants to make payment on a
deferred basis), and the methods by or forms in which Stock
will be delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under
the Plan shall comply in all respects with the provisions of
Section 422 of the Code. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to ISOs
(including any SAR in tandem therewith) shall be interpreted,
amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify
either the Plan or any ISO under Section 422 of the Code,
unless the Participant has first requested the change that
will result in such disqualification. Thus, if and to the
extent required to comply with Section 422 of the Code,
Options granted as Incentive Stock Options shall be subject to
the following special terms and conditions:
(A) the Option shall not be exercisable more
than ten years after the date such Incentive Stock Option is
granted; provided, however, that if a Participant owns or is
deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Company or any Parent
Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be
(to the extent required by the Code at the time of the grant)
for no more than five years from the date of grant; and
(B) The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is
granted) of the shares of stock with respect to which
Incentive Stock Options granted under the Plan and all other
option plans of the Company or its Parent Corporation during
any calendar year exercisable for the first time by the
Participant during any calendar year shall not (to the extent
required by the Code at the time of the grant) exceed
$100,000.
(iv) FORMULA GRANTS OF OPTIONS TO NON-EMPLOYEE
DIRECTORS. Each Non-Employee Director elected or appointed
after the Effective Date, other than a Non-Employee Director
who is, or is an affiliate or designee of, a Beneficial Owner
of more than 5% of the Company Voting Securities Outstanding
(as defined in Section 9(b)(i)), shall receive on such
Non-Employee Director's Initial Grant Date an Option to
purchase 12,000 shares of Stock. In addition, each
Non-Employee Director, other than a Non-Employee Director who
is, or is an affiliate or designee of, a Beneficial Owner of
more than 5% of the Company Voting Securities Outstanding,
shall receive on each Annual Meeting Date, an Option to
purchase 3,000 shares of Stock. Options granted to
Non-Employee Directors pursuant to this
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<PAGE>
Section shall be for a term of 10 years and shall become
exercisable at the rate of 25% per year commencing on the
first anniversary of the date on which the Option is granted;
provided, however, that the Options shall be fully exercisable
in the event that, while serving as a Director, the
Non-Employee Director dies, suffers a Disability, or Retires.
The per share exercise price of all Options granted to
Non-Employee Directors pursuant to this paragraph (iv) shall
be equal to the Fair Market Value of a share of Stock on the
date such Option is granted. Unless otherwise extended in the
sole discretion of the Committee, the unexercised portion of
any Option granted pursuant to this paragraph (iv) shall
become null and void (V) three months after the date on which
such Non-Employee Director ceases to be a Director of the
Company for any reason other than the Non-Employee Director's
wilful misconduct or negligence, Disability, death or
Retirement, (W) immediately in the event of the Non-Employee
Director's wilful misconduct or negligence, (X) one year after
the Non-Employee Director ceases to be a Director by reason of
his Disability, (Y) at the expiration of its original term, if
the Non-Employee Director ceases to be a Director by reason of
his Retirement, and (Z) twelve months after the date of the
Non-Employee Director's death in the event that such death
occurs prior to the time the Option otherwise would become
null and void pursuant to this sentence.
(c) STOCK APPRECIATION RIGHTS. The Committee and the Board
each is authorized to grant SAR's to Participants on the following terms and
conditions:
(i) RIGHT TO PAYMENT. A SAR shall confer on the
Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (A) the Fair Market Value of
one share of stock on the date of exercise (or, in the case of
a "Limited SAR" that may be exercised only in the event of a
Change in Control, the Fair Market Value determined by
reference to the Change in Control Price, as defined under
Section 9(c) hereof), over (B) the grant price of the SAR as
determined by the Committee or the Board. The grant price of
an SAR shall not be less than the Fair Market Value of a share
of Stock on the date of grant except as provided under Section
7(a) hereof.
(ii) OTHER TERMS. The Committee or the Board shall
determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be
exercised in whole or in part (including based on achievement
of performance goals and/or future service requirements), the
time or times at which SARs shall cease to be or become
exercisable following termination of employment or upon other
conditions, the method of exercise, method of settlement, form
of consideration payable in settlement, method by or forms in
which Stock will be delivered or deemed to be delivered to
Participants, whether or not a SAR shall be in tandem or in
combination with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised
in connection with a Change in Control or other event as
specified by the Committee or the Board, may be granted on
such terms, not inconsistent with this Section 6(c), as the
Committee or the Board may determine. SARs and Limited SARs
may be either freestanding or in tandem with other Awards.
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(d) RESTRICTED STOCK. The Committee and the Board each is
authorized to grant Restricted Stock to Participants on the following terms and
conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall
be subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee or
the Board may impose, which restrictions may lapse separately
or in combination at such times, under such circumstances
(including based on achievement of performance goals and/or
future service requirements), in such installments or
otherwise, as the Committee or the Board may determine at the
date of grant or thereafter. Except to the extent restricted
under the terms of the Plan and any Award agreement relating
to the Restricted Stock, a Participant granted Restricted
Stock shall have all of the rights of a stockholder, including
the right to vote the Restricted Stock and the right to
receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee or
the Board). During the restricted period applicable to the
Restricted Stock, subject to Section 10(b) below, the
Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the
Participant.
(ii) FORFEITURE. Except as otherwise determined by
the Committee or the Board at the time of the Award, upon
termination of a Participant's employment during the
applicable restriction period, the Participant's Restricted
Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided that the
Committee or the Board may provide, by rule or regulation or
in any Award agreement, or may determine in any individual
case, that restrictions or forfeiture conditions relating to
Restricted Stock shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the
Committee or the Board may in other cases waive in whole or in
part the forfeiture of Restricted Stock.
(iii) CERTIFICATES FOR STOCK. Restricted Stock
granted under the Plan may be evidenced in such manner as the
Committee or the Board shall determine. If certificates
representing Restricted Stock are registered in the name of
the Participant, the Committee or the Board may require that
such certificates bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such
Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock
power to the Company, endorsed in blank, relating to the
Restricted Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the
grant of an Award of Restricted Stock, the Committee or the
Board may require that any cash dividends paid on a share of
Restricted Stock be automatically reinvested in additional
shares of Restricted Stock or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined
by the Committee or the Board, Stock distributed in connection
with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to
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the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.
(e) DEFERRED STOCK. The Committee and the Board each is
authorized to grant Deferred Stock to Participants, which are rights to receive
Stock, cash, or a combination thereof at the end of a specified deferral period,
subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Satisfaction of an
Award of Deferred Stock shall occur upon expiration of the
deferral period specified for such Deferred Stock by the
Committee or the Board (or, if permitted by the Committee or
the Board, as elected by the Participant). In addition,
Deferred Stock shall be subject to such restrictions (which
may include a risk of forfeiture) as the Committee or the
Board may impose, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified
times (including based on achievement of performance goals
and/or future service requirements), separately or in
combination, in installments or otherwise, as the Committee or
the Board may determine. Deferred Stock may be satisfied by
delivery of Stock, cash equal to the Fair Market Value of the
specified number of shares of Stock covered by the Deferred
Stock, or a combination thereof, as determined by the
Committee or the Board at the date of grant or thereafter.
Prior to satisfaction of an Award of Deferred Stock, an Award
of Deferred Stock carries no voting or dividend or other
rights associated with share ownership.
(ii) FORFEITURE. Except as otherwise determined by
the Committee or the Board, upon termination of a
Participant's employment during the applicable deferral period
thereof to which forfeiture conditions apply (as provided in
the Award agreement evidencing the Deferred Stock), the
Participant's Deferred Stock that is at that time subject to
deferral (other than a deferral at the election of the
Participant) shall be forfeited; provided that the Committee
or the Board may provide, by rule or regulation or in any
Award agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred
Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the
Committee or the Board may in other cases waive in whole or in
part the forfeiture of Deferred Stock.
(iii) DIVIDEND EQUIVALENTS. Unless otherwise
determined by the Committee or the Board at date of grant,
Dividend Equivalents on the specified number of shares of
Stock covered by an Award of Deferred Stock shall be either
(A) paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock having
a Fair Market Value equal to the amount of such dividends, or
(B) deferred with respect to such Deferred Stock and the
amount or value thereof automatically deemed reinvested in
additional Deferred Stock, other Awards or other investment
vehicles, as the Committee or the Board shall determine or
permit the Participant to elect.
(f) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The
Committee and the Board each is authorized to grant Stock as a bonus, or to
grant Stock or other Awards in lieu of
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Company obligations to pay cash or deliver other property under the Plan or
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisitions of Stock or other Awards are exempt from liability
under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall
be subject to such other terms as shall be determined by the Committee or the
Board.
(g) DIVIDEND EQUIVALENTS. The Committee and the Board each is
authorized to grant Dividend Equivalents to a Participant entitling the
Participant to receive cash, Stock, other Awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee or the
Board may provide that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, Awards,
or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee or the Board may
specify.
(h) OTHER STOCK-BASED AWARDS. The Committee and the Board each
is authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee or the Board, and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries or business units. The Committee
or the Board shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards or other property, as the Committee or the Board shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee or the
Board, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another
plan of the Company, any subsidiary, or any business entity to be acquired by
the Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee or the
Board shall require the surrender of such other Award or award in consideration
for the grant of the new Award. In addition, Awards may be granted in lieu of
cash compensation, including in lieu of cash amounts payable under other plans
of the Company or any subsidiary, in which the value of Stock subject to the
Award is equivalent in value to the cash compensation (for example, Deferred
Stock or Restricted Stock), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be
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exercised is equal to the Fair Market Value of the underlying Stock minus the
value of the cash compensation surrendered (for example, Options granted with an
exercise price "discounted" by the amount of the cash compensation surrendered).
(b) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee or the Board; provided that in no
event shall the term of any Option or SAR exceed a period of ten years (or such
shorter term as may be required in respect of an ISO under Section 422 of the
Code).
(c) FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS.
Subject to the terms of the Plan and any applicable Award agreement, payments to
be made by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in such forms as the Committee or
the Board shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Committee or the Board or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee or the Board (subject to
Section 10(e) of the Plan) or permitted at the election of the Participant on
terms and conditions established by the Committee or the Board. Payments may
include, without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. It is the intent
of the Company that this Plan comply in all respects with applicable provisions
of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither
the grant of any Awards to nor other transaction by a Participant who is subject
to Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the Fair Market Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.
8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS
(a) PERFORMANCE CONDITIONS. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions as may be specified by the
Committee or the Board. The Committee or the Board may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce the amounts payable under any Award subject to performance conditions,
except as limited under Sections 8(b) and 8(c) hereof in the case of a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m). If and to the extent required under Code Section 162(m),
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any power or authority relating to a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m), shall be exercised by the
Committee and not the Board.
(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. If and to the extent that the Committee determines that a Performance
Award to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Performance Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section 8(b).
(i) PERFORMANCE GOALS GENERALLY. The performance
goals for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of
performance with respect to each of such criteria, as
specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations
thereunder including the requirement that the level or levels
of performance targeted by the Committee result in the
achievement of performance goals being "substantially
uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of
the performance goals must be achieved as a condition to
grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) BUSINESS CRITERIA. One or more of the
following business criteria for the Company, on a consolidated
basis, and/or specified subsidiaries or business units of the
Company (except with respect to the total stockholder return
and earnings per share criteria), shall be used exclusively by
the Committee in establishing performance goals for such
Performance Awards: (1) total stockholder return; (2) such
total stockholder return as compared to total return (on a
comparable basis) of a publicly available index such as, but
not limited to, the Standard & Poor's 500 Stock Index or the
Nasdaq Composite Index; (3) net income; (4) pretax earnings;
(5) earnings before interest expense, taxes, depreciation and
amortization; (6) pretax operating earnings after interest
expense and before bonuses, service fees, and extraordinary or
special items; (7) operating margin; (8) earnings per share;
(9) return on equity; (10) return on capital; (11) return on
investment; (12) operating earnings; (13) working capital or
inventory; and (14) ratio of debt to stockholders' equity. One
or more of the foregoing business criteria shall also be
exclusively used in establishing performance goals for Annual
Incentive Awards granted to a Covered Employee under Section
8(c) hereof that are intended to qualify as "performance-based
compensation" under Code Section 162(m).
(iii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING
PERFORMANCE GOALS. Achievement of performance goals in respect
of such Performance Awards shall be measured over a
performance period of up to ten years, as specified by the
Committee. Performance goals shall be established not later
than 90 days after the
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beginning of any performance period applicable to such
Performance Awards, or at such other date as may be required
or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) PERFORMANCE AWARD POOL. The Committee may
establish a Performance Award pool, which shall be an unfunded
pool, for purposes of measuring Company performance in
connection with Performance Awards. The amount of such
Performance Award pool shall be based upon the achievement of
a performance goal or goals based on one or more of the
business criteria set forth in Section 8(b)(ii) hereof during
the given performance period, as specified by the Committee in
accordance with Section 8(b)(iii) hereof. The Committee may
specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to
such business criteria.
(v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS.
Settlement of such Performance Awards shall be in cash, Stock,
other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards. The Committee shall specify the
circumstances in which such Performance Awards shall be paid
or forfeited in the event of termination of employment by the
Participant prior to the end of a performance period or
settlement of Performance Awards.
(c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
Employees. If and to the extent that the Committee determines that an Annual
Incentive Award to be granted to an Eligible Person who is designated by the
Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Annual Incentive Award shall be contingent
upon achievement of preestablished performance goals and other terms set forth
in this Section 8(c).
(i) ANNUAL INCENTIVE AWARD POOL. The Committee may
establish an Annual Incentive Award pool, which shall be an
unfunded pool, for purposes of measuring Company performance
in connection with Annual Incentive Awards. The amount of such
Annual Incentive Award pool shall be based upon the
achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by
the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Annual Incentive Award
pool as a percentage of any such business criteria, a
percentage thereof in excess of a threshold amount, or as
another amount which need not bear a strictly mathematical
relationship to such business criteria.
(ii) POTENTIAL ANNUAL INCENTIVE AWARDS. Not later
than the end of the 90th day of each fiscal year, or at such
other date as may be required or permitted in the case of
Awards intended to be "performance-based compensation" under
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Code Section 162(m), the Committee shall determine the
Eligible Persons who will potentially receive Annual Incentive
Awards, and the amounts potentially payable thereunder, for
that fiscal year, either out of an Annual Incentive Award pool
established by such date under Section 8(c)(i) hereof or as
individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the
achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b)(ii)
hereof in the given performance year, as specified by the
Committee; in other cases, such amount shall be based on such
criteria as shall be established by the Committee. In all
cases, the maximum Annual Incentive Award of any Participant
shall be subject to the limitation set forth in Section 5
hereof.
(iii) PAYOUT OF ANNUAL INCENTIVE AWARDS. After
the end of each fiscal year, the Committee shall determine the
amount, if any, of (A) the Annual Incentive Award pool, and
the maximum amount of potential Annual Incentive Award payable
to each Participant in the Annual Incentive Award pool, or (B)
the amount of potential Annual Incentive Award otherwise
payable to each Participant. The Committee may, in its
discretion, determine that the amount payable to any
Participant as a final Annual Incentive Award shall be reduced
from the amount of his or her potential Annual Incentive
Award, including a determination to make no final Award
whatsoever. The Committee shall specify the circumstances in
which an Annual Incentive Award shall be paid or forfeited in
the event of termination of employment by the Participant
prior to the end of a fiscal year or settlement of such Annual
Incentive Award.
(d) WRITTEN DETERMINATIONS. All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards under Section
8(b), and the amount of any Annual Incentive Award pool or potential individual
Annual Incentive Awards and the amount of final Annual Incentive Awards under
Section 8(c), shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Annual Incentive Awards if
and to the extent required to comply with Code Section 162(m).
(e) STATUS OF SECTION 8(B) AND SECTION 8(C) AWARDS UNDER CODE
SECTION 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Section 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
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Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan or any agreement relating to such Performance Awards or Annual
Incentive Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.
9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL." If and to the extent
provided in the Award, in the event of a "Change in Control," as defined in
Section 9(b), the following provisions shall apply:
(i) Any Award carrying a right to exercise that was
not previously exercisable and vested shall become fully
exercisable and vested as of the time of the Change in
Control, subject only to applicable restrictions set forth in
Section 10(a) hereof;
(ii) Limited SARs (and other SARs if so provided
by their terms) shall become exercisable for amounts, in cash,
determined by reference to the Change in Control Price;
(iii) The restrictions, deferral of settlement,
and forfeiture conditions applicable to any other Award
granted under the Plan shall lapse and such Awards shall be
deemed fully vested as of the time of the Change in Control,
except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 10(a)
hereof; and
(iv) With respect to any such outstanding Award
subject to achievement of performance goals and conditions
under the Plan, such performance goals and other conditions
will be deemed to be met if and to the extent so provided by
the Committee in the Award agreement relating to such Award.
(b) DEFINITION OF "CHANGE IN CONTROL. A "Change in Control"
shall be deemed to have occurred upon:
(i) An acquisition by any Person of Beneficial Ownership of
the shares of Common Stock of the Company then outstanding (the "Company Common
Stock Outstanding") or the voting securities of the Company then outstanding
entitled to vote generally in the election of directors (the "Company Voting
Securities Outstanding") if such acquisition of Beneficial Ownership results in
the Person's Beneficially Owning 25% or more of the Company Common Stock
outstanding or 25% or more of the combined voting power of the Company Voting
Securities Outstanding; or
(ii) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
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thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or the sale of all or substantially all of the assets
of the Company (unless such reorganization, merger, consolidation or other
corporate transaction, liquidation, dissolution or sale (any such event being
referred to as a "Corporate Transaction") is subsequently abandoned); or
(iii) A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (as of the date
hereof the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii)
of this Section 9(b), any acquisition or consummation of a Corporate Transaction
unanimously approved by the Incumbent Board shall not constitute a Change in
Control for purposes of the Plan.
(c) DEFINITION OF "CHANGE IN CONTROL PRICE." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any Corporate Transaction triggering the
Change in Control under Section 9(b)(i) hereof or any liquidation of shares
following a sale of substantially all of the assets of the Company, or (ii) the
highest Fair Market Value per share at any time during the 60-day period
preceding and the 60-day period following the Change in Control.
10. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Company
may, to the extent deemed necessary or advisable by the Committee or the Board,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other Company securities are listed or
quoted, or compliance with any other obligation of the Company, as the Committee
or the Board, may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Stock or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations. The foregoing notwithstanding, in connection with a Change in
Control, the Company shall take or cause to be taken no action, and shall
undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other conditions on such
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issuance, delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on the
90th day preceding the Change in Control.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or
other right or interest of a Participant under the Plan, including any Award or
right which constitutes a derivative security as generally defined in Rule
16a-1(c) under the Exchange Act, shall be pledged, hypothecated or otherwise
encumbered or subject to any lien, obligation or liability of such Participant
to any party (other than the Company or a Subsidiary), or assigned or
transferred by such Participant otherwise than by will or the laws of descent
and distribution or to a Beneficiary upon the death of a Participant, and such
Awards or rights that may be exercisable shall be exercised during the lifetime
of the Participant only by the Participant or his or her guardian or legal
representative, except that Awards and other rights (other than ISOs and SARs in
tandem therewith) may be transferred to one or more Beneficiaries or other
transferees during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to the
extent such transfers and exercises are permitted by the Committee or the Board
pursuant to the express terms of an Award agreement (subject to any terms and
conditions which the Committee or the Board may impose thereon, and further
subject to any prohibitions or restrictions on such transfers pursuant to Rule
16b-3). A Beneficiary, transferee, or other person claiming any rights under the
Plan from or through any Participant shall be subject to all terms and
conditions of the Plan and any Award agreement applicable to such Participant,
except as otherwise determined by the Committee or the Board, and to any
additional terms and conditions deemed necessary or appropriate by the Committee
or the Board.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Stock
such that a substitution or adjustment is determined by the Committee or the
Board to be appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee or the Board shall, in
such manner as it may deem equitable, substitute or adjust any or all of (i) the
number and kind of shares of Stock which may be delivered in connection with
Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5 hereof, (iii)
the number and kind of shares of Stock subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price or purchase price
relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award. In addition, the Committee (and
the Board if and only to the extent such authority is not required to be
exercised by the Committee to comply with Code Section 162(m)) is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals, and Annual Incentive
Awards and any Annual Incentive Award pool or performance goals relating
thereto) in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company, any Subsidiary
or any business unit, or the financial statements of the Company or any
Subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
Subsidiary or business unit
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thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other circumstances
deemed relevant; provided that no such adjustment shall be authorized or made if
and to the extent that such authority or the making of such adjustment would
cause Options, SARs, Performance Awards granted under Section 8(b) hereof or
Annual Incentive Awards granted under Section 8(c) hereof to Participants
designated by the Committee as Covered Employees and intended to qualify as
"performance-based compensation" under Code Section 162(m) and the regulations
thereunder to otherwise fail to qualify as "performance-based compensation"
under Code Section 162(m) and regulations thereunder.
(d) TAXES. The Company and any Subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee or the Board may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Planand Awards. The Board may amend, alter,
suspend, discontinue or terminate the Plan, or the Committee's authority to
grant Awards under the Plan without the consent of stockholders or Participants,
except that any amendment or alteration to the Plan shall be subject to the
approval of the Company's stockholders not later than the annual meeting next
following such Board action if such stockholder approval is required by any
federal or state law or regulation (including, without limitation, Rule 16b-3 or
Code Section 162(m)) or the rules of any stock exchange or automated quotation
system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such changes to the Plan
to stockholders for approval; provided that, without the consent of an affected
Participant, no such Board action may materially and adversely affect the rights
of such Participant under any previously granted and outstanding Award. The
Committee or the Board may waive any conditions or rights under, or amend,
alter, suspend, discontinue or terminate any Award theretofore granted and any
Award agreement relating thereto, except as otherwise provided in the Plan;
provided that, without the consent of an affected Participant, no such Committee
or the Board action may materially and adversely affect the rights of such
Participant under such Award. Notwithstanding anything in the Plan to the
contrary, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee or the Board
may modify or adjust the right so that pooling of interest accounting shall be
available, including the substitution of Stock having a Fair Market Value equal
to the cash otherwise payable hereunder for the right which caused the
transaction to be ineligible for pooling of interest accounting. Notwithstanding
anything herein to the contrary, the provisions of Section 6(b)(iv) of this Plan
which govern formula grants of Options to Non-Employee Directors, shall not be
amended more than once every six months other than to comport with changes to
the Code or the rules promulgated thereunder or the Employee Retirement Income
Security Act of 1974, as amended, or the rules promulgated thereunder, or with
rules promulgated by the Securities and
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Exchange Commission, unless such limit on amendments is not required under Rule
16b-3 or other applicable law.
(f) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ of the Company or a Subsidiary; (ii) interfering in
any way with the right of the Company or a Subsidiary to terminate any Eligible
Person's or Participant's employment at any time, (iii) giving an Eligible
Person or Participant any claim to be granted any Award under the Plan or to be
treated uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee or the Board
may specify and in accordance with applicable law.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL Shares.
Unless otherwise determined by the Committee or the Board, in the event of a
forfeiture of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee or the Board shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) GOVERNING LAW. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of Delaware without
giving effect to principles of conflicts of laws, and applicable federal law.
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(k) PLAN EFFECTIVE DATE AND STOCKHOLDER APPROVAL; TERMINATION
OF PLAN. The Plan shall become effective on the Effective Date, subject to
subsequent approval within 12 months of its adoption by the Board by
stockholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) and 422, Rule
16b-3 under the Exchange Act, applicable stock exchange requirements, and other
laws, regulations, and obligations of the Company applicable to the Plan. Awards
may be granted subject to stockholder approval, but may not be exercised or
otherwise settled in the event stockholder approval is not obtained. The Plan
shall terminate at such time as no shares of Common Stock remain available for
issuance under the Plan and the Company has no further rights or obligations
with respect to outstanding Awards under the Plan.
21
SPORTSLINE USA, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide incentive
for present and future employees of the Company and any Designated Subsidiary to
acquire a proprietary interest (or increase an existing proprietary interest) in
the Company through the purchase of Common Stock. It is the Company's intention
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Code. Accordingly, the provisions of the Plan shall be administered,
interpreted and construed in a manner consistent with the requirements of that
section of the Code.
2. DEFINITIONS.
(a) "APPLICABLE PERCENTAGE" means the percentage
specified in Section 8, subject to adjustment by the Committee as provided in
Section 8.
(b) "BOARD" means the Board of Directors of the
Company.
(c) "CODE" means the Internal Revenue Code of 1986,
as amended, and any successor thereto.
(d) "COMMITTEE" means the committee appointed by the
Board to administer the Plan as described in Section 13 of the Plan or, if no
such Committee is appointed, the Board.
(e) "COMMON STOCK" means the Company's common stock,
par value $0.01 per share.
(f) "COMPANY" means SPORTSLINE USA, INC., a Delaware
corporation.
(g) "COMPENSATION" means, with respect to each
Participant for each pay period, the full base salary, overtime and other wages
paid to such Participant by the Company or a Designated Subsidiary. Except as
otherwise determined by the Committee, "Compensation" does not include: (i)
commissions or bonuses; (ii) any amounts contributed by the Company or a
Designated Subsidiary to any pension plan; (iii) any automobile or relocation
allowances (or reimbursement for any such expenses); (iv) any amounts paid as a
starting bonus or finder's fee; (v) any amounts realized from the exercise of
any stock options or incentive awards; (vi) any amounts paid by the Company or a
Designated Subsidiary for other fringe benefits, such as health and welfare,
hospitalization and group life insurance benefits, or perquisites, or paid in
lieu of such benefits; or (vii) other similar forms of extraordinary
compensation.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the
absence of any interruption or termination of service as an Employee. Continuous
Status as an Employee shall not be considered interrupted in the case of a leave
of absence agreed to in writing by the Company or the Designated Subsidiary that
employs the Employee, provided that such leave is for a period of not more than
90 days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
<PAGE>
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries
that have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(j) "EMPLOYEE" means any person, including an
Officer, whose customary employment with the Company or one of its Designated
Subsidiaries is at least twenty (20) hours per week and more than five (5)
months in any calendar year.
(k) "ENTRY DATE" means the first day of each Exercise
Period.
(l) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(m) "EXERCISE DATE" means the last business day
ending on or before December 31, 1997, and the last business day ending on or
before each June 30 and December 31 thereafter.
(n) "EXERCISE PERIOD" means, for any Offering Period,
each period commencing on the Offering Date and on the day after each Exercise
Date, and terminating on the immediately following Exercise Date.
(o) "EXERCISE PRICE" means the price per share of
Common Stock offered in a given Offering Period determined as provided in
Section 8.
(p) "FAIR MARKET VALUE" means, with respect to a
share of Common Stock, the Fair Market Value as determined under Section 7(b).
(q) "FIRST OFFERING DATE" means the commencement date
of the initial public offering contemplated by the Registration Statement on
Form S-1 filed by the Company with the Securities and Exchange Commission.
(r) "OFFERING DATE" means the first business day of
each Offering Period; provided, that in the case of an individual who becomes
eligible to become a Participant under Section 3 after the first business day of
an Offering Period, the term "Offering Date" shall mean the first business day
of the Exercise Period coinciding with or next succeeding the day on which that
individual becomes eligible to become a Participant. Options granted after the
first day of an Offering Period will be subject to the same terms as the options
granted on the first business day of such Offering Period except that they will
have a different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first
business day of such Offering Period, a shorter term.
(s) "OFFERING PERIOD" means (i) with respect to the
first Offering Period, the period beginning on the First Offering Date and
ending on June 30, 1998, and (ii) with respect to each Offering Period
thereafter, and subject to adjustment as provided in Section 4, the 12 month
period beginning on the business day immediately succeeding the end of the
preceding Offering Period.
(t) "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 under the Exchange Act and the rules
and regulations promulgated thereunder.
2
<PAGE>
(u) "PARTICIPANT" means an Employee who has elected
to participate in the Plan by filing an enrollment agreement with the Company as
provided in Section 5 of the Plan.
(v) "PLAN" shall mean this 1997 Employee Stock
Purchase Plan.
(w) "PLAN CONTRIBUTIONS" means, with respect to each
Participant, the payroll deductions withheld from the Compensation of the
Participant and contributed to the Plan for the Participant as provided in
Section 6 of the Plan and any other amounts contributed to the Plan for the
Participant in accordance with the terms of the Plan.
(x) "SUBSIDIARY" shall mean any corporation, domestic
or foreign, of which the Company owns, directly or indirectly, 50% or more of
the total combined voting power of all classes of stock, and that otherwise
qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of
the Code.
3. ELIGIBILITY.
(a) Any Employee who is employed by the Company as of
the Offering Date of a given Offering Period shall be eligible to become a
Participant as of any Entry Date within that Offering Period under the Plan,
subject to the requirements of Section 5(a) and the limitations imposed by
Section 423(b) of the Code.
(b) Notwithstanding any provision of the Plan to the
contrary, no Participant shall be granted an option under the Plan (i) if,
immediately after the grant, such Participant (or any other person whose stock
would be attributed to such Participant pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary of the Company, or (ii) which permits such
Participant's rights to purchase stock under all employee stock purchase plans
of the Company and its Subsidiaries intended to qualify under Section 423 of the
Code to accrue at a rate which exceeds $25,000 of fair market value of stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by a series
of consecutive Offering Periods. The first Offering Period shall commence on the
First Offering Date, the second Offering Period shall commence on July 1, 1997,
and succeeding Offering Periods shall commence on or about the July 1 that
occurs every 12 months thereafter (or at such other time or times as may be
determined by the Committee). The Committee shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected.
3
<PAGE>
5. ELECTION TO PARTICIPATE.
(a) An eligible Employee may elect to participate in
the Plan commencing on any Entry Date by completing an enrollment agreement on
the form provided by the Company and filing the enrollment agreement with the
Company on or prior to such Entry Date, unless a later time for filing the
enrollment agreement is set by the Committee for all eligible Employees with
respect to a given offering. The enrollment agreement shall set forth the
percentage of the Participant's Compensation that is to be withheld by payroll
deduction pursuant to the Plan.
(b) Except as otherwise determined by the Committee
under rules applicable to all Participants, payroll deductions for a Participant
shall commence on the first payroll following the Entry Date on which the
Participant elects to participate in accordance with Section 5(a) and shall end
on the last payroll in the Offering Period, unless sooner terminated by the
Participant as provided in Section 11.
(c) Unless a Participant elects otherwise prior to
the last Exercise Date of an Offering Period, such Participant shall be deemed
(i) to have elected to participate in the immediately succeeding Offering Period
(and, for purposes of such Offering Period such Participant's "Entry Date" shall
be deemed to be the first day of such Offering Period) and (ii) to have
authorized the same payroll deduction for such immediately succeeding Offering
Period as was in effect for such Participant immediately prior to the
commencement of such succeeding Offering Period.
6. PARTICIPANT CONTRIBUTIONS.
(a) Except as otherwise authorized by the Committee
pursuant to Section 6(d) below, all Participant contributions to the Plan shall
be made only by payroll deductions. At the time a Participant files the
enrollment agreement with respect to an Offering Period, the Participant may
authorize payroll deductions to be made on each payroll date during the portion
of the Offering Period that he or she is a Participant in an amount not less
than 1% and not more than 25% of the Participant's Compensation on each payroll
date during the portion of the Offering Period that he or she is a Participant
(or subsequent Offering Periods as provided in Section 5(c)). The amount of
payroll deductions shall be a whole percentage (i.e., 1%, 2%, 3%, etc.)
of the Participant's Compensation.
(b) A Participant may discontinue his or her
participation in the Plan as provided in Section 11, or may decrease or increase
the rate or amount of his or her payroll deductions during such Offering Period
(within the limitations of Section 6(a) above) by completing and filing with the
Company a new enrollment agreement authorizing a change in the rate or amount of
payroll deductions; PROVIDED, that a Participant may not change the rate or
amount of his or her payroll deductions more than once in any Exercise Period.
The change in rate or amount shall be effective with the first full payroll
period following ten (10) business days after the Company's receipt of the new
enrollment agreement.
(c) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof,
a Participant's payroll deductions may be decreased to
4
<PAGE>
0% at such time during any Exercise Period which is scheduled to end during the
current calendar year that the aggregate of all payroll deductions accumulated
with respect to such Exercise Period and any other Exercise Period ending within
the same calendar year equal to the product of $25,000 multiplied by the
Applicable Percentage for the calendar year. Payroll deductions shall recommence
at the rate provided in the Participant's enrollment agreement at the beginning
of the following Exercise Period which is scheduled to end in the following
calendar year, unless terminated by the Participant as provided in Section 11.
(d) Notwithstanding anything to the contrary in the
foregoing, but subject to the limitations set forth in Section 3(b), the
Committee may permit Participants to make additional contributions to the Plan
subject to such terms and conditions as the Committee may in its discretion
determine. All such additional contributions shall be made in a manner
consistent with the provisions of Section 423 of the Code or any successor
thereto, and shall be held in Participants' accounts and applied to the purchase
of shares of Common Stock pursuant to options granted under this Plan in the
same manner as payroll deductions contributed to the Plan as provided above.
(e) All Plan Contributions made for a Participant
shall be deposited in the Company's general corporate account and shall be
credited to the Participant's account under the Plan. No interest shall accrue
or be credited with respect to a Participant's Plan Contributions. All Plan
Contributions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate or
otherwise set apart such Plan Contributions from any other corporate funds.
7. GRANT OF OPTION.
(a) On a Participant's Entry Date, subject to the
limitations set forth in Sections 3(b) and 12(a), the Participant shall be
granted an option to purchase on each subsequent Exercise Date during the
Offering Period in which such Entry Date occurs (at the Exercise Price
determined as provided in Section 8 below) a number of shares of Common Stock
determined by dividing such Participant's Plan Contributions accumulated prior
to such Exercise Date and retained in the Participant's account as of such
Exercise Date by the lower of (i) the Applicable Percentage of the greater of
(A) the Fair Market Value of a share of Common Stock on the Offering Date or (B)
the Fair Market Value of a share of Common Stock on the Entry Date on which the
Employee elects to become a Participant within the Offering Period, or (ii) the
Applicable Percentage of the Fair Market Value of a share of Common Stock on
such Exercise Date; PROVIDED, that the maximum number of shares an Employee may
purchase during any Exercise Period shall be 1,000 shares. The Fair Market Value
of a share of Common Stock shall be determined as provided in Section 7(b).
(b) The Fair Market Value of a share of Common Stock
on a given date shall be determined by the Committee in its discretion;
PROVIDED, that if there is a public market for the Common Stock, the Fair Market
Value per share shall be either (i) the closing price of the Common Stock on
such date (or, in the event that the Common Stock is not traded on such date, on
the immediately preceding trading date), as reported by the National Association
of Securities Dealers Automated Quotation (Nasdaq) National Market System, (ii)
if such price is not reported, the average of the bid and asked prices for the
Common Stock on such date (or, in the event that the Common
5
<PAGE>
Stock is not traded on such date, on the immediately preceding trading date), as
reported by Nasdaq, (iii) in the event the Common Stock is listed on a stock
exchange, the closing price of the Common Stock on such exchange on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in The Wall Street Journal, or
(iv) if no such quotations are available for a date within a reasonable time
prior to the valuation date, the value of the Common Stock as determined by the
Committee using any reasonable means. For purposes of the First Offering Date,
the Fair Market Value of a share of Common Stock shall be the Price to Public as
set forth in the final prospectus filed by the Company with the Securities and
Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as
amended.
8. EXERCISE PRICE. The Exercise Price per share of Common
Stock offered to each Participant in a given Offering Period shall be the lower
of: (i) the Applicable Percentage of the greater of (A) the Fair Market Value of
a share of Common Stock on the Offering Date or (B) the Fair Market Value of a
share of Common Stock on the Entry Date on which the Employee elects to become a
Participant within the Offering Period or (ii) the Applicable Percentage of the
Fair Market Value of a share of Common Stock on the Exercise Date. The
Applicable Percentage with respect to each Offering Period shall be 85%, unless
and until such Applicable Percentage is increased by the Committee, in its sole
discretion, provided that any such increase in the Applicable Percentage with
respect to a given Offering Period must be established not less than fifteen
(15) days prior to the Offering Date thereof.
9. EXERCISE OF OPTIONS. Unless the Participant withdraws from
the Plan as provided in Section 11, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, and the maximum
number of full shares subject to such option shall be purchased for the
Participant at the applicable Exercise Price with the accumulated Plan
Contributions then credited the Participant's account under the Plan. During a
Participant's lifetime, a Participant's option to purchase shares hereunder is
exercisable only by the Participant.
10. DELIVERY. As promptly as practicable after each Exercise
Date, the Company shall arrange for the delivery to each Participant (or the
Participant's beneficiary), as appropriate, of a certificate representing the
shares purchased upon exercise of such Participant's option. Any amount
remaining to the credit of a Participant's account after the purchase of shares
by such Participant on an Exercise Date, or which is insufficient to purchase a
full share of Common Stock, shall be carried over to the next Exercise Period if
the Participant continues to participate in the Plan or, if the Participant does
not continue to participate, shall be returned to the Participant.
11. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw from the Plan at any
time by giving written notice to the Company. All of the Plan Contributions
credited to the Participant's account and not yet invested in Common Stock will
be paid to the Participant as soon as administratively practicable after receipt
of the Participant's notice of withdrawal, the Participant's option to purchase
shares pursuant to the Plan automatically will be terminated, and no further
payroll deductions for the purchase of shares will be made for the Participant's
account. Payroll deductions will not resume on behalf of a Participant who
6
<PAGE>
has withdrawn from the Plan (a "Former Participant") unless the Former
Participant enrolls in a subsequent Offering Period in accordance with Section
5(a).
(b) Upon termination of the Participant's Continuous
Status as an Employee prior to any Exercise Date for any reason, including
retirement or death, the Plan Contributions credited to the Participant's
account and not yet invested in Common Stock will be returned to the Participant
or, in the case of death, to the Participant's beneficiary as determined
pursuant to Section 14, and the Participant's option to purchase shares under
the Plan will automatically terminate.
(c) A Participant's withdrawal from an Offering
Period will not have any effect upon the Participant's eligibility to
participate in succeeding Offering Periods or in any similar plan which may
hereafter be adopted by the Company.
12. STOCK.
(a) The maximum number of shares of Common Stock that
shall be made available for sale under the Plan shall be Five Hundred Thousand
(500,000) shares, subject to adjustment as provided in Section 17. Shares of
Common Stock subject to the Plan may be newly issued shares or shares reacquired
in private transactions or open market purchases. If and to the extent that any
right to purchase reserved shares shall not be exercised by any Participant for
any reason or if such right to purchase shall terminate as provided herein,
shares that have not been so purchased hereunder shall again become available
for the purpose of the Plan unless the Plan shall have been terminated, but all
shares sold under the Plan, regardless of source, shall be counted against the
limitation set forth above.
(b) A Participant will have no interest or voting
right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a Participant under the
Plan will be registered in the name of the Participant or in the name of the
Participant and his or her spouse, as requested by the Participant.
13. ADMINISTRATION.
(a) The Plan shall be administered by the Committee.
The Committee shall have the authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
The administration, interpretation, or application of the Plan by the Committee
shall be final, conclusive and binding upon all persons.
(b) Notwithstanding the provisions of Subsection (a)
of this Section 13, in the event that Rule 16b-3 promulgated under the Exchange
Act or any successor provision thereto ("Rule 16b-3") provides specific
requirements for the administrators of plans of this type, the Plan shall only
be administered by such body and in such a manner as shall comply with the
applicable requirements
7
<PAGE>
of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning
decisions regarding the Plan shall be afforded to any person that is not
"disinterested" as that term is used in Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of the Participant's death
subsequent to an Exercise Date on which the Participant's option hereunder is
exercised but prior to delivery to the Participant of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of the Participant's death prior to the exercise of the option.
(b) A Participant's beneficiary designation may be
changed by the Participant at any time by written notice. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
Company shall deliver such shares and/or cash to the executor or administrator
of the estate of the Participant, or if no such executor or administrator has
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one or
more dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
15. TRANSFERABILITY. Neither Plan Contributions credited to a
Participant's account nor any rights to exercise any option or receive shares of
Common Stock under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will or the laws of descent and
distribution, or as provided in Section 14). Any attempted assignment, transfer,
pledge or other distribution shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with Section
11.
16. PARTICIPANT ACCOUNTS. Individual accounts will be
maintained for each Participant in the Plan to account for the balance of his
Plan Contributions and options issued and shares purchased under the Plan.
Statements of account will be given to Participants semi-annually in due course
following each Exercise Date, which statements will set forth the amounts of
payroll deductions, the per share purchase price, the number of shares purchased
and the remaining cash balance, if any.
17. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION;
CORPORATE TRANSACTIONS.
(a) If the outstanding shares of Common Stock are
increased or decreased, or are changed into or are exchanged for a different
number of kind of shares, as a result of one or more reorganizations,
restructurings, recapitalizations, reclassifications, stock splits, reverse
stock splits, stock dividends or the like, upon authorization of the Committee,
appropriate adjustments shall be made in the number and/or kind of shares, and
the per-share option price thereof, which may be issued in the aggregate and to
any Participant upon exercise of options granted under the Plan.
(b) In the event of the proposed dissolution or
liquidation of the Company, the Offering Period will terminate immediately prior
to the consummation of such proposed action, unless
8
<PAGE>
otherwise provided by the Committee. In the event of a proposed sale of all or
substantially all of the Company's assets, or the merger of the Company with or
into another corporation (each, a "Sale Transaction"), each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Committee determines, in the exercise of its sole discretion and in
lieu of such assumption or substitution, to shorten the Exercise Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the
Committee shortens the Exercise Period then in progress in lieu of assumption or
substitution in the event of a Sale Transaction, the Committee shall notify each
Participant in writing, at least ten (10) days prior to the New Exercise Date,
that the exercise date for such Participant's option has been changed to the New
Exercise Date and that such Participant's option will be exercised automatically
on the New Exercise Date, unless prior to such date the Participant has
withdrawn from the Plan as provided in Section 11. For purposes of this Section
17(b), an option granted under the Plan shall be deemed to have been assumed if,
following the Sale Transaction, the option confers the right to purchase, for
each share of option stock subject to the option immediately prior to the Sale
Transaction, the consideration (whether stock, cash or other securities or
property) received in the Sale Transaction by holders of Common Stock for each
share of Common Stock held on the effective date of the Sale Transaction (and if
such holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common Stock);
PROVIDED, that if the consideration received in the Sale Transaction was not
solely common stock of the successor corporation or its parent (as defined in
Section 424(e) of the Code), the Committee may, with the consent of the
successor corporation and the Participant, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by the holders of Common Stock in the Sale Transaction.
(c) In all cases, the Committee shall have sole discretion to exercise any of
the powers and authority provided under this Section 17, and the Committee's
actions hereunder shall be final and binding on all Participants. No fractional
shares of stock shall be issued under the Plan pursuant to any adjustment
authorized under the provisions of this Section 17.
18. AMENDMENT OF THE PLAN. The Board or the Committee may at
any time, or from time to time, amend the Plan in any respect; PROVIDED, that
(i) no such amendment may make any change in any option theretofore granted
which adversely affects the rights of any Participant and (ii) the Plan may not
be amended in any way that will cause rights issued under the Plan to fail to
meet the requirements for employee stock purchase plans as defined in Section
423 of the Code or any successor thereto. To the extent necessary to comply with
Rule 16b-3 under the Exchange Act, Section 423 of the Code, or any other
applicable law or regulation), the Company shall obtain shareholder approval of
any such amendment.
9
<PAGE>
19. TERMINATION OF THE PLAN.
The Plan and all rights of Employees hereunder shall terminate on the
earliest of:
(a) the Exercise Date that Participants become
entitled to purchase a number of shares greater than the number of reserved
shares remaining available for purchase under the Plan;
(b) such date as is determined by the Board in its
discretion; or
(c) the last Exercise Date immediately preceding the
tenth (10th) anniversary of the Plan's effective date.
In the event that the Plan terminates under circumstances described in
Section 19(a) above, reserved shares remaining as of the termination date shall
be sold to Participants on a PRO RATA basis.
20. NOTICES. All notices or other communications by a
Participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. EFFECTIVE DATE. Subject to adoption of the Plan by the
Board, the Plan shall become effective on the First Exercise Date. The Board
shall submit the Plan to the shareholders of the Company for approval within
twelve months after the date the Plan is adopted by the Board. If such
shareholder approval is not obtained, the Plan and all rights of Participants
under the Plan shall be null and void and shall have no effect.
22. CONDITIONS UPON ISSUANCE OF SHARES.
(a) The Plan, the grant and exercise of options to
purchase shares under the Plan, and the Company's obligation to sell and deliver
shares upon the exercise of options to purchase shares shall be subject to
compliance with all applicable federal, state and foreign laws, rules and
regulations and the requirements of any stock exchange on which the shares may
then be listed.
(b) The Company may make such provisions as it deems
appropriate for withholding by the Company pursuant to federal or state tax laws
of such amounts as the Company determines it is required to withhold in
connection with the purchase or sale by a Participant of any Common Stock
acquired pursuant to the Plan. The Company may require a Participant to satisfy
any relevant tax requirements before authorizing any issuance of Common Stock to
such Participant.
23. EXPENSES OF THE PLAN. All cost and expenses incurred in
administering the Plan shall be paid by the Company, except that any stamp
duties or transfer taxes applicable to participation in the Plan may be charged
to the account of such Participant by the Company.
10
<PAGE>
24. NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
25. APPLICABLE LAW. The laws of the State of Delaware shall
govern all matter relating to this Plan except to the extent (if any) superseded
by the laws of the United States.
26. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
April 14, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 13,993,785 17,731,706
<SECURITIES> 138,601 138,601
<RECEIVABLES> 583,435 529,312
<ALLOWANCES> 22,045 35,245
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,946,561 27,078,800
<PP&E> 3,100,409 3,911,569
<DEPRECIATION> (858,779) (1,125,524)
<TOTAL-ASSETS> 17,849,742 30,854,957
<CURRENT-LIABILITIES> 3,167,605 4,019,817
<BONDS> 0 0
0 0
0 0
<COMMON> 65,047 107,981
<OTHER-SE> 14,063,397 26,271,488
<TOTAL-LIABILITY-AND-EQUITY> 17,849,742 30,854,957
<SALES> 0 0
<TOTAL-REVENUES> 2,436,690 1,253,165
<CGS> 0 0
<TOTAL-COSTS> 3,319,291 1,298,902
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 22,045 13,200
<INTEREST-EXPENSE> 136,309 13,942
<INCOME-PRETAX> (12,855,374) (4,602,904)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (12,855,374) (4,602,904)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (12,855,374) (4,602,904)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
