AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION STATEMENT NO. 333-25259
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 5
TO
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>
---------------
6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(954) 351-2120
(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:
<TABLE>
<S> <C>
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
</TABLE>
---------------
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. [ ]
---------------
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 NOVEMBER 12, 1997
[SPORTSLINE USA LOGO]
3,500,000 Shares
COMMON STOCK
All of the 3,500,000 shares of Common Stock offered hereby are being sold
by SportsLine USA, Inc. ("SportsLine USA" or the "Company"). Intel Corporation
("Intel") and Mitsubishi Corporation ("Mitsubishi") have indicated an interest
in purchasing from the Company 537,634 shares and 215,054 shares (assuming an
initial public offering price of $10.00 per share), respectively, of the Common
Stock offered hereby at a price per share equal to the Price to Public less the
Underwriting Discounts and Commissions. See "Underwriting."
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 $9.00 and $11.00 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.
================================================================================
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (4) ...... $ $ $
================================================================================
</TABLE>
(1) It is currently anticipated that an aggregate of 752,688 shares of Common
Stock (assuming an initial public offering price of $10.00 per share) will
be purchased at a price per share equal to the Price to Public less the
Underwriting Discounts and Commissions. See "Underwriting."
(2) BancAmerica Robertson Stephens, Cowen & Company and NationsBanc Montgomery
Securities, Inc. are acting as the Company's placement agents in
connection with the shares anticipated to be offered to Intel and
Mitsubishi, and, in connection therewith, the Company has agreed to pay a
fee of $ per share. See "Underwriting."
(3) Before deducting offering expenses payable by the Company, estimated at
$600,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 525,000 shares of Common Stock (subject to reduction if Intel
and Mitsubishi purchase shares in this offering) 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 BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
BANCAMERICA ROBERTSON STEPHENS
COWEN & COMPANY
NATIONSBANC MONTGOMERY SECURITIES, INC.
The date of this Prospectus is , 1997
<PAGE>
Creating a Global Sports Brand
PICTURE OF THE COMPANY'S WELCOME WEB PAGE ACCOMPANIED BY TEXT, LINKS TO
ARTICLES, "Hunting for Gators" and "Top News" and LINKS TO THE COMPANY'S OTHER
WEB PAGES AND SERVICES, including "Free Trial Membership, Index, Search, NFL,
College Football, Baseball, NBA, NHL, Golf, Tennis, More Sports, Scoreboard,
Superstars, Live Radio, Personal Sports, Contest, Fantasy Sports, Columns,
Newsroom, City Pages, Superstore, Chat, E World, Java Scores, Member Services,
About SportsLine, FAQ Sponsor Index"
PICTURE OF THE COMPANY'S WINTER OLYMPICS WEB PAGE ACCOMPANIED BY TEXT," TIME
WARP AND LINKS TO THE COMPANY'S OTHER WINTER OLYMPICS WEB PAGES, Cross Country,
Giant Slalom and Slalom, Downhill and SuperGiant Slalom, Ski Jumping, Nordic
Combined, Freestyle Skiing, Snow Bording, Short Track Speed Skating, Figure
Skating, Ice Hockey, Bobsleigh, Luge, Curling and Biathlon
PICTURE OF THE COMPANY'S BASEBALL WEB PAGE ACCOMPANIED BY TEXT, "Northern
Exposure" and "Top News" and LINKS TO THE COMPANY OTHER WEB PAGES AND SERVICES,
Free Trial Membership, Home, Index Search, Library Teams, Players, Minors,
Columns, Baseball Live!, Contests, Fantasy, Your MLB Page, Schedules, Standings,
Injuries, Transactions, Analysis and Team Reports
PICTURE OF THE COMPANY'S JAVA FOOTBALL LINE WEB PAGE ACCOMPANIED BY ANIMATED
GRAPHIC OF A FOOTBALL FIELD AND SCOREBOARD
PICTURE OF THE COMPANY'S CRICKET WEB PAGE ACCOMPANIED BY TEXT, "Sailing the
Indies" LINKS TO OTHER ARTICLES, "Top News" and LINKS TO THE COMPANY'S OTHER WEB
PAGES AND SERVICES, "Free Trial Membership, Home, Index, Search, By Country and
Columns"
PICTURE OF THE COMPANY'S 1997 U.S. OPEN WEB PAGE ACCOMPANIED BY TEXT LINKS TO
GOLF RELATED ARTICLES, "Nerves of Steel", Golf News Articles and LINKS TO THE
COMPANY'S OTHER WEB PAGES AND SERVICES, including, "U.S. Open Leaderboard, Golf
News, The Field, Home, Index, Search, Congressional Country Club, Photos, Eye
on Tiger, Arnold Palmer, John Daly, History and Audio"
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."
<PAGE>
Advertising & Sponsorship
PICTURE OF THE COMPANY'S AUTO RACING WEB PAGE ACCOMPANIED BY OLDSMOBILE
SPONSORSHIP ADVERTISING, "360/degrees/ Interior" . . . and LINKS TO THE
COMPANY'S OTHER WEB PAGES AND SERVICES, including "Free Trial Membership, Home,
Index, Search, Indy 500, PPG CART, Columns, SportsLine Audio, Allsports Photos
and Reuters Photos
PICTURE OF THE COMPANY'S COCA-COLA 600 WEB PAGE ACCOMPANIED BY TEXACO
SPONSORSHIP ADVERTISING, "Presented by Texaco", TEXT AND ARTICLES, "It's Jeff's
World" and "Top News" dated Monday, August 4, 12:16 P.M. and LINKS TO THE
COMPANY'S OTHER WEB PAGES AND SERVICES, Auto Racing, Home, Index and Search
A SAMPLE OF THE NAMES AND LOGOS OF THE COMPANY'S ADVERTISERS AND SPONSORS
BellSouth [Logo]
Oldsmobile [Logo]
Bell Atlantic [Logo]
1-800-Flowers [Logo]
Buick [Logo]
Sprint [Logo]
Intel [Logo]
Honda [Logo]
Pepsi [Logo]
Visa [Logo]
Toyota [Logo]
Ford [Logo]
Sears [Logo]
US Robotics [Logo]
Army [Logo]
Perry Ellis MensWear [Logo]
Philips [Logo]
Mountain Dew [Logo]
Delta AirLines [Logo]
American Greeting [Logo]
Selsun Blue [Logo]
DirecTV [Logo]
AT&T [Logo]
American Express Travel [Logo]
The Coca-Cola [Logo]
Microsoft [Logo]
Sun Microsystems [Logo}
Chase Manhattan [Logo]
IBM [Logo}
Merchandise
PICTURE OF THE COMPANY'S SUPERSTORE WEB PAGE ACCOMPANIED BY TEXT, "Member
Exclusive. . .CBS SportsLine Member SAVE 10% on Merchandise! Not a Member? Click
for your CBS SportsLine FREE Trial?" and LINKS TO THE COMPANY'S OTHER WEB PAGES
AND SERVICES, including "Superstore, Home, Index, Search, Product Index, Help,
Shopping Cart, Apparel, Art, Books, Memorabilia, Photos, Sporting Goods and
Trading Cards."
PICTURE OF THE COMPANY'S ERA RE - VISITED JOE NAMATH AUTOGRAPHED THROWBACK
JERSEY WEB PAGE AND ACCOMPANIED BY TEXT RELATING TO THE ITEM FOR SALE
PICTURE OF THE COMPANY'S MICHAEL JORDAN SIGNATURE MINI-BACKETBALL WEB PAGE AND
ACCOMPANIED BY TEXT RELATING TO THE ITEM FOR SALE
PICTURE OF THE COMPANY'S BOOKSTORE WEB PAGE AND ACCOMPANIED BY TEXT RELATING TO
THE ITEMS FOR SALE
<PAGE>
Membership & Premium Products
PICTURE OF THE COMPANY'S FANTASY FOOTBALL WEB PAGE ACCOMPANIED BY TEXT, AND
LINKS TO ARTICLES, "Chief Concerns" and "Columns" and LINKS TO THE COMPANY'S
OTHER WEB PAGES AND LINKS, including, "Fantasy Sports, Home, Index, Search,
Challenge Game, Advance Scout, Commissioner and Interact"
PICTURES OF THE COMPANY'S PERSONAL SPORTS WEB PAGE ACCOMPANIED BY SAMPLES AND
TEXT, "Personal Sportspage . . Your Teams, Your Stories . . Your Home Page . .
Personal SportsMail . . . When You Can't Pick It up . . . We'll Deliver It" and
LINKS TO THE COMPANY'S WEB PAGE TO SUBSCRIBE TO THE PERSONAL SPORTS PAGE AND
PERSONAL SPORTS MAIL
PICTURE OF THE COMPANY'S FANTASY BASEBALL COMMISSIONER WEB PAGE ACCOMPANIED WITH
ADVERTISING, "Brought to you by DirecTV [Logo]"
PICTURE OF THE COMPANY'S EXCLUSIVE MEMBER BENEFITS WEB PAGE
PICTURE OF THE COMPANY'S NEWSSTAND WEB PAGE ACCOMPANIED BY LINK TO THE
COMPANY'S, "Pro Football Newsstand, College Football Newsstand"
Additional Revenue Opportunities
PICTURE OF THE COMPANY'S SHAQ WORLD WEB PAGE ACCOMPANIED BY A PICTURE OF
SHAQUILLE O'NEAL AND LINKS TO THE COMPANY'S OTHER WEB PAGES, including "Hot
Spot, B Ball, Shaq Paq, The Show, The Shop, Live Chat and SportsLine USA"
PICTURE OF THE COMPANY'S MICHAEL JORDAN WEB PAGE ACCOMPANIED BY LINKS TO THE
COMPANY'S OTHER WEB PAGES, including, "Career, Bulls, NBA, Chat, Audio/Video,
Game, Shop, Index"
PICTURE OF THE COMPANY'S LIVE RADIO! WEB PAGE AND LINKS TO THE COMPANY'S WEB
SITES, INCLUDING, "Schedule, Upcoming Guests, Archives, Radio Cam, Email,
Partners, Free Trial Memberhip, Home, Index and Search"
PICTURE OF THE COMPANY'S ORANGE BOWL WEB PAGE ACCOMPANIED BY "FEDEX Orange
Bowl" [Logo]. .
PICTURE OF THE COMPANY'S VEGAS INSIDER WEB PAGE ACCOMPANIED BY TEXT AND
ARTICLES, "What's Hot; What a Line" and Preseason Power Rating" and othersports
LINKS TO THE COMPANY'S OTHER WEB PAGES, including Odds, Picks, Matchups,
Injuries, Weather, Scores, Interact, Handicappers, NFL, College Football, NBA,
College Basketball, Hockey, Other Sports.
PICTURE OF THE COMPANY'S TIGER WOODS WEB PAGE ACCOMPANIED BY A PICTURE OF TIGER
WOODS AND LINKS TO THE COMPANY'S OTHER WEB PAGES, Including "All About Tiger,
Tiger Watch, Chat, The Shop, Index and Shop
[SportsLine is pursuing multiple revenue opportunities, including membership and
premium service fees, third parry web site development, content licensing, and
radio syndications.]
<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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary .............................................................................. 4
Risk Factors ........................................................................ 7
Use of Proceeds ..................................................................... 21
Dividend Policy ..................................................................... 21
Capitalization ..................................................................... 22
Dilution ........................................................................... 23
Selected Financial Data ............................................................ 24
Management's Discussion and Analysis of Financial Condition and Results of Operations 25
Business ........................................................................... 31
Management ........................................................................... 47
Certain Transactions ............................................................... 56
Principal Shareholders ............................................................... 58
Description of Capital Stock ......................................................... 60
Shares Eligible for Future Sale ...................................................... 63
Underwriting ........................................................................ 65
Legal Matters ........................................................................ 67
Experts .............................................................................. 67
Additional Information ............................................................... 67
Index to Financial Statements ...................................................... F-1
</TABLE>
----------------
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) A 1-FOR-2.5 REVERSE STOCK
SPLIT OF THE COMMON STOCK, (II) THE CONVERSION INTO 5,798,434 SHARES OF COMMON
STOCK OF ALL OUTSTANDING SHARES OF THE COMPANY'S PREFERRED STOCK UPON THE
COMPLETION OF THIS OFFERING, (III) THE FILING OF AN AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION WHICH, AMONG OTHER THINGS, AUTHORIZES THE ISSUANCE
OF "BLANK CHECK" PREFERRED STOCK AND (IV) 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 also has entered into exclusive agreements to create Web sites for
Michael Jordan, Tiger Woods and Joe Montana, all of which are expected to be
launched during 1997. 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. To date, the Company has achieved only limited revenues and has
incurred operating losses in each period. However, 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 2,270,000 page views and
352,000 visits during September 1997, increases of 210% and 271%, respectively,
from December 31, 1996 to September 30, 1997, and the Company's Web sites had
approximately 45,700 paying members as of September 30, 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 and the Company's superstar athletes;
offers instant odds and picks; 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,
fantasy league products and fan clubs; 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 CBS acquired a minority
ownership interest in the Company, and the Company's flagship Web site was
renamed "cbs.sportsline.com." The CBS agreement provides for cbs.sportsline.com
to receive, among other things, at least $57 million of network television
advertising and on-air promotion during the next five years, primarily during
CBS television sports broadcasts 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
4
<PAGE>
television broadcasts, will enable it to establish SportsLine as a broadly
recognized consumer brand. In July 1997, the Company entered into a strategic
programming and distribution agreement with America Online Inc. ("AOL"),
pursuant to which cbs.sportsline.com became the first "anchor tenant" on AOL's
Sports Channel, allowing AOL's more than 9 million subscribers to access the
Company's Web sites from within the AOL service. The AOL agreement also
provides the Company the opportunity to market memberships, premium services
and merchandise to AOL's subscribers and to integrate its sports content and
programming into all major sports areas of the AOL service. The Company also
recently entered into an agreement with Microsoft Corporation ("Microsoft")
under which cbs.sportsline.com will be integrated into Microsoft's "Active
Desktop" as part of Microsoft's forthcoming release of the latest version of
Internet Explorer ("IE4") and operating system ("Windows 98").
cbs.sportsline.com is also featured as a default content "channel" in the
Channel Finder of Netscape Communication Corporation's ("Netscape") recently
released Netcaster software, which utilizes "push" delivery to give users the
ability to subscribe to dynamic Web content and to browse these channels and
Web sites offline from their desktop. The Company has also established
strategic marketing relationships with sports superstars, personalities,
organizations and affinity groups.
The Company's strategy is to capitalize on the market opportunities
created by the popularity of sports. Participatory and spectator sports are
among the leading pastimes of 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
popularity of sports is also demonstrated by the success of sports
publications, the top five of which had a paid weekly circulation of 8.9
million and generated over $800 million in advertising revenue in 1996,
according to Advertising Age. 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, approximately $4.7 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 ........................... 3,500,000 shares (1)
Common Stock to be outstanding after the Offering ...... 13,632,523 shares (2)(3)
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>
SUMMARY FINANCIAL DATA
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
FEBRUARY 23, 1994
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- ---------------------------
1994 1995 1996 1996 1997
------------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ..................... $ -- $ 52 $ 2,437 $ 1,173 $ 5,867
Gross margin (deficit) ...... -- (705) (958) (992) 1,009
Loss from operations ......... (442) (5,372) (13,084) (8,712) (19,487)
Net loss ..................... $ (404) $ (5,330) $ (12,855) $ (8,655) $ (18,990)
Net loss per share (3) ...... $ (0.15) $ (1.23) $ (1.80) $ (1.32) $ (1.90)
Weighted average common and
common equivalent shares
outstanding (3)(4) ......... 2,653,605 4,329,978 7,157,574 6,579,709 9,982,298
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
PRO FORMA
ACTUAL AS ADJUSTED (3)(5)
--------- -------------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 8,115 $39,738
Working capital ............... 9,279 40,702
Total assets .................. 18,761 50,184
Long-term obligations ......... 390 390
Total shareholders' equity ...... 13,394 44,817
</TABLE>
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(1) Includes an aggregate of 752,688 shares of Common Stock (assuming an
initial public offering price of $10.00 per share) that Intel and
Mitsubishi have indicated an interest in purchasing from the Company. In
the event and to the extent that Intel and Mitsubishi do not purchase such
shares, the Underwriters will purchase those shares on the same terms and
conditions as the other shares being offered hereby. See "Underwriting."
(2) Excludes 1,096,792 shares of Common Stock issuable pursuant to stock
options outstanding as of September 30, 1997 (of which options to purchase
approximately 280,300 shares were exercisable) with a weighted average
exercise price of $4.69 per share and 1,862,188 shares of Common Stock
issuable upon the exercise of warrants outstanding as of September 30,
1997 (of which warrants to purchase approximately 1,432,200 shares were
exercisable) with a weighted average exercise price of $6.93 per share.
See "Management--Stock Plans" and "Description of Capital Stock--Options
and Warrants." Also excludes 3,867,727 shares of Common Stock issuable
pursuant to the Company's agreement with CBS (including 1,520,000 shares
issuable upon the exercise of warrants to be granted to CBS). See "Certain
Transactions--CBS Agreement."
(3) Gives effect to the conversion of all outstanding shares of the Company's
preferred stock into 5,798,434 shares of Common Stock upon completion of
this offering.
(4) 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.
(5) Adjusted to give effect to the sale of the 2,747,312 shares of Common Stock
offered hereby at an assumed initial public offering price of $10.00 per
share and the sale of 752,688 shares of Common Stock offered hereby at a
price per share equal to the initial public offering price less the
underwriting discounts and commissions, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
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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.
RISK FACTORS RELATED TO THE COMPANY'S OPERATIONS
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. The Company has entered into various licensing, royalty and
consulting agreements with content providers, vendors, athletes and sports
organizations, which agreements provide for consideration in various forms,
including issuance of warrants to purchase Common Stock and payment of
royalties, bounties and certain guaranteed amounts on a per member and/or a
minimum dollar amount basis over terms ranging from one to ten years.
Additionally, some of these agreements provide for a specified percentage of
advertising and merchandising revenue to be paid to the athlete or organization
from whose Web site the revenue is derived. As of September 30, 1997, the
minimum guaranteed payments required to be made by the Company under such
agreements were $11,295,000, subject to reduction in the case of certain
agreements based upon the appreciation of warrants issued, the value of stock
received on exercise of warrants, and the amount of profit sharing earned under
the related agreements. Also, the Company has recorded noncash expense of
$5,484,000 for the nine months ended September 30, 1997 related to the CBS
agreement and will record an additional $56,354,000 of noncash expense related
to the CBS agreement over the remaining term of that agreement. As a
consequence of the foregoing, 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 for at least the next 24 to 30 months. As of
September 30, 1997, the Company had an accumulated deficit of $37,579,226.
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 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
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results are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 5 and 8 of Notes to Financial Statements.
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,
content licensing, Web site development and syndication fees. Through September
30, 1997, transaction and site development revenue have not been significant,
and the Company had 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 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
fund increased sales and marketing expenses and to enter into new strategic
agreements. 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."
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
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Company has the right to use certain CBS logos and television-related sports
content and expects to receive, among other things, at least $57 million of
network television advertising and on-air promotions. In connection therewith,
the Company has recorded noncash expense of $5,484,000 for the nine months
ended September 30, 1997 related to the CBS agreement and will record an
additional $56,354,000 of noncash expense related to the CBS agreement over the
remaining term of that agreement. Such network television 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. The CBS agreement provides
that the Company shall (i) maintain and operate the Company's flagship Website,
cbs.sportsline.com, in accordance with guidelines and restrictions developed
from time to time by the Company and CBS (which would prohibit, among other
things, the Company from providing on cbs.sportsline.com gambling information
or content, that is sexually explicit, contains profanity, is slanderous or
libelous or that denigrates a particular group based on gender, race, creed,
religion, sexual preference or handicap) and (ii) cease using any content on
cbs.sportsline.com which CBS determines conflicts, interferes with or is
detrimental to CBS's reputation or business or which becomes subject to any
third party restriction or claim which would prohibit, limit or restrict the
use of such content on the Internet. Under the agreement, CBS has the right to
receive 60% of the Company's advertising revenue sold on cbs.sportsline.com
pages related to certain "signature events" and 50% of the Company's
advertising revenue sold on cbs.sportsline.com pages containing other CBS
television-related sports content. CBS has the right to terminate the agreement
upon the acquisition by a CBS competitor of 40% or more of the voting power of
the Company's outstanding equity securities or in certain other circumstances,
including if the Company breaches a material term or condition of the agreement
or becomes insolvent or subject to bankruptcy or similar proceedings. 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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions--CBS Agreement" and
Note 5 of Notes to Financial Statements.
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, commercial online services, third party Web
sites and developers of browsers and other Internet-based products 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."
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 ESPN SportsZone and CNN and Sports
Illustrated's CNN/SI) or to enthusiasts of particular sports (such as Web sites
maintained by Major League Baseball,
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<PAGE>
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
competitors are ESPN SportsZone and CNN/SI, Web sites which offer 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 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 availability of
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
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<PAGE>
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 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. The Company
has filed an answer in which it denied all material allegations of the
complaint and asserted several affirmative defenses. The action is still in the
discovery stage, and both parties have agreed to attempt to settle the action
through court-ordered mediation. In the event the Company is unable to obtain a
favorable settlement, 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, 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
upon 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
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that the Company's use of certain technologies violates a patent. If it is
determined that the Company has infringed upon 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 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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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 197 employees at September
30, 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 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 may experience difficulties accessing or using the Company's
Web sites due to system failures or delays unrelated to the Company's systems.
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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.
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. 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.
RISKS RELATED TO THE INTERNET INDUSTRY
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.
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 on, among other factors, 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
14
<PAGE>
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 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 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
15
<PAGE>
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 due to 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.
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
technologies that address 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 technologies 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 technologies 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.
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 or 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.
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
16
<PAGE>
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. On June 26, 1997, the
United States Supreme Court held unconstitutional provisions of the
Communications Decency Act of 1996, which, among other things, imposed criminal
penalties on anyone who distributes obscene, lascivious or indecent
communications over the Internet. The enactment or enforcement of 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 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 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.
17
<PAGE>
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.
RISKS RELATED TO THE OFFERING
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.
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 50.6% of the outstanding Common
Stock (approximately 48.8% 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
18
<PAGE>
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, 13,632,523 shares of Common Stock
will be outstanding. Of such shares, only the 3,500,000 shares sold pursuant to
this offering will be tradable in the public market without restriction. The
remaining 10,132,523 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, 9,289,549 of these
remaining 10,132,523 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. The remaining 842,974 shares of currently
outstanding Common Stock and 2,204,000 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. In addition, beginning 90 days after the
date of this Prospectus, an additional 754,980 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 Company and certain of its existing shareholders (holding an aggregate
of 10,041,822 shares of Common Stock) have agreed and, in the event that Intel
and Mitsubishi purchase shares of Common
19
<PAGE>
Stock in this offering, Intel and Mitsubishi will agree, 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
BancAmerica Robertson Stephens, subject to certain exceptions. In its sole
discretion, and at any time without notice, BancAmerica Robertson Stephens may
release all or any portion of the shares subject to such lock-ups.
The holders of 5,798,434 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, within approximately 180 days after the date of this
Prospectus, the Company expects to register under the Securities Act a total of
5,562,188 shares of Common Stock subject to outstanding stock options and
warrants or reserved for issuance under the Company's stock 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 the initial public offering will incur an
immediate, substantial dilution of $6.71 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."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $31,423,000
($36,306,000 if the Underwriters' over-allotment option is exercised in full),
based upon an assumed initial public offering price of $10.00 per share, after
deducting underwriting discounts and commissions, the fee paid to the placement
agents and estimated offering expenses payable by the Company.
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.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, and (ii) on a pro forma 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
2,747,312 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share and 752,688 shares of Common Stock offered
hereby at a price per share equal to the initial public offering price less
underwriting discounts and commissions, 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>
SEPTEMBER 30, 1997
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------------ ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Long-term obligations, net of current maturities ........................... $ 390 $ 390
--------- ---------
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, 4,334,089
shares issued and outstanding, actual; 13,632,523 shares issued and
outstanding pro forma as adjusted ....................................... 43 136
Additional paid-in capital ................................................ 50,785 82,260
Accumulated deficit ...................................................... (37,579) (37,579)
--------- ---------
Total shareholders' equity ................................................ 13,394 44,817
--------- ---------
Total capitalization ................................................... $ 13,784 $ 45,207
========= =========
</TABLE>
- ----------------
(1) Excludes 1,096,792 shares of Common Stock issuable pursuant to stock
options outstanding as of September 30, 1997 (of which options to purchase
approximately 280,300 shares were exercisable) with a weighted average
exercise price of $4.69 per share and 1,862,188 shares of Common Stock
issuable upon the exercise of warrants outstanding as of September 30,
1997 (of which warrants to purchase approximately 1,432,200 shares were
exercisable) with a weighted average exercise price of $6.93 per share.
See "Management--Stock Plans" and "Description of Capital Stock--Options
and Warrants." Also excludes 3,867,727 shares of Common Stock issuable
pursuant to the Company's agreement with CBS (including 1,520,000 shares
issuable upon the exercise of warrants to be granted to CBS). See "Certain
Transactions--CBS Agreement."
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<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997, after giving effect to the conversion of all outstanding shares of
preferred stock into Common Stock, was $13,394,325, or $1.32 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 2,747,312 shares of Common Stock offered hereby at an assumed
initial public offering price of $10.00 per share and 752,688 shares of Common
Stock offered hereby at a price per share equal to the initial public offering
price less underwriting discounts and commissions, and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of September 30, 1997 would have been $44,817,443, or $3.29 per
share. This represents an immediate increase in such pro forma net tangible
book value of $1.97 per share to existing stockholders and an immediate
dilution of $6.71 per share to new investors purchasing shares in this
offering. The following table summarizes, on a pro forma basis as of September
30, 1997, this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .................................... $ 10.00
Pro forma net tangible book value per share as of September 30, 1997 ............... $ 1.32
Increase in net tangible book value per share attributable to new investors ......... 1.97
-------
Pro forma net tangible book value per share as of September 30, 1997 after offering . 3.29
--------
Dilution per share to investors ...................................................... $ 6.71
========
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
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 anticipated purchasers of the shares of Common
Stock offered hereby at an assumed initial public offering price of $10.00 per
share, and before deducting underwriting discounts and commissions, the fee
paid to the placement agents and estimated offering expenses payable by the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION (1)
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... 10,132,523 74.3% $48,247,795 58.3% $ 4.76
Intel and Mitsubishi ......... 752,688 5.5 6,999,998 8.5 9.30
Other investors ............ 2,747,312 20.2 27,473,120 33.2 10.00
----------- ------ ------------ ------
Total ..................... 13,632,523 100.0% $82,720,913 100.0%
=========== ====== ============ ======
</TABLE>
- ----------------
(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.
The above computations exclude (i) 1,096,792 shares of Common Stock
issuable pursuant to stock options outstanding as of September 30, 1997 (of
which options to purchase approximately 280,300 shares were exercisable) with a
weighted average exercise price of $4.69 per share and (ii) 1,862,188 shares of
Common Stock issuable upon the exercise of warrants outstanding as of September
30, 1997 (of which warrants to purchase approximately 1,432,200 shares were
exercisable) with a weighted average exercise price of $6.93 per share. The
above computations also exclude 3,867,727 shares of Common Stock issuable
pursuant to the Company's agreement with CBS (including 1,520,000 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."
23
<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 September 30, 1997 and
the selected statements of operations data for the nine months ended September
30, 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 nine months ended September 30, 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) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------- ---------------------------
1994 1995 1996 1996 1997
------------------ ------------ ------------ ------------ ------------
(Unaudited)
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue .............................. $ -- $ 52 $ 2,437 $ 1,173 $ 5,867
Cost of revenue ..................... -- 757 3,395 2,165 4,858
---------- ---------- ---------- ---------- ----------
Gross margin (deficit) ............... -- (705) (958) (992) 1,009
Operating expenses:
Product development ............... 58 633 939 728 941
Sales and marketing .................. 59 1,179 5,568 3,431 6,956
General and administrative ......... 309 2,662 4,795 3,059 5,163
Depreciation and amortization . 16 193 824 502 7,436
---------- ---------- ---------- ---------- ----------
Total operating expenses ......... 442 4,667 12,126 7,720 20,496
---------- ---------- ---------- ---------- ----------
Loss from operations ............... (442) (5,372) (13,084) (8,712) (19,487)
Interest expense ..................... -- (50) (136) (99) (51)
Interest and other income, net ...... 38 92 365 156 548
---------- ---------- ---------- ---------- ----------
Net loss ........................... $ (404) $ (5,330) $ (12,855) $ (8,655) $ (18,990)
========== ========== ========== ========== ==========
Net loss per share (1)(2) ............ $ (.15) $ (1.23) $ (1.80) $ (1.32) $ (1.90)
========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding (1)(2) .................. 2,653,605 4,329,978 7,157,574 6,579,709 9,982,298
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- ----------- --------- --------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............................. $1,666 $ 184 $13,994 $ 8,115
Working capital (deficit) .............................. 1,656 (1,944) 11,779 9,279
Total assets .......................................... 1,962 2,496 17,850 18,761
Long-term obligations, net of current maturities ...... -- 684 409 390
Total shareholders' equity (deficit) .................. 1,910 (452) 14,273 13,394
</TABLE>
- ----------------
(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.
(2) Gives effect to the conversion of all outstanding shares of the Company's
preferred stock into 5,798,434 shares of Common Stock upon completion of
this offering.
24
<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 2,270,000 page views and 352,000 visits per day
during September 1997, increases of 210% and 271%, respectively, from December
31, 1996 to September 30, 1997, and the Company's Web sites had approximately
45,700 paying members as of September 30, 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 derives revenue from content licensing and from
transactions on the Company's Web sites, including sales of limited edition
memorabilia, licensed apparel and other sports related products. In the future,
the Company also expects to syndicate its content in other media, such as
radio, and development of Web sites for third parties. Through September 30,
1997, transaction and site development revenue had not been significant and the
Company had 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 advertisements
appear 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 on the Company's balance sheets. Content licensing
revenue is recognized over the period of the license agreement as the Company
delivers its content.
RESULTS OF OPERATIONS
REVENUE
Total revenue for the nine months ended September 30, 1997 was $5,867,000
compared to $1,173,000 for the nine months ended September 30, 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
25
<PAGE>
revenue in each period was due to increased advertising sales, as well as
increased revenue from memberships and premium service fees and content
licensing. Advertising revenue for the nine months ended September 30, 1997 and
1996 and the years ended December 31, 1996 and 1995 accounted for approximately
52%, 65%, 64% and 0%, respectively, of total revenue. As of September 30, 1997,
the Company had deferred revenue of $1,318,000 relating to cash received for
which services had not yet been provided.
Barter transactions, in which the Company received advertising or other
services or goods in exchange for content or advertising on its Web sites,
accounted for approximately 17%, 30% and 21% of total revenue for the nine
months ended September 30, 1997 and 1996 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 nine months ended September 30, 1997 was
$4,858,000 compared to $2,165,000 for the nine months ended September 30, 1996.
Cost of revenue was $3,320,000 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 nine
months ended September 30, 1997 compared to the nine months ended September 30,
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. The Company anticipates that cost of revenue will
grow as it increases staffing to expand its services, increases its
merchandising efforts, incurs higher content and royalty fees and as the
Company requires more bandwidth 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 nine months ended September 30, 1997
was $941,000 compared to $728,000 for the nine months ended September 30, 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.
26
<PAGE>
SALES AND MARKETING. Sales and marketing expense consists of salaries and
related expenses, advertising, marketing, business development 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 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 nine months ended September 30, 1997
was $6,956,000 compared to $3,431,000 for the nine months ended September 30,
1996. Sales and marketing expense was $5,568,000 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 15%, 10% and 9% of sales and
marketing expense for the nine months ended September 30, 1997 and 1996 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.
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 nine
months ended September 30, 1997 was $5,163,000 compared to $3,059,000 for the
nine months ended September 30, 1996. General and administrative expense was
$4,795,000 for the year ended December 31, 1996 compared to $2,662,000 for the
year ended December 31, 1995 and $309,000 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 increased general and administrative expense in each
period to develop and maintain the administrative infrastructure necessary to
support the growth of its business. The Company anticipates that it will incur
additional general and administrative expense as a result of becoming a public
company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
consists 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 nine months ended
September 30, 1997 was $7,436,000 compared to $502,000 for the nine months
ended September 30, 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 nine months ended September 30, 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. The value of the advertising and content
will be recorded annually in the balance sheet as deferred advertising and
content costs and amortized to depreciation and amortization over each related
contract year. See Note 5 of Notes to Financial Statements. Total annual
expense under the CBS agreement will be $7,834,000 in 1997, $12,001,000 in
1998, $12,001,000 in 1999, $15,001,000 in 2000 and $15,001,000 in 2001.
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 $51,000 for
the nine months ended September 30, 1997 compared to $99,000 for the nine
months ended September 30, 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.
27
<PAGE>
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 nine months ended September 30, 1997 was $548,000 compared
to $156,000 for the nine months ended September 30, 1996. Interest 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 September 30,
1997. As of 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. Given the Company's
limited operating history, losses incurred to date and the difficulty in
accurately forecasting the Company's future results, management does not
believe that the realization of the related deferred income tax assets meets
the criteria required by generally accepted accounting principles and,
accordingly, a full 100% valuation allowance has been recorded to reduce the
deferred income tax assets to $0. See Note 7 of Notes to Financial Statements.
SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly statement of
operations data for each of the seven quarters in the period ended September
30, 1997. The selected statement of operations data has been prepared
substantially on the same basis as the financial statements appearing elsewhere
in this Prospectus and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth therein. The results of operations
for any quarter are not necessarily indicative of results to be expected in any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
----------- ---------- ----------- ---------- ----------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Advertising ............... $ 30 $ 312 $ 426 $ 783 $ 715 $ 930 $ 1,420
Membership and premium
services ............... 66 127 212 478 520 537 672
Other ..................... -- -- -- 3 18 82 973
-------- -------- -------- -------- -------- -------- --------
Total revenue ............ 96 439 638 1,264 1,253 1,549 3,065
Loss from operations ...... (2,334) (2,766) (3,613) (4,371) (4,754) (6,716) (8,017)
Net loss .................. (2,374) (2,696) (3,585) (4,200) (4,603) (6,513) (7,874)
Net loss per share ......... $ (0.45) $ (0.37) $ (0.49) $ (0.48) $ (0.51) $ (0.63) $ (0.76)
</TABLE>
The Company's revenue has increased sequentially in each quarter during
1996 and 1997, with the exception of the first quarter of 1997, in which
revenue declined as compared to the previous quarter. The Company believes that
this decrease in revenue is largely the result of seasonality in its business
(see "--Seasonality"). The beneficial impact of the first full quarter of the
CBS agreement is reflected in revenue from advertising and membership and
premium services in the second quarter of 1997. Revenue from memberships and
premium service fees increased sequentially in each of the quarters presented.
The impact of the AOL agreement is reflected in the increase in other revenue
in the third quarter of 1997.
28
<PAGE>
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's current and future expense levels are based
largely on its estimates of 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 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 fund
increased sales and marketing expenses and to enter into new strategic
agreements. 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.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's primary source of liquidity
consisted of $8,115,000 in cash and cash equivalents. The Company has financed
its operations primarily through private placements of common stock and
convertible preferred stock.
As of September 30, 1997, the Company owed $337,000 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% as of September 30, 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.
In July 1997, the Company obtained a $2,500,000 revolving credit facility
that provides for the lease financing of computers and other equipment
purchases. As of September 30, 1997, the Company owed $415,000 under this
facility.
As of September 30, 1997, deferred advertising and content costs totaled
$2,445,000, which represented costs related to the CBS agreement to be
amortized to depreciation and amortization expense during the remainder of
1997. Accrued liabilities totaled $2,104,000 as of September 30, 1997, an
increase of $772,000 from December 31, 1996, primarily due to increases in
accruals for advertising, software royalties and consulting fees.
Net cash used in operating activities was $11,645,000 and $7,603,000 for
the nine months ended September 30, 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 losses from operations, partially offset
by increases in deferred revenue, accounts payable and depreciation and
amortization and other noncash charges.
Net cash used in investing activities was $1,808,000 and $592,000 for the
nine months ended September 30, 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 $7,573,000 and $24,684,000
for the nine months ended September 30, 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).
29
<PAGE>
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 for capital expenditures. Although the
Company has no material commitments for capital expenditures, it anticipates
purchasing approximately $3,000,000 of property and equipment in 1998,
primarily computer equipment and furniture and fixtures. From time to time, the
Company expects to evaluate possible acquisitions of or 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 to 18 months. However, the
Company expects to continue to incur significant operating losses for at least
the next 24 to 30 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 debt or convertible securities or obtain credit
facilities through financial institutions. The sale of additional equity or
convertible securities will result in additional dilution to the Company's
shareholders. There can be no assurance that additional 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 periods ending after December 15, 1997 and be retroactively
reflected in the financial statements.
30
<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, fantasy league products and fan clubs.
The Company also distributes a broad range of up-to-date news, scores, player
and team statistics and standings, photos, audio clips and video clips obtained
from leading sports news organizations and the Company's superstar athletes, as
well as instant odds and picks. Traffic on the Company's Web sites has
increased significantly since the commercial launch of sportsline.com in August
1995, to an average of 2,270,000 page views and 352,000 visits per day during
September 1997, increases of 210% and 271%, respectively, from December 31,
1996 to September 30, 1997, and the Company's Web sites had approximately
45,700 paying members as of September 30, 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 July 1997, the Company entered into a strategic
programming and distribution agreement with AOL, pursuant to which
cbs.sportsline.com became the first "anchor tenant" on AOL's Sports Channel,
which allows AOL's more than 9 million subscribers to access the Company's Web
sites from within the AOL service. The AOL agreement also provides the Company
the opportunity to market memberships, premium services and merchandise to
AOL's subscribers and to integrate its sports content and programming into all
major sports areas of the AOL service. The Company also recently entered into
an agreement with Microsoft under which cbs.sportsline.com will be integrated
into Microsoft's "Active Desktop" as part of Microsoft's forthcoming release of
IE4 and Windows 98. cbs.sportsline.com is also featured as a default content
"channel" in the Channel Finder of Netscape's recently released Netcaster
software, which utilizes "push" delivery to give users the ability to subscribe
to dynamic Web content and to browse these channels and Web sites offline from
their desktop. 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 of
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 popularity of sports is also
demonstrated by the success of sports publications, the top five of which had a
paid weekly circulation of 8.9 million and generated over $800 million in
advertising revenue in 1996, according to Advertising
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Age. 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 $4.7 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 28 million, growing to 175 million by the end of
2001.
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 $314 million in 1996 to $7.1
billion in 2001.
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 $2.6 billion in 1996 to $220 billion in 2001.
THE SPORTSLINE OPPORTUNITY
The Company seeks to capitalize on the market opportunities created by the
worldwide popularity of sports, the emergence of the Web as a communications
and commerce medium and the appealing demographics of sports fans on the Web.
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
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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) offering exclusive content related to
its sports superstar relationships and real-time odds and extensive matchup
analyses through its vegasinsider.com Web site; (iv) producing original video
programming surrounding major sports events, such as live interviews and
"cybercasts" over the Internet; (v) providing local sports coverage through its
relationships with more than 30 specialty publications and expanded coverage
through its relationship with CBS affiliate and owned and operated stations;
and (vi) providing a monitored, 24 hours a day, seven day a week sports chat
community. 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.
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. The Company also believes
that its strategic agreements with AOL and Microsoft and its ongoing
relationship with Netscape will further enhance its brand, generate traffic to
the Company's Web sites and provide additional opportunities to market
memberships, premium services and merchandise to millions of Web users. 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, fantasy league packages,
instant odds and picks. 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 and fan clubs 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 recently entered into an agreement
to syndicate certain of 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
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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.
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 a 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, Pro Sports Exchange and SportsTicker.
The Company also publishes exclusive editorials and analyses
from its in-house staff of 30 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.
</TABLE>
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<TABLE>
<S> <C>
COMMUNITY CONTENT The Company hosts monitored 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.
LIVE RADIO! The Company's radio studio produces over 60 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 various 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:
<TABLE>
<S> <C>
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 American Basketball League
Auto Racing College
Boxing Olympic Sports
Cricket Rugby
Cycling Skiing
Golf Soccer
Health and Fitness Tennis
Horse Racing Volleyball
</TABLE>
cbs.sportsline.com 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; a
"Members' Choice" designation from AOL; and NETGUIDE'S "Platinum Award" as one
of the best sites on the Web. During the first nine months of 1997,
cbs.sportsline.com won, among other awards, NetGuide's "Platinum Award" for
overall site excellence and "Editor's Choice" from UK Plus, and was one of PC
Magazine's top 25 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
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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 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 15 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), Emerson Fittipaldi
(emmo.com), Mike Schmidt, Bill Walton, John Daly (gripitandripit.com) and
Keyshawn Johnson (keyshawn.com). The Company also has entered into exclusive
agreements to create Web sites for Michael Jordan, Tiger Woods and Joe Montana,
all of which are expected to be launched during 1997. The Company has packaged
these Web sites in a unique and entertaining site that includes all of
SportsLine's athlete spokespersons. The superstar athlete site will include
daily features and insights from athletes, the opportunity to belong to fan
clubs, as well as radio interviews and chat sessions from active and retired
athletes from 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 San Francisco Forty
Niners NFL franchise (sf49ers.com), 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 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's third party Web site
agreements are for terms ranging from one to ten years and generally provide
the Company the exclusive right to create a Web site for a sports superstar,
personality, organization or affinity group, as well as to receive certain
content for the Web site to use the athlete or organization's name, logos and
other materials to promote the Company's business and products. In
consideration for the rights granted under its third party Web site agreements,
the Company has issued warrants to purchase Common Stock and, in certain
instances, agreed to make cash payments. 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.
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OTHER DISTRIBUTION CHANNELS
The inclusion of cbs.sportsline.com in the AOL service and the integration
of cbs.sportsline.com into Microsoft's IE4 and Netscape's Netcaster Web
browsers make the Company's sports content and programming readily accessible
to the millions of Web users that access the Internet via these platforms. The
Company also distributes its sports content and programming through
relationships with other commercial online services (Prodigy), third party Web
sites (Delta Airlines, Excite and Talk City), high speed modems and
television-based products (@Home, Media One and Netchannel), and other
Internet-based products (C|NET's Snap!, Pointcast, Air Media Live!, WaveTop and
Audible Words). The Company believes that its original sports radio shows have
broad appeal and has recently entered into an agreement to syndicate certain of
its radio programming, both on the Internet and nationally to over-the-air
sports talk radio stations. Currently, one of the Company's sports talk radio
shows is being broadcast on over 30 of the SportsFan Radio Network's affiliate
stations. The Company also intends to develop distribution and revenue
opportunities in other media, including news wire services, publications and
e-mail.
ADVERTISING AND SALES
The Company believes that the demographics of its audience are similar to
the traditional sports advertisers' target market. Based on Company sponsored
market research, users of the Company's Web sites are predominantly male, 95%
are between the ages of 18 to 54, 48% have college degrees and 34% have an
annual income greater than $75,000.
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 athletes and marquee events (such as the World Series, the Super Bowl, the
Olympics, 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. The Company has sales personnel
located in Fort Lauderdale, New York and Chicago. The Company also plans to
open sales offices in Detroit and San Francisco. The Company also capitalizes
on its cross-marketing relationships with sports superstars, personalities,
organizations and affinity groups by seeking sponsorships and advertisements
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.
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During the period from March 1, 1996 (when the Company began generating
advertising revenue) through September 30, 1997, more than 100 organizations
from various industries advertised on the Company's Web sites, including the
following representative advertisers, each of which placed more than $10,000 of
advertising during this period:
<TABLE>
<S> <C>
AUTOMOTIVE PUBLISHING AND ENTERTAINMENT
---------- ----------------------------
Acura Air Media
Ford DirecTV
General Motors E-Pub
Honda Electronic Arts
Oldsmobile Men's Health & Fitness
Toyota Paramount Pictures
Volvo TECHNOLOGY
CONSUMER ----------
-------- AOL
American Greetings Digital Equipment Corporation
Bausch & Lomb Excite
Clearasil IBM
Coca-Cola Intel
JC Penney Microsoft
Kodak Netscape
Pepsi PointCast
Perry Ellis RealNetworks
Selsun Blue Sun Microsystems
Smirnoff Toshiba
Texaco U.S. Robotics
1-800-Flowers TELECOMMUNICATIONS
FINANCIAL ------------------
--------- AT&T
AIG Bell South
Block Financial BMCI
Chase Manhattan Bank Sprint
E*Trade US WEST
MBNA
VISA
</TABLE>
No advertiser accounted for more than 8% of the Company's revenue during
1996 or for the nine months ended September 30, 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 some of its planned superstar athlete Web sites and has the
exclusive right to create the "offline" fan club for Tiger Woods.
The following table sets forth certain information, as of September 30,
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.
ELECTRONIC ODDS. Fifteen minute delayed odds from premier Las Vegas
casinos.
NATIONAL AND REGIONAL NEWS. Breaking news, photos and audio clips from
the Associated Press and exclusive stories from the Company's in-house $4.95 monthly
editorial staff. $39.95 annually
CONTESTS. Sports specific contests with travel, memorabilia and cash prizes.
SPECIAL EDITORIAL CONTENT. Sports birthdays, Playboy's Classic Sports
Interviews and access to a sports almanac.
SPORTS RADIO. Access to archived radio broadcasts.
CHAT ROOMS. Private chat rooms available only to members.
DISCOUNTS. Members receive discounts on merchandise, 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 $19.95 monthly
detailed write-ups from Computer Sports World. $129.95 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, conference, league
AND FANTASY TOOLS and weekly prizes.
$19.95 - $49.95
FANTASY SOFTWARE/TOOLS. Team and league management, including sortable
stats, Fantasy Scoring Center, Stats Projector and Trends Analysis.
ODDS AND PICKS ELECTRONIC ODDS. Instant odds from premier Las Vegas casinos. $79.95 monthly
$599.95 annually
PICK PACKS. Expert picks for college and professional games from well-known $14.95 to $24.95
handicappers. per pick pack
PUBLICATIONS ONLINE SUBSCRIPTIONS. Ten professional and more than 25 college sports
publications. $5.95 - $59.95
</TABLE>
The Company offers potential members a 30-day free trial period. As is
typical in the online services industry, a portion of the users who access the
Company's service on a trial basis do not become members, and each month a
portion of the Company's members terminate their memberships. The Company
believes that its conversion and retention rates are consistent with industry
averages for online and similar services.
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MERCHANDISE
The Company recently began offering a variety of branded sports
merchandise, books, videos and unique memorabilia on its Web sites, including
(i) merchandise from recognized sporting goods manufacturers, such as K-Swiss
and Wilson (ii) licensed apparel from Russell Athletics and Pro-Line (iii)
league, event and team merchandise branded by organizations such as the NFL,
MLB, NCAA, Women's Professional Volleyball Association and the FedEx Orange
Bowl, (iv) unique sports superstar memorabilia, including items branded by
Michael Jordan, Joe Namath, Emerson Fittipaldi, Gabrielle Reece, Cal Ripken and
Wayne Gretzky, (v) CBS SportsLine branded merchandise from Champion and Nicole
Miller, (vi) sports books, (vii) collectibles, trading cards and autographed
memorabilia from Upper Deck, Pinnacle, Scoreboard and Mounted Memories and
(viii) sports related art. The Company continues to establish relationships
with vendors and licensors to enable it to offer, through third-party
distributors, a branded 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 CBS acquired a minority ownership interest in the Company
and the Company's flagship Web site was renamed "cbs.sportsline.com". The
agreement provides for cbs.sportsline.com to receive, among other things, at
least $57 million of network television 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."
AOL. cbs.sportsline.com was the first Web site to become an "anchor
tenant" on AOL's Sports Channel. Under its one-year agreement with AOL, the
Company has secured until July 1998 a continuous position on the Main Sports
Screen of the AOL Service as well as a programming presence on every other
major sports screen within the AOL Service. In addition, the Company will have
the opportunity to sell its merchandise and memorabilia to AOL's subscribers
through online marketing and promotional campaigns. The Company is entitled to
receive "bounties" for new AOL subscribers acquired through disk distribution
campaigns conducted by the Company in association with AOL. In consideration of
the advertising impressions cbs.sportsline.com will receive on the Main Sports
Screen and other areas of the AOL service, the Company will pay AOL cash and
other consideration, including exclusive content, integrated on-air/online
programming within CBS sports events and promotion of AOL and provision of
advertising on the Company's Web sites.
MICROSOFT. The Company recently entered into a strategic marketing and
content distribution agreement with Microsoft under which Microsoft will
promote the Company's service in conjunction with the commercial release of IE4
and Windows 98 as a "Platinum Channel Partner." The Company will be one of 25
content providers to be permanently bundled into the "Active Desktop," thereby
becoming an integrated component of every copy of IE4 and Windows 98
distributed by Microsoft within the United States over the term of the
agreement.
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SPORTS SUPERSTARS AND PERSONALITIES. The Company has established
strategic relationships with sports superstars and personalities, including
Michael Jordan, Tiger Woods, Joe Namath, Shaquille O'Neal, Wayne Gretzky, Jerry
Rice, Joe Montana, Cal Ripken, Jr., Pete Sampras, Arnold Palmer, Gabrielle
Reece, Mike Schmidt, 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 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. In April
1997, the Company and IMG agreed to expand, on a global basis, the services IMG
provides to the Company.
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. Through a variety of strategic
relationships, the Company receives broad exposure by distributing its
proprietary sports content and programming through commercial online services
(AOL and Prodigy), browsers and products (Microsoft's "Active Desktop",
Netscape's "NetTop Channel Finder", Pointcast, Audible Words, WaveTop, Air
Media Live!, C|NET's Snap!), third party Web sites, (Delta Airlines, Excite and
TalkCity), high speed modems and television-based products (@Home, Media One
and Netchannel), and other Internet-based products (Pointcast, Air Media Live!,
Wavetop and Audible Words).
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
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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, among other things, at least $57 million of network television
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. 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 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 ESPN SportsZone and CNN and Sports Illustrated's CNN/SI) 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,
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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
competitors are ESPN SportsZone and CNN/SI, Web sites which offer 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 factor 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 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.
On June 26, 1997, the United States Supreme Court held unconstitutional certain
provisions of the Communications Decency Act of 1996, which, among other
things, imposed criminal penalties for transmission of or allowing access to
certain obscene communications over the Internet and other computer services,
intended to protect minors. The adoption of 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.
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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, 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
upon 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 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. The Company has filed an
answer in which it denied all material allegations of the complaint and
asserted several affirmative defenses. The action is still in the discovery
stage, and both parties have agreed to attempt to settle the action through
court-ordered mediation. In the event the Company is unable to obtain a
favorable settlement, 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 upon a third party's proprietary rights, there can be no
assurance that any necessary
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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 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 197 full-time employees as of September 30, 1997, of which
71 were in editorial and operations, 62 were in technical and product
development, 43 were in sales and marketing, and 21 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.
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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 Sun Solaris, 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 upon 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 three third-party providers, each of which maintains a DS3 connection
running at 45 megabits per second connected to three routers 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 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 feet 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 currently is seeking additional facilities for its operations, and
believes that it will be able to obtain additional space on commercially
reasonable terms.
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:
<TABLE>
<CAPTION>
AGE POSITION
NAME ----- --------------------------------------------
<S> <C> <C>
Michael Levy ............... 50 Chairman of the Board, President and
Chief Executive Officer
Kenneth W. Sanders ...... 40 Chief Financial Officer
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, Vegas Insider
Thomas Jessiman ......... 37 Vice President, International
Dan Leichtenschlag ......... 36 Vice President, Engineering
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
</TABLE>
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.
KENNETH W. SANDERS has served as the Chief Financial Officer of the
Company since September 2, 1997. From January 1996 to August 1997, Mr. Sanders
served as Senior Vice President, Chief Financial Officer of Paging Network,
Inc., the world's largest paging company. From May 1993 to December 1995, Mr.
Sanders served as Executive Vice President, Chief Financial Officer and a
director of Cellstar Corporation, an integrated wholesaler and retailer of
cellular phones and related products. Between July 1979 and April 1993, Mr.
Sanders was with KPMG Peat Marwick, most recently as an Audit Partner from July
1990 to April 1993.
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
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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, Vegas Insider
since July 1997. Mr. Wargo served as the Company's Vice President, Program
Management from September 1995 to June 1997. 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.
DAN LEICHTENSCHLAG has served as the Company's Vice President, Engineering
since July 1997 and served as the Company's Director of Operations from May
1995 to June 1997. From January 1987 to April 1995, Mr. Leichtenschlag served
in various technical and management capacities including Manager, Genie Systems
Development, General Electric's on-line service, and Manager, UNIX Software
Development.
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.
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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 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 Vice President of Business Development at CBS since May 1997 and was
Director of Strategic Management of
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Westinghouse Electric Corporation from April 1996 to April 1997. 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 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 number 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
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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.
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION (1) LONG-TERM
---------------------- COMPENSATION AWARDS
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------------------------------------ -------- --------- -------------------- ------------------
<S> <C> <C> <C> <C>
Michael Levy,
President and Chief Executive Officer ...... $167,887 $50,000 -- $ 22,922 (2)
Mark J. Mariani,
Executive Vice President, Sales ............ 112,243 10,000 80,000 8,205 (3)
G. Kenneth Dotson,
Vice President, Marketing .................. 132,125 10,000 -- --
Thomas C. Eastwood,
Chief Technology Officer .................. 110,500 20,000 10,000 --
Andrew S. Sturner,
Vice President, Business Development ...... 101,934 10,000 -- --
</TABLE>
- ----------------
(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.
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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>
OPTION GRANTS IN FISCAL YEAR 1996
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 ......... 80,000 23.0 0.63 4/21/2006 31,445 79,687
G. Kenneth Dotson ...... -- -- -- -- -- --
Thomas C. Eastwood . 10,000 2.9 0.63 5/13/2006 3,931 9,961
Andrew S. Sturner ...... -- -- -- -- -- --
</TABLE>
- ----------------
(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.
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.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
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 ......... -- 80,000 -- 350,000
G. Kenneth Dotson ...... 30,208 19,792 132,160 86,590
Thomas C. Eastwood ...... 10,000 40,000 43,750 175,000
Andrew S. Sturner ......... 15,000 25,000 65,625 109,375
</TABLE>
- ----------------
(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 $5.00 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into a three-year employment agreement with
Kenneth W. Sanders, pursuant to which he will serve as Chief Financial Officer.
Mr. Sanders will receive an annual base salary of $210,000 and such bonuses as
may be awarded from time to time by the Board or any compensation committee
thereof. Upon commencement of his employment, the Company granted Mr. Sanders
options to purchase 80,000 shares of Common Stock at an exercise price of
$10.00 per share. If the agreement is terminated by the Company other than by
reason of death, Disability (as defined) or Cause (as defined), or by Mr.
Sanders for Good Reason (generally defined as a material breach by the Company
of the agreement), the Company will continue to pay Mr. Sanders for a period of
six months his base salary plus, an additional amount not to exceed $105,000
depending on the value
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during such six-month period of the stock options granted to him. The agreement
prohibits Mr. Sanders from competing with the Company during his employment and
for a period of two years after termination of his employment.
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 1,200,000
shares of Common Stock are authorized for issuance under the 1995 Plan. As of
September 30, 1997, options to purchase a total of 1,096,792 shares of Common
Stock at a weighted average exercise price of $4.69 were outstanding under the
1995 Plan (of which options to purchase approximately 280,300 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 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
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<PAGE>
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 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
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<PAGE>
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 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, with the exception of the first period, which will commence on the
date of this Prospectus and end on December 31, 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 3,100,000 shares of Common
Stock over the term of the CBS agreement (752,273, 735,802, 558,988, 567,579
and 485,358 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
380,000 shares of Common Stock at per share exercise prices ranging from $10.00
in 1997 to $30.00 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 960,000 shares of Common Stock at an exercise price of $8.25 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 provide Reuters NewMedia an opportunity to license to
the Company content specifically related to
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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 30,000 shares of Common Stock, which are exercisable until December
13, 2000 at a price of $2.50 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 10,000 shares of Common Stock at an exercise
price of $5.00 per share in August 1994 and received warrants to purchase an
additional 10,000 shares of Common Stock at an exercise price of $5.00 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 40,000 shares of Common
Stock at an exercise price of $5.00 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
nine months ended September 30, 1997 were $0, $932, $18,645 and $40,913,
respectively.
57
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of September 30, 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. ......... 1,995,852 19.7% 1,995,852 14.6%
Kleiner Perkins Caufield & Byers (3) ...... 1,952,221 18.7 1,952,221 14.0
Michael Levy .............................. 1,520,000 15.0 1,520,000 11.1
CBS Inc. (4) .............................. 1,132,273 10.8 1,132,273 8.1
Estate of Burk Zanft (5) .................. 1,000,000 9.7 1,000,000 7.2
Reuters NewMedia, Inc. ..................... 845,672 8.3 845,672 6.2
TCI Online Sports Holdings, Inc. (6) ...... 666,666 6.6 666,666 4.9
Mark J. Mariani (7) ........................ 31,667 * 31,667 *
G. Kenneth Dotson (8) ..................... 81,667 * 81,667 *
Thomas C. Eastwood (9) ..................... 22,917 * 22,917 *
Andrew S. Sturner (10) ..................... 24,167 * 24,167 *
Thomas Cullen (11) ........................ 1,995,852 19.7 1,995,852 14.6
Stephen Fleming (12) ..................... 481,363 4.8 481,363 3.5
Gerry Hogan (13) ........................... -- * --
Richard B. Horrow (14) ..................... 10,000 * 10,000 *
Joseph Lacob (15) ........................... 1,952,221 18.7 1,952,221 14.0
Andrew Nibley (16) ........................ 845,672 8.3 845,672 6.2
Sean McManus .............................. -- * -- *
Liesl Pike ................................. -- * -- *
Derek Reisfield ........................... -- * -- *
James C. Walsh (17) ........................ 200,000 2.0 200,000 1.5
Michael P. Schulhof (18) .................. -- * --
All directors and executive officers
as a group (21 persons) (19) ............ 7,199,441 67.1 7,199,441 50.6
</TABLE>
- ----------------
* 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) 4,334,089 shares of Common Stock outstanding as of
September 30, 1997, (ii) an aggregate of 5,798,434 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
September 30, 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.
58
<PAGE>
(3) Reflects (i) 1,581,666 shares held of record and 322,500 shares subject to
presently exercisable warrants held by Kleiner Perkins Caufield & Byers
VII and (ii) 40,555 shares held of record and 7,500 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) 752,273 shares held of record and (ii) 380,000 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) 800,000 shares held of record and (ii) 200,000 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 31,667 shares subject to presently exercisable stock options.
Excludes 56,333 shares issuable upon exercise of stock options held by Mr.
Mariani not exercisable within 60 days.
(8) Reflects (i) 40,000 shares held of record and (ii) 41,667 shares subject
to presently exercisable stock options. Excludes 14,333 shares issuable
upon exercise of stock options held by Mr. Dotson not exercisable within
60 days.
(9) Includes 22,917 shares subject to presently exercisable stock options.
Excludes 27,083 shares issuable upon exercise of stock options held by Mr.
Eastwood that are not exercisable within 60 days.
(10) Includes 24,167 shares subject to presently exercisable stock options.
Excludes 31,833 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 40,000 shares issuable upon exercise of warrants held by Mr.
Hogan that are not exercisable within 60 days.
(14) Includes 10,000 shares subject to presently exercisable warrants. Excludes
10,000 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) 100,000 shares held of record and (ii) 100,000 shares subject
to presently exercisable warrants.
(18) Excludes 40,000 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)
6,605,108 shares held of record, (ii) 153,333 shares subject to presently
exercisable stock options and (iii) 440,000 shares subject to presently
exercisable warrants. Excludes (i) 319,667 shares issuable upon exercise
of stock options and (ii) 90,000 shares issuable upon exercise of warrants
not exercisable within 60 days.
59
<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 September 30, 1997, there were 10,132,523 shares of Common Stock
outstanding and held of record by 31 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 3,500,000 shares of Common Stock offered
hereby, there will be 13,632,523 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, 6,162,766 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 5,798,434 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 September 30, 1997, options to purchase a total of 1,096,792 shares
("Option Shares") of Common Stock were outstanding; approximately 474,000 of
the Option Shares are subject to lock-up agreements. Beginning 90 days after
the date of this Prospectus, approximately 622,800 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
60
<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 September 30, 1997, warrants to purchase a total of 1,862,188 shares
("Warrant Shares") of Common Stock were outstanding; approximately 1,730,000 of
the Warrant Shares are subject to lock-up agreements. Approximately 132,200
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 5,798,434 shares (the
"Registrable Shares") of outstanding Common Stock 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.
61
<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 Continental Stock
Transfer & Trust Company, New York, New York.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 13,632,523 shares
of Common Stock outstanding (assuming no exercise of outstanding options or
warrants). Of these shares, the 3,500,000 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 10,132,523 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, 9,289,549 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, commencing in March 1998. The holders of 5,798,434
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
136,325 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 622,800
Option Shares and approximately 132,200 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.
63
<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 10,041,822 shares of Common Stock, options and warrants to
purchase 2,204,000 shares of Common Stock, have agreed, and in the event that
Intel and Mitsubishi purchase shares of Common Stock in this offering, Intel
and Mitsubishi will agree, that they will not, without the prior written
consent of BancAmerica Robertson Stephens, 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. BancAmerica Robertson Stephens 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.
64
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, Cowen & Company and NationsBanc Montgomery
Securities, Inc. (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.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER ----------
<S> <C>
BancAmerica Robertson Stephens ...............
Cowen & Company ..............................
NationsBanc Montgomery Securities, Inc. ......
----------
Total ....................................
==========
</TABLE>
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 525,000
additional shares of Common Stock at the initial public offering price per
share set forth on the cover page of this Prospectus (subject to reduction if
Intel and Mitsubishi purchase shares in this offering). 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 total number of shares
offered hereby (less any shares of Common Stock purchased from the Company by
Intel and Mitsubishi). If purchased, such additional shares will be sold by the
Underwriters on the same terms as those on which the shares offered hereby are
being sold (other than any shares of Common Stock purchased from the Company by
Intel and Mitsubishi).
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 10,041,822
shares of the Company's Common Stock (including 5,798,434 shares of preferred
stock that are convertible into shares of Common Stock), have agreed, and in
the event that Intel and Mitsubishi purchase shares of Common Stock in this
offering, Intel and Mitsubishi will agree, 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
65
<PAGE>
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 BancAmerica Robertson
Stephens. BancAmerica Robertson Stephens may, in its sole discretion, and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. All of the 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 in the case of the Restricted Shares 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
BancAmerica Robertson Stephens, 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.
Intel and Mitsubishi have indicated an interest in purchasing $5 million
and $2 million, respectively, of Common Stock (537,634 shares and 215,054
shares, respectively, assuming an initial public offering price of $10.00 per
share) at a price equal to the initial public offering price per share less the
underwriting discounts and commissions. If Intel and Mitsubishi purchase any
shares offered hereunder, the purchase price for such shares will be paid
directly to the Company at or prior to the closing of the sale of the other
shares offered hereby. In the event and to the extent that Intel and Mitsubishi
do not purchase such shares, the Underwriters will purchase those shares on the
same terms and conditions as the other shares being offered hereby and those
shares will be offered to the public at the initial public offering price per
share. BancAmerica Robertson Stephens, Cowen & Co. and NationsBanc Montgomery
Securities, Inc. are acting as placement agents in connection with the shares
being offered to Intel and Mitsubishi. In connection therewith, they will
receive a fee from the Company of $ per share of Common Stock sold to such
purchasers and will be indemnified by the Company against certain liabilities,
including liabilities under the Securities Act.
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
66
<PAGE>
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.
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
67
<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 September 30, 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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 1996 and 1997 (unaudited) .................. F-6
Notes to Financial Statements ...................................................... F-8
</TABLE>
F-1
<PAGE>
After the reverse stock split referred to in Note 9 to the Company's
financial statements is effected, we expect to be in a position to render the
following auditors' report.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 20, 1997.
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.
Fort Lauderdale, Florida,
January 31, 1997 (except with respect to
the matters discussed in Note 9,
as to which the date is November , 1997).
F-2
<PAGE>
SPORTSLINE USA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
SEPTEMBER 30,
1995 1996 1997
--------------- ---------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 183,948 $ 13,993,785 $ 8,114,722
Deferred advertising and content costs (Note 5) ............ -- -- 2,445,433
Accounts receivable ....................................... 3,087 561,390 1,507,907
Prepaid expenses and other current assets ............... 132,639 391,386 2,186,610
------------ ------------- -------------
Total current assets .................................... 319,674 14,946,561 14,254,672
RESTRICTED CERTIFICATES OF DEPOSIT ........................ 578,067 138,601 138,601
PROPERTY AND EQUIPMENT .................................... 1,300,199 2,241,630 3,213,787
OTHER ASSETS ............................................. 298,146 522,950 1,153,570
------------ ------------- -------------
$ 2,496,086 $ 17,849,742 $ 18,760,630
============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable .......................................... $ 663,559 $ 631,712 $ 1,024,058
Accrued liabilities ....................................... 289,924 1,332,140 2,103,692
Term loan ................................................ 973,000 -- --
Current portion of long-term borrowings .................. 118,242 224,522 224,522
Current portion of capital lease obligations ............ 172,156 200,945 305,896
Deferred revenue .......................................... 47,050 778,286 1,317,727
------------ ------------- -------------
Total current liabilities .............................. 2,263,931 3,167,605 4,975,895
LONG-TERM BORROWINGS, net of current maturities ............ 354,726 280,652 112,261
CAPITAL LEASE OBLIGATIONS, net of current maturities ...... 329,382 128,080 278,149
------------ ------------- -------------
Total liabilities ....................................... 2,948,039 3,576,337 5,366,305
------------ ------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 8 and 9)
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 September 30, 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 September 30, 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 September 30, 1997 ......... -- 53,333 53,333
Common stock, $0.01 par value, 50,000,000 shares
authorized, 2,600,000, 2,601,874 and 4,334,089
issued and outstanding as of December 31, 1995
and 1996 and September 30, 1997, respectively ......... 26,000 26,019 43,341
Additional paid-in capital .............................. 5,225,761 32,691,513 50,785,249
Accumulated deficit ....................................... (5,733,714) (18,589,088) (37,579,226)
------------ ------------- -------------
Total shareholders' equity (deficit) ..................... (451,953) 14,273,405 13,394,325
------------ ------------- -------------
$ 2,496,086 $ 17,849,742 $ 18,760,630
============ ============= =============
</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 YEAR ENDED NINE MONTHS ENDED
(FEBRUARY 23, DECEMBER 31, SEPTEMBER 30,
1994) TO ---------------------------------- --------------------------------
DECEMBER 31,
1994 1995 1996 1996 1997
-------------- ---------------- ---------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE ........................... $ -- $ 52,097 $ 2,436,690 $ 1,172,939 $ 5,867,071
COST OF REVENUE .................. -- 756,874 3,395,291 2,164,788 4,858,100
---------- ------------ ------------- ------------ -------------
GROSS MARGIN (DEFICIT) ............ -- (704,777) (958,601) (991,849) 1,008,971
OPERATING EXPENSES:
Product development ............ 57,809 632,659 939,463 728,434 940,538
Sales and marketing ............ 59,306 1,179,106 5,568,550 3,430,792 6,956,053
General and administrative ...... 308,472 2,662,269 4,794,118 3,059,393 5,163,511
Depreciation and amortization . 15,958 192,869 823,653 501,819 7,435,908
---------- ------------ ------------- ------------ -------------
Total operating expenses ...... 441,545 4,666,903 12,125,784 7,720,438 20,496,010
---------- ------------ ------------- ------------ -------------
LOSS FROM OPERATIONS ............ (441,545) (5,371,680) (13,084,385) (8,712,287) (19,487,039)
INTEREST EXPENSE .................. -- (50,074) (136,309) (99,183) (51,206)
INTEREST AND OTHER
INCOME, net ..................... 37,734 91,851 365,320 156,652 548,107
---------- ------------ ------------- ------------ -------------
NET LOSS ........................... $ (403,811) $ (5,329,903) $ (12,855,374) $ (8,654,818) $ (18,990,138)
========== ============ ============= ============ =============
NET LOSS PER SHARE ............... $ (0.15) $ (1.23) $ (1.80) $ (1.32) $ (1.90)
========== ============ ============= ============ =============
WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING ..................... 2,653,605 4,329,978 7,157,574 6,579,709 9,982,298
========== ============ ============= ============ =============
</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, September 30, 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 ......... 1,520,000 $15,200 $ 158,684 $ -- $ 173,884
Property and equipment contributed
as capital ........................ -- -- 26,116 -- 26,116
Net proceeds from issuance of
common stock and common
stock warrants .................. 800,000 8,000 1,905,900 -- 1,913,900
Issuance of common stock pursuant to
consulting agreements and services
(primarily non-cash) ............ 280,000 2,800 142,200 -- 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 ......... 2,600,000 26,000 2,287,900 (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 ......... 2,600,000 26,000 5,225,761 (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 ............ 1,875 19 1,153 -- 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 ......... 2,601,875 26,019 32,691,513 (18,589,088) 14,273,405
Non-cash issuance of common stock
and common stock warrants
pursuant to CBS agreement
(unaudited) ..................... 752,273 7,523 8,093,038 -- 8,100,561
Non-cash issuance of common
stock warrants pursuant to
consulting agreements
(unaudited) ..................... -- -- 2,078,206 -- 2,078,206
Proceeds from exercise of common
stock warrants (unaudited) ...... 960,000 9,600 7,910,400 -- 7,920,000
Issuance of common stock
pursuant to exercise of options
(unaudited) ..................... 19,941 199 12,092 -- 12,291
Net loss (unaudited) ............... -- -- -- (18,990,138) (18,990,138)
---------- -------- ------------ ------------- --------------
Balance, September 30, 1997
(unaudited) ..................... 4,334,089 $43,341 $50,785,249 $(37,579,226) $ 13,394,325
========== ======== ============ ============= ==============
</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 YEAR ENDED NINE MONTHS ENDED
(FEBRUARY 23, DECEMBER 31, SEPTEMBER 30,
1994) TO ---------------------------------- ----------------------------------
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) $ (8,654,818) $ (18,990,138)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ......... 15,598 192,869 823,653 501,819 7,435,908
Provision for doubtful accounts ...... -- -- 22,045 12,545 37,200
Changes in operating assets
and liabilities:
Accounts receivable .................. -- (3,087) (580,348) (489,076) (983,706)
Prepaid expenses and other
current assets .................. (52,850) (197,888) (66,404) (72,527) (1,088,958)
Accounts payable ..................... 43,189 620,370 (31,847) 3,394 685,064
Accrued liabilities .................. 8,862 281,062 1,042,216 519,984 720,672
Deferred revenue ..................... -- 47,050 731,236 575,951 539,441
---------- ------------ ------------- ------------ -------------
Net cash used in operating
activities ........................ (389,012) (4,389,527) (10,914,823) (7,602,728) (11,644,517)
---------- ------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment ... (42,302) (868,150) (1,622,368) (1,031,432) (1,807,916)
Net redemption (purchase) of restricted
certificates of deposit ............... -- (578,067) 439,466 439,466 --
---------- ------------ ------------- ------------ -------------
Net cash provided by (used in)
investing activities ............ (42,302) (1,446,217) (1,182,902) (591,966) (1,807,916)
---------- ------------ ------------- ------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds (repayment) of term loan ...... -- 973,000 (973,000) (973,000) --
Proceeds from long-term borrowings ...... -- 472,968 144,468 144,468 --
Repayment of long-term borrowings ...... -- -- (112,262) (56,131) (168,391)
Repayment of capital lease obligations -- (43,607) (172,513) (128,356) (190,530)
Proceeds from issuance of common
stock and common stock warrants ...... 2,097,784 37,500 1,172 -- 7,932,291
Proceeds from issuance of convertible
preferred stock ..................... -- 2,913,361 27,019,697 25,696,744 --
---------- ------------ ------------- ------------ -------------
Net cash provided by financing
activities ........................ 2,097,784 4,353,222 25,907,562 24,683,725 7,573,370
---------- ------------ ------------- ------------ -------------
Net increase (decrease) in cash
and cash equivalents ............ 1,666,470 (1,482,522) 13,809,837 16,489,031 (5,879,063)
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 $ 16,672,979 $ 8,114,722
========== ============ ============= ============ =============
</TABLE>
(CONTINUED)
F-6
<PAGE>
SPORTSLINE USA, INC.
STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION YEAR ENDED NINE MONTHS ENDED
(FEBRUARY 23, DECEMBER 31, SEPTEMBER 30,
1994) TO --------------------- ---------------------
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 services rendered ... $135,000 $ -- $ -- $ -- $7,471,852
========= ========= ========= ======== ===========
Issuance of common stock warrants pursuant
to services rendered and consulting agreements . $ 55,000 $ 17,000 $559,863 $ 5,000 $2,706,915
========= ========= ========= ======== ===========
Equipment acquired under capital leases ......... $ -- $545,145 $ -- $ -- $ 445,550
========= ========= ========= ======== ===========
Property and equipment contributed as capital ... $ 26,116 $ -- $ -- $ -- $ --
========= ========= ========= ======== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest ........................... $ -- $ 50,074 $121,027 $99,183 $ 51,206
========= ========= ========= ======== ===========
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(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 and the Company's superstar athletes;
offers instant odds and picks; 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 fan clubs; 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.
LICENSE AND CONSULTING AGREEMENTS
The cost of license and consulting agreements, which is primarily a result
of issuances of warrants to purchase common stock (see Note 6), is being
amortized using the straight-line method over the term of the related
agreements (from one to ten 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
$3,153,000 as of December 31, 1995 and 1996 and September 30, 1997,
respectively. Accumulated amortization on such amounts was approximately
$40,000, $200,000 and $1,148,000 at December 31, 1995 and 1996 and September
30, 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, $111,000 and $948,000
for the years ended December 31, 1995 and 1996 and for the nine months ended
September 30, 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.
F-8
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
ACCRUED LIABILITIES
Accrued liabilities include accrued advertising costs of $59,000, $297,000
and $546,000 as of December 31, 1995 and 1996 and September 30, 1997,
respectively.
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 advertising, membership and content
licensing are set forth below.
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.
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.
CONTENT LICENSING REVENUE
Content licensing revenue is derived from the licensing of certain of the
Company's content to third parties. Content licensing revenue is recognized
over the period of the license agreement as the Company delivers its content.
F-9
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
BARTER TRANSACTIONS
The Company recognizes advertising and content licensing 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 generally 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.
REVENUE BY TYPE
Revenue by type for the years ended December 31, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ --------------------------
1995 1996 1996 1997
--------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Advertising - cash ............... $ -- $1,048,118 $ 412,743 $2,975,742
Advertising - barter ............... -- 502,473 354,858 88,833
Membership - basic .................. 28,720 526,026 292,807 1,089,599
Membership - premium services ...... 23,377 356,724 110,973 639,875
Content licensing - cash ............ -- -- -- 50,001
Content licensing - barter ......... -- -- -- 919,998
Other .............................. -- 3,349 1,558 103,023
-------- ----------- ----------- -----------
$52,097 $2,436,690 $1,172,939 $5,867,071
======== =========== =========== ===========
</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.
F-10
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
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 April 16, 1997, the date of the initial
filing of the Company's registration statement relating to its initial public
offering ("IPO") if priced below $10.00, the mid-point of the range of the
estimated public offering price per share, as if they were outstanding for all
periods presented using the treasury stock method, even if antidilutive. Common
equivalent shares issued prior to this twelve month period which are
antidilutive are not included in the computation of net loss per share. Common
equivalent shares consist of the incremental common shares issuable upon
conversion of all convertible preferred stock (using the if-converted method)
and shares issuable upon exercise of stock options and warrants (using the
treasury stock method). Common equivalent shares also include all common stock
and warrants to purchase common stock issued and to be issued under the
Company's agreement with CBS Inc. (see Note 5).
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.
F-11
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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,
$22,000 and $59,000 at December 31, 1995 and 1996 and September 30, 1997,
respectively. As of December 31, 1995 and 1996 and September 30, 1997,
management believes that the Company had no significant concentrations of
credit risk.
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 periods ending after December 15, 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
F-12
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
position of the Company as of September 30, 1997, and the results of its
operations and cash flows for the nine months ended September 30, 1996 and
1997.
(3) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------------------
USEFUL LIVES SEPTEMBER 30,
(YEARS) 1995 1996 1997
-------------- ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment ............ 2-3 $1,294,417 $2,561,692 $ 4,532,755
Furniture, fixtures and leasehold
improvements .................. 3-7 186,572 538,717 515,085
---------- ---------- ------------
1,480,989 3,100,409 5,047,840
Less--accumulated depreciation
and amortization ............ (180,790) (858,779) (1,834,053)
---------- ---------- ------------
$1,300,199 $2,241,630 $ 3,213,787
========== ========== ============
</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:
<TABLE>
<CAPTION>
MATURITY AMOUNT
- ----------------------- ----------
<S> <C>
1997 ............... $ 224,522
1998 ............... 224,522
1999 ............... 56,130
----------
$ 505,174
==========
</TABLE>
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,
F-13
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(4) BORROWINGS:--(CONTINUED)
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.
In July 1997, the Company entered into a $2,500,000 equipment line of
credit with a leasing company. The equipment line carries interest at the prime
rate plus one quarter percent. Borrowings will be payable over a maximum of 36
months. As of September 30, 1997, $415,000 was outstanding.
(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 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 280,000 shares of common stock pursuant to
consulting agreements and raised net proceeds of $1,913,900 from the issuance
of 800,000 shares of common stock and warrants to purchase 200,000 shares of
common stock at $5.00 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 300,000 shares of common stock with an exercise price of
$5.00 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 1,011,277 common shares at an exercise price of
$5.00 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
F-14
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(5) SHAREHOLDERS' EQUITY (DEFICIT):--(CONTINUED)
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 is convertible at any time at the request of the holder into 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 offering price per share equal to or exceeding $12.50 per share, as
adjusted, both before underwriters' discounts and commissions, or upon the
Company's receipt of the written consent of the holders of not less than
two-thirds of the outstanding shares of each series of convertible preferred
stock, the convertible preferred stock will convert into common stock at the
ratio of 0.4 shares of common stock for each share of convertible preferred
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 30,000 shares of common stock at a
price of $2.50 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 960,000 shares of common stock at an
exercise price of $8.25 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 with a volatility
of 40%, risk-free interest rate of 5.1% and an estimated life of two months.
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 960,000 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 3,100,000 shares of common
stock over the term of the agreement (752,273, 735,802, 558,988, 567,579 and
485,358 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
F-15
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(5) SHAREHOLDERS' EQUITY (DEFICIT):--(CONTINUED)
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 380,000
shares of common stock at per share exercise prices ranging from $10.00 in 1997
to $30.00 in 2001. Such warrants are exercisable at any time during the
contract year in which they are granted. The value of the advertising and
content will be recorded annually in 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 nine months
ended September 30, 1997 totaled $5,484,000, consisting of amortization
relating to advertising of $4,900,000, content of $302,000 and expense related
to warrants of $282,000, and are included in depreciation and amortization in
the accompanying statement of operations for the nine months ended September
30, 1997. Total annual amounts to be amortized to expense in accordance with
the CBS agreement are as follows:
<TABLE>
<S> <C>
1997 ............... $ 7,834,000
1998 ............... 12,001,000
1999 ............... 12,001,000
2000 ............... 15,001,000
2001 ............... 15,001,000
------------
$61,838,000
============
</TABLE>
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 BENEFIT 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 ...... 430,000 $5.00 810,000 $5.13
Granted ....................................... 380,000 5.30 250,000 5.45
Canceled .................................... -- -- (13,000) 5.00
-------- ---------
Warrants outstanding, end of year ............ 810,000 5.13 1,047,000 5.23
======== =========
</TABLE>
F-16
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(6) WARRANTS, STOCK OPTIONS AND BENEFIT PLAN:--(CONTINUED)
The range of exercise prices of warrants outstanding at December 31, 1996
was $2.50 - $12.50. The weighted average fair value of warrants granted during
1995 and 1996 was $0.23 and $2.25, respectively. There were 967,000 warrants
exercisable at December 31, 1996. Warrants to acquire 960,000 common shares
subject to certain contingencies referred to in Note 5 have not been included
in the above information.
During the nine months ended September 30, 1997, an additional 820,188
warrants were granted, including 380,000 warrants granted under the CBS
agreement and excluding the 960,000 warrants issued to the investor discussed
in Note 5. Such warrants have exercise prices ranging from $5.00 to $10.00.
Warrants outstanding at September 30, 1997 totaled 1,862,188, of which
approximately 1,432,200 were 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
1997 grants ...... 40% 0% 5.5% - 6.5% 1-9 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 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 1,200,000 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.
F-17
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(6) WARRANTS, STOCK OPTIONS AND BENEFIT PLAN:--(CONTINUED)
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 ...... -- $ -- 339,200 $0.63
Granted .............................. 339,200 0.63 348,300 2.08
Exercised ........................... -- -- (1,875) 0.63
Forfeited ........................... -- -- (25,325) 0.63
-------- --------
Outstanding at end of year ............ 339,200 0.63 660,300 1.38
======== ========
Options exercisable at end of year . 33,200 0.63 115,179 0.63
======== ========
</TABLE>
The weighted average fair value of options granted during 1995 and 1996
was $0.25 and $1.10 respectively.
During the nine months ended September 30, 1997, an additional 503,609
options were granted with an exercise price ranging from $5.00 to $10.00. As of
September 30, 1997, options to purchase a total of 1,096,800 shares of common
stock were outstanding, of which approximately 280,300 were then exercisable.
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>
$0.63 546,800 8.74 $0.63 115,179 $0.63
5.00 113,500 9.70 5.00 -- --
------- --------
0.63 to 5.00 660,300 8.90 1.38 115,179 0.63
======= ========
</TABLE>
F-18
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(6) WARRANTS, STOCK OPTIONS AND BENEFIT PLAN:--(CONTINUED)
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 years 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) $ (12,855,374)
Pro forma ........................ (5,340,470) (13,017,564)
Net loss per share - As reported ...... $ (1.23) $ (1.80)
Pro forma ........................ $ (1.23) $ (1.81)
</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. Other deferred tax assets and
liabilities are not significant. The Company has provided a full 100% valuation
allowance on the deferred tax assets at December 31, 1995 and 1996 to reduce
such deferred income tax assets to zero 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.
F-19
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(8) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
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, $55,000 and
$248,000 for the years ended December 31, 1995 and 1996, and for the nine
months ended September 30, 1996 and 1997, respectively.
Future minimum lease payments for all leases are as follows as of December
31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- -----------
<S> <C> <C>
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
=========
</TABLE>
In January 1997, the Company paid the balance of its telecommunication
capital lease; this payment is reflected in the 1997 payments above.
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 ten 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.
Additionally, some agreements provide for a specified percentage of advertising
and merchandising revenue to be paid to the celebrity athlete from whose Web
site the revenue is derived. Minimum guaranteed payments required under such
agreements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
1997 ............ $537,000 $ 954,000
1998 ............ 341,000 3,575,000
1999 ............ 20,000 2,041,000
2000 ............ 11,000 1,385,000
2001 ............ -- 720,000
Thereafter ...... -- 2,620,000
--------- ------------
$909,000 $11,295,000
========= ============
</TABLE>
Certain of the above commitments may be reduced based upon the
appreciation of equity instruments issued and the amount of profit sharing
earned under the related agreements.
F-20
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(8) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
Effective July 1, 1997, the Company entered into an agreement with America
Online Inc. ("AOL") that requires the Company to provide cash consideration and
certain content and promotion during the one-year term of the agreement. AOL
will provide prominent placement of cbs.sportsline.com on its online service as
well as other promotion and advertising. The agreement also provides for a
sharing of advertising, merchandise and premium product revenue. Cash
commitments related to this agreement are included in the preceding table.
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. The Company
has filed an answer in which it denied all material allegations of the
complaint and asserted several affirmative defenses. The action is still in the
discovery stage, and both parties have agreed to attempt to settle the action
through court-ordered mediation. In the event the Company is unable to obtain a
favorable settlement, 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:
REVERSE STOCK SPLIT
On April 14, 1997, the Company's Board of Directors authorized the Company
to file a registration statement with the Securities Exchange Commission for
the purpose of the IPO of the Company's common stock. On October 10, 1997, the
Board of Directors authorized a 1-for-2.5 reverse stock split of the Company's
common stock. Such reverse stock split has been retroactively reflected in all
share and
F-21
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL AMOUNTS AND RELATED DISCLOSURES APPLICABLE TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
AND 1997 AND EVENTS OCCURRING AFTER JANUARY 31, 1997 ARE UNAUDITED,
EXCEPT WITH RESPECT TO THE MATTERS DISCUSSED IN NOTE 9)
(9) SUBSEQUENT EVENTS:--(CONTINUED)
per share disclosures in the accompanying financial statements and notes.
Additionally, the Company has obtained approval from the holders of at least
two-thirds of each series of convertible preferred stockholders to convert each
share of convertible preferred stock into 0.4 shares of common stock upon the
completion of the IPO.
AMENDMENT TO CERTIFICATE OF INCORPORATION
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.
1997 INCENTIVE COMPENSATION PLAN
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.
EMPLOYEE STOCK PURCHASE PLAN
On April 14, 1997, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan") under which 500,000 shares of common stock are reserved.
The Purchase Plan will become effective upon completion of the IPO. The
Purchase Plan provides eligible employees, as defined therein, the right to
purchase shares of common stock. The purchase price per share will be 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-22
<PAGE>
Global Distribution Opportunities
[SportsLine intends to syndicate its programming and distribute its proprietary
content through a variety of media.]
[circular representation]
Radio
Internet
Wireless
Publishing*
Fax/E-Mail*
Television*
[* tageted or under development]
Strategic Relationships
A SAMPLE OF THE NAMES AND LOGOS OF THE COMPANY'S STRATEGIC RELATIONSHIPS
San Francisco 49ers [Logo]
Netscape [Logo]
@Home [Logo]
C Net [Logo]
Bell South dot net [Logo]
TalkCity [Logo]
AirMedia Live [Logo]
MCI Internet [Logo}
US Ski Team [Logo]
Microsoft Internet Explorer [Logo]
International Management Group [Logo]
Excite [Logo]
National Football League Players Association [Logo]
FedEx Orange Bowl [Logo]
Real Audio [Logo]
PointCast [Logo]
National Hockey League Interactive Cyber Enterprises [Logo]
CBS, Inc. [Logo]
America Online [Logo]
<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:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................................... $ 13,940
NASD filing fee ........................................................................ 5,100
Nasdaq National Market listing fee ................................................... 22,500
Printing expenses ..................................................................... 100,000
Accounting fees and expenses ......................................................... 100,000
Legal fees and expenses ............................................................... 200,000
Fees and expenses (including legal fees) for qualifications under state securities laws 5,000
Road show expenses ..................................................................... 75,000
Transfer Agent's fees and expenses ................................................... 10,000
Miscellaneous ........................................................................ 68,460
---------
Total ................................................................................. $600,000
=========
</TABLE>
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 1,520,000 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.
(2) In August 1994, the registrant issued to each of Joseph W. Namath and
James C. Walsh 100,000 shares of Common Stock and warrants to purchase 100,000
shares of Common Stock, in each case in
II-1
<PAGE>
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 Gary H. Rice, Frank L. Young,
G. Kenneth Dotson and Ellen L. McGowan a total of 80,000 shares of Common
Stock, in each case in consideration of consulting services rendered and, in
the case of Gary H. Rice, an additional $10,000 in cash.
(4) In August 1994, the registrant issued to Burk Zanft, a private
investor, 800,000 shares of Common Stock and warrants to purchase 200,000
shares of Common Stock for aggregate cash consideration of $2,000,000.
(5) In May 1995, the registrant issued to Kleiner Perkins Caufield & Byers
VII, KPCB Founders Fund and KPCB Information Sciences Zaibatsu Fund II a total
of 3,000,000 shares of Series A Preferred Stock and warrants to purchase
300,000 shares of Common Stock for aggregate cash consideration of $3,000,000.
(6) In March 1996, the registrant issued to Alliance Technology Venture,
L.P., ATV/MFJ Parallel Fund, L.P., TCI Online Holdings, Inc., Reuters NewMedia
Inc., New York Life Insurance Company, Antares Capital Fund II Limited
Partnership, Transatlantic Venture Partners, C.V., Kleiner Perkins Caufield &
Byers VII, KPCB VII Founders Fund, KPCB Information Sciences Zaibatsu Fund II,
Stanford University, Chase 1991 Revocable Trust and Richard A. Petit 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 TCI Online Sports Holdings, Inc.
warrants to purchase an additional 1,011,277 shares of Common Stock, which
warrants expired unexercised in September 1996.
(7) In September 1996, the registrant issued to Alliance Technology
Venture, LP, ATV/MFJ Parallel Fund, L.P., Reuters NewMedia Inc., New York Life
Insurance Company, Antares Capital Fund II Limited Partnership, Transatlantic
Venture Partners, CV, Kleiner Perkins Caufield & Byers VII, KPCB Information
Sciences Zaibatsu Fund II, Stanford University, Chase 1991 Revocable Trust,
Natio Vie Developpement II, Natio Nouveaux Marches Europe and US West
Interactive Services, Inc. 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 US West Interactive Services, Inc. warrants to purchase 960,000
shares of Common Stock, which warrants were exercised in March 1997.
(8) In March 1997, the registrant issued to CBS 752,273 shares of Common
Stock and warrants to purchase 380,000 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 September 1997, (excluding the securities
mentioned above) the registrant issued warrants to purchase a total of 782,188
shares of Common Stock to Richard Horrow (October 1, 1994 -- 10,000 and January
17, 1997 -- 10,000), Jack Kemp (December 9, 1994 -- 7,000), Michael Jack, Inc.
(June 1, 1995 -- 10,000), Thomas Coeffler (June 30, 1995 -- 2,500), Harian
Werner (April 1, 1996 -- 4,000), Lee Kolligian (June 30, 1995 -- 5,500),
Comdisco, Inc. (October 1, 1995 -- 16,000), Sports Byline USA (November 30,
1995 -- 4,000), Kleiner Perkins Caufield & Byers VII (December 13, 1995 --
30,000), Bill Walton (January 31, 1996 -- 6,000), Arnold Palmer Enterprises,
Inc. (February 26, 1996 -- 10,000), Keyshawn Johnson (February 29, 1996 --
4,000), Armato-Is-Shaq Enterprises LLC (April 1, 1996 -- 80,000), Jerry Rice
(April 1, 1996 -- 16,000), Sports Management Group (April 1, 1996 -- 4,000),
Gabrielle Reece (May 31, 1996 -- 10,000), Pistol Pete, Inc. (May 31, 1996 --
10,000), BNI (June 1, 1996 -- 5,000), Big Sky, Inc. (June 1, 1996 -- 20,000),
Jim Lampley (August 29, 1996 -- 10,000), John Daly (August 31, 1996 -- 20,000),
Michael P. Schulhof (September 27, 1996 -- 40,000), Wayne Gretzky (October 31,
1996 -- 10,000), Gerry Hogan (November 15, 1996 -- 40,000), Cal Ripken, Jr.
(February 28, 1997 -- 10,000), Edward DeBartolo (February 28, 1997 -- 40,000),
Carmen Policy (February 28, 1997 -- 40,000), International Management Group
(January 1, 1997 -- 38,661 and September 30, 1997 -- 9,527), National Football
League Players Association
II-2
<PAGE>
(June 1, 1995 -- 20,000), Michael Jordan (June 20, 1997 -- 160,000) and Tiger
Woods (July 1, 1997 -- 80,000), principally in exchange for advisory and
consulting services and, in the case of warrants issued to Comdisco, Inc. and
Kleiner Perkins Caufield & Byers VII, for providing the registrant equipment
financing and guaranteeing debt incurred by the registrant, respectively.
(10) Between August 1995 and September 30, 1997, the registrant issued
options to purchase a total of 1,191,109 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.
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.*
10.7 Licensing Agreement dated September 27, 1996 between the Registrant and US WEST
Interactive Services, Inc.*
10.8 Marketing Agreement dated March 12, 1996 between the Company and Reuters NewMedia,
Inc.*
10.9 Guaranty dated December 1995 executed by Kleiner Perkins Caufield & Byers*
10.10 Consulting Agreement dated September 1, 1994, between the Registrant and Horrow Sports
Ventures*
10.11 Agreement dated June 1996 between the Registrant and Michael P. Schulhof*
10.12 Agreement dated August 1994 between the Registrant and Planned Licensing, Inc.*
10.13 Employment Agreement dated as of September 1, 1997, between the Registrant and
Kenneth W. Sanders*
10.14+ Advisory Agreement dated June 20, 1997 among the Registrant, Michael Jordan and Falk
Associates Management Enterprises**
10.15+ Advisory Agreement dated July 1, 1997 between the Registrant and ETW Corp.**
10.16+ Interactive Services Agreement dated July 1, 1997 between the Registrant and America
Online, Inc.*
10.17+ Amendment to Advisory Agreement and Warrants dated November 7, 1997 between the
Registrant, Michael Jordan and FAME, Inc.*
10.18 Form of Placement Agency Agreement between the Registrant and the Underwriters.**
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)*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------
<S> <C>
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*
27.1 Financial Data Schedule*
28.1 Consent of Director Nominee*
</TABLE>
- ----------------
* Previously filed.
** Filed herewith.
+ Certain provisions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange Commission.
(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-4
<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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act of 1933") the registrant has duly caused this Amendment to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Lauderdale, State of Florida, on
November 11, 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 Kenneth W. Sanders 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 Amendment
to the 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 November 11, 1997
Michael Levy and Director
(principal executive officer)
/s/ KENNETH W. SANDERS Chief Financial Officer November 11, 1997
Kenneth W. Sanders (principal financial and
accounting officer
/s/ * Director November 11, 1997
Thomas Cullen
/s/ * Director November 11, 1997
Stephen Fleming
/s/ * Director November 11, 1997
Gerry Hogan
/s/ * Director November 11, 1997
Richard B. Horrow
/s/ * Director November 11, 1997
Joseph Lacob
/s/ * Director November 11, 1997
Sean McManus
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------- ---------- ------------------
<S> <C> <C>
/s/ * Director November 11, 1997
Andrew Nibley
/s/ * Director November 11, 1997
Liesl Pike
/s/ * Director November 11, 1997
Derek Reisfield
/s/ * Director November 11, 1997
James C. Walsh
</TABLE>
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*By: /s/ MICHAEL LEVY
Michael Levy
Attorney-in-fact
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------- -------------
<S> <C> <C>
10.14+ Advisory Agreement dated June 20, 1997 among the Registrant, Michael
Jordan and Falk Associates Management Enterprises
10.15+ Advisory Agreement dated July 1, 1997 between the Registrant and ETW
Corp.
10.18 Form of Placement Agency Agreement between the Registrant and the
Underwriters.
23.2 Consent of Arthur Andersen LLP
</TABLE>
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+ Certain provisions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange Commission.
EXHIBIT 10.14
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
ADVISORY AGREEMENT
This Agreement is entered into as of June 20, 1997 (the "EFFECTIVE DATE") by and
among MICHAEL JORDAN ("JORDAN"), FALK ASSOCIATES MANAGEMENT ENTERPRISES ("FAME")
and SPORTSLINE USA, INC., A DELAWARE CORPORATION ("SPORTSLINE") and provides as
follows:
SportsLine desires to contract with Jordan for certain services and to obtain
from Jordan certain content for distribution through its sports-oriented online
service currently located at universal resource locator
"http://cbs.sportsline.com" (the "SPORTSLINE SERVICE"), and Jordan is willing to
render such services, on the terms and conditions set forth herein. For and in
consideration of the mutual terms and conditions set forth in this Agreement,
the receipt and adequacy of which is hereby acknowledged, the parties agree as
follows:
1. TERM. The term of this Agreement shall be as set forth in EXHIBIT "A" (the
"TERM").
2. SERVICES, RIGHTS & CONTENT. SportsLine end Jordan agreeto create a
designated area of the SportsLine Service as the exclusive Jordan-authorized
web site that features content to be provided by or on behalf of Jordan
(hereinafter, the "JORDAN WEB SITE"). The Jordan Web Site will be hosted and
operated by SportsLine on SportsLine's servers at a World Wide Web address
(the "JORDAN URL") mutually agreed upon by the parties as may be adopted
from time to time (tentatively, "michaeljordan.com"), and shall contain
prominent links to the SportsLine Service. As more fully set forth herein,
Jordan agrees to fully provide the content and perform the services outlined
herein including but not limited to the services and content set forth on
EXHIBIT "B."
3. EXCLUSIVITY. During the Term, and subject to any rights granted to the NBA
pursuant to the NBA's Group Licensing Agreement (Jordan and FAME hereby
acknowledge that, as of the Effective Date, Jordan has opted out of and is
not currently subject to the NBA Group Licensing Agreement) or any other
rights granted to the NBA pursuant to Jordan's contract with the Chicago
Bulls, Jordan shall not be employed by, act as a consultant to, provide any
content, chat sessions, information, products (including but not limited to
merchandise and memorabilia) or services to, or otherwise render services of
any nature for or on behalf of, any internet or World Wide Web (including
but not limited to ESPN SportsZone, CNN/Si, Sporting News, NBC Sports,
FoxSports, etc.), commercial online (including but not limited to Microsoft
Network, America Online, CompuServe, etc.), electronic or similar service
(regardless of whether such service is accessible through the Internet or
CONFIDENTIAL AND PROPRIETARY
Page -1 -
<PAGE>
otherwise). In addition, as more fully set forth herein, Jordan hereby
grants SportsLine an exclusive, world-wide license both online and off-
line, to create the official Jordan Fan Clubs (as defined herein); however,
that the foregoing shall not prohibit any of the sponsors listed on EXHIBIT
"D" attached hereto (each, a "JORDAN ENDORSEMENT COMPANY") from distributing
information, advertising, or product samples to Jordan fans so long as such
activities are not reasonably construed to be in the nature of Fan Club
activities in order to avoid confusion in the marketplace and to avoid
adversely affecting the effectiveness of the Jordan Fan Clubs. Jordan
understands and agrees that SportsLine shall not be prevented nor barred
from retaining other persons or entities to provide services of the same
nature or similar nature as those described herein or of any nature
whatsoever. SportsLine acknowledges that the Jordan Endorsement Companies,
WorldCom (in particular, with respect to Internet access services) and the
NBA may have certain marketing rights that may extend to the Internet and
which rights shall not be considered a breach of this Agreement; provided,
however, under no circumstances may those rights include the creation of a
Web site containing and content similar to the Jordan Information or have
the same look and feel of the Jordan Web Site nor any interviews, chat
sessions, or other services as provided herein.
4. PROMOTION. Jordan shall use his best efforts to (i) secure from his
corporate sponsors and endorsers promotion of the Jordan Web Site in all
print, direct mail, radio and television advertisements, infomercials, and
other traditional, electronic and online marketing and promotional vehicles
used by such sponsors and endorsers to promote Jordan, including arranging
to have the Jordan URL displayed on hanging tags on Jordan's endorsers' or
licensees' signature line of apparel and/or equipment, and any books and
documentaries; and (ii) mention the Jordan Web Site and Jordan URL in all
appropriate interviews and appearances of Jordan (the "PROMOTIONAL
EFFORTS"). The Promotional Efforts shall prominently feature the lordan URL
followed by the promotional statement "a SportsLine USA Powered Web Site" or
other similar language designated by SportsLine, and display the Jordan URL,
as may be adopted from time to time. SportsLine will actively promote the
Jordan Web Site both within the SportsLine service and on other Web sites
consistent with SportsLine's promotion of its other superstar Web Sites.
5. SPONSORSHIP/ENDORSEMENT CONFLICTS.
(a) SportsLine agrees and acknowledges that FAME and Jordan shall have the
right to approve, in their absolute discretion, any third-
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
party corporate sponsorships for the Jordan Web Site, and that any use
of Jordan's name and likeness in connection with any third-party
corporation or sponsor is subject to prior written approval by Jordan
and FAME, based upon Jordan's pre-existing Agreements with Jordan
Endorsement Companies. In the event FAME or Jordan disapproves any
third-party corporate sponsorship, FAME or Jordan, as applicable, shall
provide SportsLine with FAME's and/or Jordan's reasons in writing.
However, SportsLine acknowledges that there will be certain situations
where, due to pre-existing third party agreements or in Jordan's sole
discretion, Jordan cannot or will not grant approval to certain
products, sponsorships and/or advertising in connection with the Jordan
Web Site. Further, SportsLine agrees that it will not under any
circumstances negotiate with, enter into any Agreement with or otherwise
consult with any of the Jordan Endorsement Company Major Direct
Competitors listed on Exhibit "E" attached hereto to advertise, promote
or market the Jordan Web Site. SportsLine agrees to work with Jordan and
FAME to ensure that there shall be no ambush marketing by other than
Jordan Endorsement Company third-party corporate partners in connection
with the Jordan Web Site;
(b) SportsLine acknowledges that Jordan has entered into and will enter into
certain third party agreements with Jordan Endorsement Companies
relating to the food and beverage, sporting goods, telecommunications
and apparel industries (collectively the "JORDAN THIRD PARTY
AGREEMENTS"). Notwithstanding any provision contained in this Agreement
to the contrary, SportsLine agrees that it will not take any action nor
fail to take any action, as applicable under the circumstances, in
connection with marketing, promoting, advertising and operating the
Jordan Web Site and marketing, promoting, advertising and selling Jordan
Merchandise which would violate or otherwise interfere with the terms
and conditions of any existing or any future Jordan Third Party
Agreement (a "MARKETING CONFLICT"), but only to the extent that
SportsLine has been given prior written full disclosure of the material
terms and conditions that create any such Marketing Conflict. Jordan and
SportsLine will mutually agree upon procedures for the disclosure by
Jordan to SportsLine of such information as is necessary, for SportsLine
to comply with the foregoing. SportsLine will, as soon as
technologically and commercially feasible following SportsLine's receipt
of notice of a Marketing Conflict, take or refrain from taking such
action, as applicable under the circumstances, so as to otherwise comply
CONFIDENTlAL AND PROPRIETARY
Page -3-
<PAGE>
with the terms and conditions of the Jordan Third Party Agreements;
provided, however, that SportsLine shall have a reasonable period of
time within which to deplete any existing inventory or inventory to
which SportsLine is contractually obligated as of the date of receipt of
notice of any Marketing Conflict. To the extent that SportsLine violates
a restriction in a Jordan Third Party Agreement because SportsLine did
not have written notice of such restriction, SportsLine shall not be
deemed in breach of this Agreement to the extent that it promptly comes
into compliance with such restriction, subject to SportsLine's right to
deplete inventory as describe above, following written notice of such
violation and such other disclosures as required by this section.
SportsLine shall be solely responsible for contracting with the
appropriate parties having rights under any Jordan Third Party Agreement
in the event that SportsLine desires to purchase Jordan Merchandise from
such third party, and Jordan shall have no obligations in connection
therewith except as otherwise expressly provided herein.
6. CONSIDERATION. In full consideration for Jordan's services under this
Agreement, SportsLine will pay Jordan pursuant to the terms outlined in
EXHIBIT "C."
7. GRANT OF LICENSE. Jordan hereby grants to SportsLine the following
licenses:
a) CONTENT. Subject to any rights granted to the NBA pursuant to the Group
Licensing Agreement and any rights granted by Jordan to Jordan
Endorsement Companies Jordan grants to SportsLine an exclusive worldwide
license:
i) To the Jordan URL;
ii) To use, copy, display (publicly or privately), perform (publicly
or privately), distribute or otherwise make available through the
Jordan Web Site and the SportsLine Service the name, initials,
likeness, logos, approved photographs, statements of approval,
preference and endorsement, biographical information of Jordan
(the "JORDAN ENDORSEMENT") and the Jordan Information (as defined
herein):
A) In connection with the development, advertisement, promotion
and distribution of the SportsLine Service
CONFIDENTIAL AND PROPRIETARY
Page -4-
<PAGE>
and the Jordan Web Site (including, without limitation,
information and text-oriented services, chatrooms, interviews,
contests, interactive games on the Internet only, statistics,
and sports feature texts).
B) In SportsLine's letterhead.
C) In connection with any demonstration, promotion, or
advertisement of or as otherwise reasonably necessary to
promote the SportsLine Service or the Jordan Web Site in any
medium.
iii) To enter Jordan Information into SportsLine's computer database.
iv) To store, process, retrieve and transmit the same on the
SportsLine Service and the Jordan Web Site.
v) To reproduce any Jordan Endorsement or Jordan Information or any
part of it for advertising, promotion and publicity of SportsLine.
SportsLine's rights hereunder shall include, but not be limited to,
SportsLine's right, in its sole discretion, to offer subscribers the option
of printing and downloading Jordan Information or any portion thereof as a
function of the SportsLine Service generally.
b) MERCHANDISE. In addition, subject to any rights granted to any third
parties by Jordan, Jordan grants to SportsLine the world- wide license
to sell Jordan memorabilia such as autographed uniforms, basketballs,
apparel, equipment, posters and any other sports memorabilia online
("JORDAN MERCHANDISE") through the Jordan Web Site; provided that, to
the extent that Jordan has a pre-existing contractual obligation with
The Upper Deck Company which conflicts with the rights and license
granted pursuant to the foregoing provision, Jordan agrees to use his
best efforts to facilitate a relationship between SportsLine and The
Upper Deck Company. SportsLine agrees that any Jordan-autographed
sports apparel, shoes, or sports equipment that SportsLine desires to
sell in connection with The Upper Deck Company must be manufactured by
Nike, Inc., and Wilson Sporting Goods, Inc., respectively, or any other
third party with which Jordan has a contract.
CONFIDENTIAL AND PROPRIETARY
Page -5-
<PAGE>
c) RESERVATION OF RIGHTS. All right, title and interest in all Jordan
Information are and shall remain Jordan's, subject to the rights and
licenses granted to SportsLine herein.
d) ADDITIONAL RESTRICTIONS. SportsLine shall not use the Jordan Endorsement
in a manner which implies an endorsement of any Web site and/or
SportsLine sponsor or any other non-Jordan Corporate Partner, or an
endorsement of any computer hardware and software, video games, cellular
phones and accessories, telephone debit and travel cards, or any
telephone and telecommunications services without Jordan's prior written
approval.
8. APPROVALS.
a) SportsLine agrees to submit to Jordan and FAME for their approval, a
copy of ail advertising and/or promotional materials utilizing Jordan's
likeness at least fourteen (14) calendar days prior to their release to
the general public. SportsLine further agrees that such advertising and
promotional materials shall not be released without prior written
approval of Jordan and FAME. Jordan and FAME agree, however, that they
shall not unreasonably withhold or delay their approval of such
materials and that in absence of disapproval, within ten (10) calendar
days of receipt thereof, such advertising and promotional materials
shall be deemed approved. Notwithstanding the foregoing, SportsLine
shall have the right to use screen shots and captions from the Jordan
Web Site and any previously approved content from the Jordan Web Site
for any uses otherwise permitted hereunder; provided that there are no
material changes to such screen shots, captions and content as approved.
(b) From time to time during the term of this Agreement, SportsLine will
submit merchandise to Jordan and FAME, for their approval, which
SportsLine proposes to market, promote, advertise and sell through the
Jordan Web Site. Jordan and FAME may, in their sole discretion, approve
or disapprove any or all such submitted merchandise to be sold by
SportsLine on the Jordan Web Site.
(c) To the extent known by Jordan and FAME, Jordan and FAME shall disclose
to SportsLine appropriate contacts with third party sources of Jordan
Merchandise for purchase by or sourcing to or on behalf of SportsLine
for SportsLine's use of the Jordan Endorsement as permitted under this
Agreement; provided,
CONFIDENTIAL ANO PROPRIETARY
Page -6-
<PAGE>
however, that Jordan and FAME shall have no obligation to coordinate or
facilitate the sale of any such approved merchandise from a third party
vendor to SportsLine as it shall be SportsLine's sole responsibility to
obtain such approved Jordan Merchandise from a third party vendor.
Jordan and FAME shall assist SportsLine in good faith in obtaining
favorable terms with respect to the sale of such Jordan Merchandise.
(d) To the extent SportsLine creates unique Jordan Merchandise, SportsLine
agrees to provide to Jordan and FAME a combined total of two (2)
representative copies or samples (i.e., one each to Jordan and FAME) of
all such proposed Jordan Merchandise together with a description of the
intended use of the merchandise to Jordan and FAME without cost to
Jordan and FAME for written approval prior to SportsLine using the same.
Jordan and FAME shall approve or disapprove any merchandise submitted by
SportsLine for approval within ten (10) business days of their receipt
by Jordan and FAME. If Jordan or FAME do not approve or disapprove
SportsLine's submission within such ten (10) day period, SportsLine will
provide written notice to Jordan and FAME of such delay and Jordan and
FAME agrees that any such proposed merchandise will be deemed approved
if SportsLine's submission is not responded to within five (5) business
days following receipt of such written notice. The copies and samples
submitted by SportsLine to Jordan and FAME under this Section 8(d) may
be retained by Jordan and FAME at their option. SportsLine will
thereafter submit to Jordan-and FAME, without cost to Jordan or FAME,
one (1) unit of such finished Jordan Merchandise, as approved, upon
commencement of production of such Jordan Merchandise.
CONFIDENTIAL AND PROPRIETARY
Page -7-
<PAGE>
9. RESPONSIBILITIES OF JORDAN AS TO CONTENT.
a) JORDAN INFORMATION. For purposes of this Agreement, the term "JORDAN
INFORMATION" means all information created and/or delivered by Jordan to
SportsLine for inclusion in the SportsLine Service or the Jordan Web
Site including but not limited to (i) any trademark, service mark, trade
name or logo, whether or not registered, included in such information,
provided that any such trademark, service mark, trade name or logo must
be approved in advance by Jordan and FAME (ii) the content to be
provided as set forth on EXHIBIT "B," and (iii) any statement made by
any member of Jordan's organization during any interview or chat session
broadcast or distributed over the SportsLine Service or the Jordan Web
Site.
b) REPRESENTATIONS AND WARRANTIES. Jordan shall be solely responsible for
the content of all Jordan Information, and represents and warrants to
SportsLine that:
i) All Jordan Information (A) shall be accurate and Jordan's own and
original creation, except for information validly Iicensed for use
by Jordan or in the public domain; (B) will consist only of
information that Jordan is authorized to use and to authorize
SportsLine to use as contemplated in this Agreement; (C) will not
constitute a libel or defamation or conflict with any copyright,
right of privacy or other rights of, and will not cause injury to,
any third party; and (D) will conform to all applicable federal,
state and local laws and regulations and any other governmental or
quasi- governmental laws or regulations of the United States or
any other country.
ii) Jordan has the full right and authority to grant the rights and
consents set forth herein.
iii) SportsLine shall be entitled at any time to bring any concerns it
has regarding the Jordan Information to the attention of Jordan,
whereupon the parties will cooperate in good faith to address
SportsLine's concerns. If SportsLine, in its reasonable judgment,
believes that immediate action is required with regard to any of
the Jordan Information, SportsLine may delete, modify or revise
such information, provided that SportsLine shall notify Jordan of
such action
CONFIDENTIAL AND PROPRIETARY
Page -8-
<PAGE>
prior thereto, if reasonably possible (or, if not, as soon
thereafter as commercially practicable). In the event Jordan
ceases to maintain his high-profile as a pre-eminent spokesperson
and/or entertainer, and becomes completely inactive as an
endorser, Jordan agrees to discuss in good faith with SportsLine
some protection to the rights and obligations hereunder.
c) DELIVERY; EDITORIAL STANDARDS. All Jordan Information and updates shall
be transmitted by land-line telephone or electronically in the format
specified by SportsLine. All content supplied by Jordan shall be
consistent with the editorial standards used by SportsLine for content
displayed on the SportsLine Service (which standards SportsLine reserves
the right to amend from time to time).
10. NBA/BULLS TRADEMARKS. SportsLine acknowledges that Jordan has no right to
grant, nor does he purport to grant, the use of the Chicago Bulls' name,
uniform and/or insignias or any other trademarks associated with the
National Basketball Association. However, Jordan shall instruct his
agent(s), attorney(s) and/or business manager(s) to use their best efforts
to assist SportsLina to obtain clearances for such uses.
11. SPORTSLINE SERVICE. SportsLine shall have sole discretion to determine all
aspects of the operation of the SportsLine Service and all matters relating
to the content, structure and sequence of material appearing on the
SportsLine Service. Without limiting the generality of the foregoing,
SportsLine shall have sole discretion to determine the amount and basis of
any fee charged to subscribers for use of the SportsLine Service, and
SportsLine exclusively will bill for and collect all fees charged to
subscribers to use the SportsLine Service. Nothing in this Agreement shall
limit SportsLine's rights regarding charges for any aspect of the SportsLine
Service (including any product or service offered by SportsLine, whether
alone or in conjunction with others, through means of the SportsLine
Service). All right, title and interest in . SportsLine's name, trade
name(s), trademark(s) and service mark(s), copyrights, and all other
intellectual property (collectively, "SPORTSLINE'S INTELLECTUAL PROPERTY")
are and shall remain. SportsLine's. Nothing herein shall be deemed to grant
Jordan any proprietary rights to any of SportsLine's Intellectual Property.
12. PREMIUM FEATURES/FAN CLUBS. SportsLine shall ba responsible for the concept
design and creation of all Premium Features, including the official
exclusive online and off-line Jordan fan clubs (collectively, the
CONFIDENTIAL AND PROPRIETARY
Page -9-
<PAGE>
"FAN CLUBS") that allow Jordan to communicate with Jordan's fans through
regular e-mail messages, columns and newsletters, to record audio clips that
allow fans to listen to live and previously recorded interviews and
insights, and to play video clips and highlights from previously- recorded
interviews and games and events (collectively, "ELECTRONIC MEANS"). Jordan
will answer five (5) electronic mail questions per week received from
members of Jordan online Fan Club, if and to the extent such questions are
timely forwarded by SportsLine, given Jordan's schedule; and will use best
efforts to introduce SportsLine to Jordan's endorsers and licensees to
promote the Jordan Fan Clubs and to facilitate the acquisition of
merchandise and/or memorabilia for sale through and. In addition, SportsLine
will create, operate and maintain the exclusive official Jordan off-line Fan
Club that allows Jordan to communicate with his fans through means other
than Electronic Means.
a) With respect to both the official online and off-line Fan Club,
SportsLine shall be responsible for the following services (the "FAN
CLUB SERVICES"):
i) Creating and marketing a Fan Club membership package which shall
be subject to Jordan's and FAME's prior approval.
ii) Creating a mailing list consisting of Members (as defined below).
SportsLine agrees, at the request of Jordan given at any time or
times during the Term, to deliver to Jordan, at SportsLine's cost,
a copy of the then-current mailing list for the Fan Clubs.
SportsLine acknowledges and agrees that Jordan shall have the
right to make use of the Fan Clubs' membership list for any
purpose permitted by law which Jordan may designate (including,
without limitation, licensing or selling such !ist) without the
obligation to pay any fee or compensation to SportsLine.
iii) Soliciting individuals to become "Fan Club members" (the
"MEMBERS").
iv) If mutually agreed upon, writing and sending and/or distributing
to the Members periodic newsletters, press releases and touring
schedule updates, all of which shall be subject to Jordan's and
FAME's prior approval.
CONFIDENTIAL AND PROPRIETARY
Page -10-
<PAGE>
v) Providing Members with an "official" membership card, information
packet and other promotional materials relating to the Fan Clubs,
all of which shall be subject to Jordan's and FAME's prior
approval.
vi) If mutually agreed upon, creating a merchandising presence within
the Jordan Web Site to provide Members with opportunities to
purchase officially-licensed Fan Club merchandise, all of which
shall be subject to further agreement between Jordan and
SportsLine.
vii) Collecting all income generated from the Fan Clubs' activities
accounting for and distributing the income as set forth herein.
viii) Such other services and activities as the parties may hereafter
agree.
If at any time during the Term, SportsLine or Jordan desires to add
additional Fan Club Services, then SportsLine may submit such request in
writing to Jordan, or Jordan may submit such request in writing to
SportsLine, and upon receipt thereof, the parties shall discuss in good
faith the possibility of adding such additional services.
b) SportsLine shall operate the Fan Clubs in accordance with the following
guidelines:
i) Fan club dues shall be established upon mutual agreement of the
parties.
ii) Jordan shall have final approval of all information, including
photographs, video clips, etc., to be sent, broadcast or made
accessible to Members and/or used in connection with the Fan
Clubs, and of the parameters or rules of any Fan Club conventions
and/or contests ("FAN CLUB ACTIVITIES"). SportsLine shall submit
each of these Fan Club Activities to Jordan in writing for
Jordan's and FAME's approval.
13. CONTESTS. Jordan and FAME agree and acknowledge that their respective
employees, consultants and/or advisors and members of their respective
immediate families (immediate family is defined as parent, sibling or any
person residing in the same household as employee or consultant) shall not
eligible to play SportsLine contests for prizes.
CONFIDENTIAL AND PROPRIETARY
Page -11-
<PAGE>
14. PRESS RELEASES. It is the intent of the parties to issue a joint press
release announcing the formation of the relationship created hereby.
However, it is agreed that no party will issue any such press release
without the prior written consent of the other parties.
15. ENFORCEMENT ACTION. If either party obtains information that the rights
granted by Jordan to SportsLine have been breached by a third party, such
information shall be promptly transmitted to the other party. SportsLine
shall have the right, but not the obligation, to commence an action against
the breaching third party; provided, however, SportsLine agrees to commence
appropriate action if requested to do so by Jordan and/or FAME, but only to
the extent approved by SportsLine's outside counsel and further subject to
mutual agreement among SportsLine, FAME and Jordan regarding division of the
expense of retaining outside counsel. If requested by SportsLine, Jordan
shall enter such action against such third party as an additional party
plaintiff.
16. ARBITRATION. The parties are desirous of reducing the time and costs of
resolving disputes. Accordingly, any claim or controversy arising out of or
in connection with the construction or application of any term, provision or
condition of this Agreement and shall be settled by final and binding
arbitration in the State of Illinois under the Rules of the American
Arbitration Association;-provided, however, that any such matter submitted
to arbitration shall be presided over by a panel of at least three (3)
arbitrators who each shall have experience in the area of intellectual
property law. The decision of the arbitrators shall- be binding upon the
parties. The reasonable cost of arbitration shall be borne by the losing
party or in such proportion as the arbitrator shall decide. Judgment on the
award rendered by the arbitrator may be entered in any court in the world
having jurisdiction. The provisions of this paragraph shall survive any
expiration or earlier termination of this Agreement.
17. INDEMNIFICATION BY SPORTSLINE. SportsLine shall indemnify, defend and hold
Jordan harmless from and against all claims, costs, liabilities, judgments,
expenses or damages (including reasonable attorneys' fees and court costs)
arising from or related to any cause of action brought against Jordan by any
person or entity that is not a party to this Agreement arising from or
related to this Agreement. This paragraph shall survive any expiration or
earlier termination of this Agreement.
18. INDEMNIFICATION BY JORDAN. Jordan shall indemnify, defend and hold
SportsLine harmless from and against all claims, costs, liabilities,
judgments, expenses or damages (including reasonable attorneys' fees
CONFIDENTIAL AND PROPRIETARY
Page -12-
<PAGE>
and court costs) arising from or related to any cause of action brought
against SportsLine by any person or entity that is not a party to this
Agreement arising from or related to (i) any Jordan Information displayed
through the Jordan Web Site or the SportsLine Service, (ii) the content of
any Jordan Information, and (iii) any breach of this Agreement, provided
SportsLine promptly notifies Jordan of any such claim and provides Jordan
the opportunity to control the defense of the action and all negotiations
for settlement or compromise. This paragraph shall survive any expiration or
earlier termination of this Agreement
19. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING STATED OR IMPLIED TO THE
CONTRARY HEREIN, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR
EXEMPLARY, PUNITIVE, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT
LIMITED TO LOST PROFITS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
IN ANY MANNER ARISING OUT OF THIS AGREEMENT OR THE BREACH OF ANY TERM,
COVENANT, REPRESENTATION, WARRANTY OR OBLIGATION CONTAINED HEREIN. THIS
PARAGRAPH SHALL SURVIVE ANY EXPIRATION OR EARLIER TERMINATION OF THIS
AGREEMENT
20. CONFIDENTIALITY. All information disclosed by either party to the other
party, including but not limited to the terms and conditions of this
Agreement or any other agreement between the parties, trade secrets of the
parties, any nonpublic information relating to a party's product plans,
designs, ideas, concepts, costs, prices, finances, marketing plans, business
opportunities, personnel, research, development or know-how and any other
nonpublic technical or business information of a party, that is marked
"CONFIDENTIAL" or identified by the disclosing party in writing as
confidential before or within thirty (30) calendar days after disclosure to
the receiving party, shall be treated as confidential by the receiving party
and not disclosed to any third party, including, but not limited to the NBA,
NBA Properties, the National Basketball Players Association and any other
entity of the NBA or the Chicago Bulls, without the disclosing party's
consent or unless required by law.
Confidential Information shall not include information that: (a) is now or
subsequently becomes generally available to the public through no fault or
breach on the part of the receiving party; (b) the receiving party can
demonstrate to have had lawfully in its possession without an obligation of
confidentiality prior to disclosure hereunder; (c) is independently
developed by the receiving party without the use of any Confidential
Information of the disclosing party as evidenced by written documentation;
or (d) the receiving party lawfully obtains from a third
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
party who has the right to transfer or disclose it and who provides it
without any obligation to maintain the confidentiality of such information.
This paragraph shall survive any expiration or earlier expiration of this
Agreement.
21. TERMINATION. In the event of a material breach of this Agreement by either
party, the other party may terminate this Agreement on thirty (30) calendar
days' written notice to the breaching party unless the breach is corrected
within the thirty (30) day period. Termination under this paragraph shall
not affect the right of the non-breaching party to recover damages from the
breaching party. No expiration or termination of this Agreement shall affect
or impair either party's rights or remedies under this Agreement that have
accrued or arisen as of or prior to such termination. Following the
effective date of termination, no further obligations of either party to the
other shall accrue under this Agreement, provided that termination shall not
relieve either party of any obligations arising prior to the effective date
of termination.
22. RELATIONSHIP OF THE PARTIES. The parties to this Agreement are independent
contractors, and this Agreement shall not be construed to create a
partnership, joint venture, employment or principal agent relationship
between the parties. Each party shall be solely responsible to compensate
any employees! agents or representatives employed or engaged by it to
perform duties under this Agreement and for all taxes, imposts, duties and
all charges of any governmental authority arising from its or his activities
under this Agreement. Neither SportsLine, FAME nor Jordan, nor any person or
entity employed by any of them, are authorized to make any representation or
warranty concerning the other parties or incur or assume any obligation or
liability for the other parties.
23. AMENDMENT: WAIVER. No amendment to this Agreement shall be valid unless such
amendment is in writing and is signed by the party against whom enforcement
is sought. Any of the terms and conditions of this Agreement may be waived
at any time in writing by the party entitled to the benefit thereof, but a
waiver in one instance shall not be deemed to constitute a waiver in any
other instance. A failure to enforce any provision of this Agreement shall
not operate as a waiver of the provision or of any other provision hereof.
24. SEVERABILITY. In the event that any provision of this Agreement shall be
held to be invalid, illegal or unenforceable in any circumstances, the
remaining provisions shall nevertheless remain in full force and effect
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
and shall be construed as if the unenforceable portion or portions were
deleted.
25. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Illinois without regard
to its conflict of law principles.
26. NOTICES. All notices or other communications hereunder shall be in writing
and shall be deemed to be given or made when delivered by overnight courier
or first-class, postage prepaid, registered or certified mail to the
following address or addresses or such other address or addresses as either
party may designate in writing to the other in accordance with this
paragraph:
If to SportsLine: SportsLine USA, Inc.
6340 NW 5th Way
Fort Lauderdale, Florida 33309
Attn: President
If to Jordan or FAME: Falk Associates Management
Enterprises
5335 Wisconsin Avenue, NW, Suite 850
Washington, DC 20015
Attention: David Falk
27. ASSIGNMENT.
Neither Jordan nor SportsLine shall have the right to grant sublicenses
hereunder or to otherwise assign, alienate, transfer, encumber, or
hypothecate (all of the foregoing hereinafter "transfer") any of their
rights or obligations hereunder without the prior written consent of the
other. SportsLine may, without the approval of Jordan or FAME, transfer its
rights and/or obligations hereunder in connection with a consolidation,
merger or sale of all or substantially all of SportsLine's assets with any
other entity. However, in the event:
(i) SportsLine proposes to effect a merger or consolidation with any entity
(a "MERGING ENTITY") which is a major direct competitor of a major
brand-name of any of the Jordan Endorsement Companies including, without
limitation, NIKE, Wilson Sporting Goods, The Upper Deck Company,
McDonald's, Wheaties, Gatorade, Bijan, WorldCom or Rayovac (a "MAJOR
DIRECT COMPETITOR"), and
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
(ii) Jordan has advised SportsLine specifically and in writing, at least
thirty (30) days before Jordan receives such notice of such merger or
consolidation or such merger or consolidation is publicly announced,
that such Merging Entity is a Major Direct Competitor within the
meaning of this paragraph,
then Jordan shall have the right to terminate this Agreement by so notifying
SportsLine in writing on or before thirty (30) days after Jordan has
received notice of such proposed merger or consolidation (provided that such
termination shall not be effective if the merger or consolidation is not
consummated or if those elements of the Merging Entity which make it a Major
Direct Competitor are "spun off" and not included in the resulting company
of which SportsLine is a part); provided, however, that, at SportsLine's
option and in SportsLine's sole and absolute discretion, Jordan shall
continue to receive all such Deficiency Payments in accordance with the
amounts and schedule provided in Exhibit C and paragraph 3 hereof shall
remain in full force and effect during the remainder of the Term as if this
Agreement had not been terminated.
28. COMPLIANCE WITH LAWS. Each party shall comply with applicable law in
connection with the development and publication of the Jordan Web Site.
Jordan and FAME and SportsLine agree, in particular, to comply with all laws
concerning obscenity, defamation, infringement, rights of privacy,
harassment and export controls, among others, and to ensure that the use,
reproduction and distribution of the content contained in Jordan Web Site in
and of itself, does not violate such laws or related legal rights of third
parties.
29. ACKNOWLEDGMENT AND PROTECTION OF THE LICENSED RIGHTS.
(a) SportsLine recognizes and acknowledges the exclusive rights of Jordan in
and to the Jordan Endorsement. Nothing contained in or contemplated
under this Agreement will be construed to confer upon SportsLine any
right to have the Jordan Endorsement registered in the name of
SportsLine or to vest in SportsLine any right of ownership to the Jordan
Endorsement, and SportsLine will not, directly or indirectly, use,
register or cause to be used or registered, any word, symbol, character
or set of words, symbols or characters, trademark, trade name, service
mark or copyright consisting of, related to, similar to and/or
confusingly similar to any part of the Jordan Endorsement.
(b) During the term of this Agreement and following the expiration or
termination of this Agreement for any reason, SportsLine will not
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
(i) challenge the validity of ownership in or right to license, the
Jordan Endorsement, (ii) contest the fact that SportsLine's rights under
this Agreement are solely those of SportsLine and terminate upon
expiration or termination of this Agreement, (iii) represent in any
manner that SportsLine has any title or right to the ownership,
registration or use of any of the Jordan Endorsement in any manner
except as set forth in this Agreement, or (iv) challenge the right of
Jordan to grant a license for the Jordan Endorsement (unless in conflict
with the rights granted to SportsLine under this Agreement). Any and all
goodwill associated with or identified by the Jordan Endorsement will
inure directly or exclusively to the benefit and is the property of
Jordan.
(c) SportsLine will not (i) cause which may damage or endanger the Jordan
Endorsement or other trade name, trademark, service mark or intellectual
property right of Jordan, Jordan's title thereto or the rights of any
other licensee or franchisee, nor (ii) interfere in any manner with nor
attempt to prohibit the use or registration by Jordan of the Jordan
Endorsement or other trade name or trademark or service mark owned or
licensed by Jordan.
30. HEADINGS. Paragraph headings are for convenience only and shall not be used
in any manner to construe this agreement.
31. ENTIRE AGREEMENT. This Agreement, and the exhibits attached hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and/or contemporaneous agreements and
understandings, written or oral between the parties with respect to the
subject matter hereof.
32. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the parties in
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which when taken together shall constitute one
and the same agreement.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the
date first written above.
SportsLine USA, Inc.,
a Delaware corporation
By: /s/ MICHAEL LEVY
------------------
Name: Michael Levy
Title: President
/s/ MICHAEL JORDAN
---------------
Michael Jordan (by [illegible]
atty in fact)
Falk Associates Management Enterprises
By: /s/ DAVID FALK
-----------------------------
Name: David Falk
Title: Chairman
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT "A"
TERM
The Term of this Agreement shall commence on the Effective Date and shall
continue in effect for ten (10) years from the date of execution of this
Agreement, unless sooner terminated according to the terms of this Agreement.
*****.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
EXHIBIT "B"
SERVICES, RIGHTS & CONTENT
1. SPORTSLINE RESPONSIBILITIES. SportsLine shall be responsible for the
following in connection with the Jordan Web Site:
a) All aspects of the technical development, graphical user interface,
production and maintenance of the Jordan Web Site.
b) All customer service, technical support, billing, fulfillment, credit
card authorization and processing associated with the sale of Premium
Features (as defined herein).
c) Concept design and creation of all Premium Features, including the
official exclusive online and off-line line Jordan Fan Clubs.
d) Maintenance of a merchandise area within the SportsLine Service
(including, without limitation, the Jordan Web Site) through which
SportsLine and Jordan will be able to sell merchandise, memorabilia and
custom signed products, and be responsible for all customer service,
technical support, billing, fulfillment, credit card authorization and
processing associated therewith.
2. EDITORIAL CONTROL OF THE JORDAN WEB SITE. Jordan shall have complete control
over the content of the Jordan Web Site, and Jordan shall be responsible to
provide SportsLine with all cleared content and information (including but
not limited to artwork, photos, articles and news clippings, biographical
information, audio and video clips, etc.) necessary to create and maintain
the Jordan Web Site, and shall use his best efforts to assist SportsLine in
acquiring and clearing any information and content not otherwise in Jordan's
possession. SportsLine shall consult with Jordan and FAME in order for the
Jordan Web Site content and programming to be consistent with Jordan's web
program and Jordan's overall marketing program.
3. JORDAN'S SERVICES. Jordan shall provide the following services to
SportsLine:
a) Conduct at least one (1) five (5) minute interview (by land-line
telephone) on a weekly basis in a format designated by SportsLine.
SportsLine will broadcast the audio, as permitted hereby, including but
not limited to transcription of the questions and answers into a column
format and/or use in chat sessions.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
SportsLine agrees that, as time restraints dictate, and subject to
Jordan's absolute discretion, such interviews and/or chat sessions may
be bundled on a monthly basis consisting of one (1) twenty (20) minute
interview in each month. Jordan acknowledges that SportsLine may, at
SportsLine's option, syndicate content from the SportsLine Service and
the Jordan Web Site in different media, and Jordan expressly authorizes
such syndication.
b) Answer five (5) electronic mail questions per week received from his
fans. SportsLine agrees that FAME shall be permitted to process the
electronic mail questions to facilitate a response from Jordan.
c) Make one (1) personal appearance (e.g., a due diligence meeting for
potential investors in an initial public offering of SportsLine's stock,
press conference, radio or television commercial, etc.) during the Term
lasting no longer than one (1) hour in duration. Any other appearances
requested by SportsLine shall be subject to Jordan's approval, in
Jordan's absolute discretion.
d) SportsLine may include in its letterhead Jordan's name and permit
SportsLine to use Jordan's name, photos and other materials reasonably
necessary to promote SportsLine and the Jordan Web Site. In each
instance, Jordan will have an opportunity to approve such use, which
approval shall not be unreasonably withheld; provided, however, that
SportsLine shall have the right without any prior approval to use screen
shots for promotional purposes as otherwise provided herein.
e) If requested by SportsLine and subject to Jordan's schedule, Jordan
agrees to make himself available for a photo shoot during the Term, not
to exceed four (4) hours, to provide SportsLine with photographs and
other materials reasonably necessary for SportsLine to promote its
service online and off-line (including print, radio, and television) and
to be used in the Jordan Web Site.
f) Serve as spokesmen for SportsLine to promote the appropriate
sports-related products and services offered on the SportsLine Service,
and subject to his absolute discretion, to appear in radio and/or
television commercials;
g) If requested by SportsLine and in Jordan's absolute discretion, Jordan
agrees to provide a mutually agreed upon number of items of autographed
merchandise, memorabilia, and/or custom signed
CONFIDENTIAL AND PROPRIETARY
Page -21-
<PAGE>
products to be distributed for free to SportsLine Service Subscribers
and/or members of Jordan's Fan Clubs as part of their membership kit.
h) Use best efforts to facilitate a relationship between SportsLine and The
Upper Deck Company that will ensure that SportsLine has access to (i) a
complete inventory of items of autographed merchandise and memorabilia;
(ii) product inventory and fulfillment capabilities sufficient to
satisfactorily support the projected demands of the parties' mutual
customers; (iii) digitized images of products or agree to develop such
images; and (iv) current costs/MSRP and accurate descriptive information
on all products. In addition, subject to Upper Decks' approval and
cooperation, Jordan agrees to develop a complete line of custom signed
products exclusively for sale on Jordan's Web Site, including game-worn
and game-used products, apparel and equipment. With respect to such
game-worn and game-used products, lordan shall, after each event in
which any such item is worn or otherwise used, promptly send all such
items to SportsLine cleaned and autographed for sale and/or auction on
Jordan's Web Site, provided, however, that nothing in this Agreement
shall cause or require Jordan to provide SportsLine with any autographs,
or any additional time, in connection with such autographed merchandise
and memorabilia. SportsLine agrees and acknowledges that any and all
autographs must come from the Upper Deck Company pursuant to Jordan's
agreement with the Upper Deck Company.
SportsLine agrees and acknowledges that any and all services from Jordan
required and/or requested by SportsLine shall be subject to Jordan's
schedule.
4. ADDITIONAL CONCEPTS. In addition to the foregoing, SportsLine and Jordan
agree to work together to create new and innovative products and concepts to
constantly improve the Jordan Web Site to keep it on the cutting edge.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT "C"
CONSIDERATION
1. DEFINITIONS. The term "NET SPONSORSHIP REVENUES" means SportsLine's gross
revenues from the sale of sponsorships appearing on the Jordan Web Site,
MINUS sales commissions and fees payable by SportsLine to third parties and
other mutually agreed upon out-of-pocket expenses incurred by SportsLine and
directly associated with the generation of such revenues. The Term "NET
ADVERTISING REVENUE" means SportsLine's gross revenues from the sale of
advertising appearing on the Jordan Web Site, MINUS sales commissions and
fees payable by SportsLine to third parties and other mutually agred upon
out-of-pocket expenses incurred by SportsLine and directly associated with
the generation of such revenues. The term "NET MERCHANDISING REVENUES" means
SportsLine's gross revenues from the sale of any products (including but not
limited to merchandise and memorabilia) sold on the Jordan Web Site, MINUS
the cost of goods sold and, MINUS, all credit card processing fees, shipping
expenses and other transaction costs incurred by SportsLine in making such
sales. The term "NET PREMIUM REVENUES" means SportsLine's gross revenues
from the sale of any unique membership programs/fan clubs, etc., offered via
the Jordan Web Site (the "PREMIUM FEATURES"), MINUS out-of-pocket expenses
incurred by SportsLine and directly associated with the generation of such
revenues.
2. ADVERTISING/SPONSORSHIPS. Jordan will receive ***** of Net Sponsorship
Revenues and Net Advertising Revenues attributable to sponsorships and
advertisements on the Jordan Web Site. Jordan will only receive ***** of Net
Advertising Revenues attributable to any under-delivered advertising
impressions ("make good impressions") on the Jordan Web Site, which Jordan
requests be fulfilled within SportsLine's general advertising rotation.
3. EQUITY. SportsLine shall grant to Jordan warrants, pursuant to the terms of
the Warrant Agreement attached hereto as EXHIBIT "F," to purchase four
hundred thousand (400,000) shares of SportsLine's Common Stock at an
exercise price of ***** per share, which warrants will vest on a pro-rata
basis at the rate of ***** per year to be vested on each anniversary date
over the first ***** years of the Term. In connection with the issuance of
the Warrants, Jordan agrees to enter into the "Lock-Up" Agreement attached
hereto as EXHIBIT "G", and any similar agreements as may be required by
SportsLine's underwriters and/or lenders in connection with any further
securities offerings and/or financings.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
4. MERCHANDISE AND MEMORABILIA. Jordan will receive ***** of Net Merchandising
Revenue received by SportsLine from the sale of all merchandise or
memorabilia on the Jordan Web Site.
5. PREMIUM FEATURES. Jordan will receive ***** of the Net Premium Revenues
received by SportsLine.
6. MINIMUM GUARANTEE. Beginning in the sixth (6th) year of the Term, SportsLine
shall pay to Jordan a Deficiency payment (individually, a "DEFICIENCY
PAYMENT") in the following amounts subject to the following criteria:
On or before: Cumulative Consideration
------------------------
6/19/03 *****
6/19/04 *****
6/19/05 *****
6/19/06 *****
6/19/07 *****
a) Each Deficiency Payment shall be calculated by taking the amount of the
applicable Cumulative Consideration and subtracting the following
amounts (collectively, the "OFFSETS"):
i) the amount by which the sum of the following exceeds *****:
(A) the unrealized appreciation during the first five(5) years of
the Term, of the shares of SportsLine's common stock for which
Jordan has been granted warrants, (B) the cumulative realized
appreciation during the first five(5) years of the Term of shares
of SportsLine stock sold by Jordan as of the date for which the
Deficiency Payment is being determined, and (C) the total amount
of Profit Sharing paid to Jordan during the first five(5) years
of the Term;
ii) the cumulative unrealized appreciation in years subsequent to
year five(5), determined as of the close of the market on the
respective date for which the Deficiency Payment is being
determined, of the shares of SportsLine's common stock for which
Jordan has been granted warrants;
iii) the cumulative realized appreciation in years subsequent to year
five(5), determined as of the close of the market on the
respective date for which the Deficiency Payment is being
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
determined, of shares of SportsLine stock sold by Jordan as of
the date for which payment is being determined;
iv) the total cumulative amount of Profit Sharing earned in years
subsequent to year five(5) of the Term and paid to Jordan; and
v) all previous years' Deficiency Payments, if any.
For purposes of the foregoing, the term "Profit Sharing" means amounts
payable to Jordan pursuant to paragraphs 1, 3 and 4 of this EXHIBIT "B."
In all events, the total amount of guaranteed compensation due to Jordan
hereunder shall not exceed *****.
7. REASONABLE OUT-OF-POCKET EXPENSES. SportsLine will reimburse Jordan for all
reasonable actual out-of-pocket expenses as approved in advance by
SportsLine and incurred by Jordan in performing services requested by
SportsLine. If requested by SportsLine to travel, Jordan shall receive
reimbursement for the fair market value of first class travel and
accommodations for himself and one guest in connection with his performance
of the services required of Jordan, but SportsLine agrees and acknowledges
that Jordan shall be free to travel in any manner, including by private jet.
However, Jordan agrees that SportsLine's maximum liability to Jordan in
connection with Jordan's travel shall be the fair market value of first
class travel, accommodations and other expenses for Jordan and one guest.
8. RECORDS; AUDIT. SportsLine shall make Profit Sharing payments due to Jordan
underthis Agreement on a quarterly basis, within thirty (30) calendar days
following the end of the applicable quarter; such quarters ending on January
30, March 31, June 30, and September 30 of each year. Each such payment
shall be accompanied by a statement showing in reasonable detail how such
payment was computed. SportsLine will create, and maintain for a period of
not less than one (1) year following the end of the applicable calendar
year, records that accurately reflect the basis and calculation for the
payments required under this Agreement. Within ninety (90) calendar days
following the end of each calendar year, Jordan may request an audit of the
payments made by SportsLine hereunder. Such audit may be conducted by an
independent auditing firm selected by Jordan at its expense; provided, that
if an audit documents that SportsLine has underpaid Jordan in any calendar
year by an amount equal to five percent (5%) or more of the amount that
should have been paid hereunder, then SportsLine shall reimburse Jordan for
its actual cost incurred to the independent auditing firm to conduct such
audit. Jordan's independent auditor shall not disclose to Jordan or any
third party the contents of the SportsLine's
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
books and records, other than information necessary to determine the
calculation of the correct amount of any payments required to be made
hereunder.
CONFIDENTIAL AND PROPRIETARY
Page -26-
<PAGE>
EXHIBIT "D"
JORDAN ENDORSEMENT COMPANY LISTING (CONFIDENTIAL)
CONFIDENTIAL IN-HOUSE USE ONLY
Nike, Inc. Electronic Arts Sports Network
One Bowerman Drive 1450 Fashion Island Blvd.
Beaverton, OR 97005 San Mateo, CA 94404
Phone: (503) 671-6453 Phone: (415) 513-7280/7514
Fax: (503) 671-6300 Fax: (415) 513-7449
Gatorade NBA Entertainment (CBS/Fox Video)
321 N. Clark St. 450 Harmon Meadow Blvd.
Chicago, IL 60610 Secaucus, NJ 07094
Phone: (312) 222-7709 Phone: (201) 865-1500
Fax: (312) 222-8772/6490 Fax: (201) 865-9345
Wilson Sports Goods, Co. Ohio Art Toy Company
8700 W. Bryn Mawr Ave. One Toy Street
Chicago, IL 60631 Bryan, OH 43506
Phone: (312) 714-6400/6891 Phone: (419) 636-3141
Fax: (312) 714-4598 Fax: (419) 636-7614
Sara Lee Corporation Warner Brothers
P.O. Box 2760 4000 Warner Blvd.
Winston-Salem, NC 27102 Burbank, CA 91522
Phone: (910) 519-7067 Phone: 818-954-6450
Fax: (910) 519-7160 Fax: (818) 954-6745
The Upper Deck Company Chicago Chevyland Dealers Assoc
5909 Sea Otter Place c/o Eisamon, Johns & Laws
Carlsbad, CA 92008 401 N. Michigan Avenue
Phone: (619) 929-6500/3065 Chicago, IL 60611
Fax: (619) 929-6547/3196 Phone: (312) 828-0400
Fax: (312) 828-0748
McDonald's Corporation Rare Air, Ltd
One Kroc Drive 130 Washington Street
Oak Brook, IL 60521 West Dundee, IL 60118
Phone: (708) 575-6594 Phone: (708) 426-9966
Fax: (708) 575-5792 Fax: (708) 426-3552
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
EXHIBIT "D" (CONT'D)
General Mills/Wheaties Brand Michael Jordan's Restaurant
One General Mills Blvd. 500 North LaSalle Street
Minneapolis, MN 55426 Chicago, IL 60614
Phone: (612) 540-7616
Fax: (612) 540-3945
The Oakley Company The Rayovac Company
10 Holland Drive 601 Rayovac Drive
Irvine, Ca 92716 Madison, WI 53711-2497
P.O. Box 44960
Madison, WI 53711-4960
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT "E"
*****
CONFIDENTIAL AND PROPRIETARY
Page -29-
<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT "F"
FOUR HUNDRED THOUSAND (400,000) WARRANTS
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THESE
WARRANTS (THE "WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS.
THE WARRANT SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDERTHE SECURITIES ACT AND ANY APPLlCABLE STATE SECURITIES LAWS OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT THE
SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
_________________, 1997
SPORTSLINE USA, INC.
WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK
FOR VALUE RECEIVED, SPORTSLINE USA, INC., a Delaware corporation
("SportsLine" or the "Company"), hereby certifies that Michael Jordan or his
registered assigns (the "Holder") is entitled, subject to the provisions
contained herein, to purchase from the Company Four Hundred Thousand (400,000)
fully paid and non-assessable shares of Common Stock (as defined below), subject
to adjustment as provided herein, at an exercise price per share of Common Stock
(the "Exercise Price", of $****.
The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company as constituted on the date hereof. The number of shares of
Common Stockto be received upon the exercise of these Warrants may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter referred to as "Warrant Stock." The term "Other Securities" means
any other securities that may be issued by the Company in addition to, or in
substitution for, the Warrant Stock.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
References herein to the "Company" are to (i) SportsLine and any
successor thereto, (ii) any successor corporation resultng from the merger or
consolidation of SportsLine, or any successor thereto, with another corporation
or (ii) any corporation to which SportsLine, or any successor thereto, has
transferred its property or assets as an entirety or substantially as an
entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of these Warrants, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of these Warrants, if mutilated, the Company
shall execute and deliver new Warrants of like tenor and date. Any such new
Warrants, upon execution and delivery, shall constitute an additional
contractual obligation on the part of the Company, whether or not these Warrants
so lost, stolen, destroyed or mutilated shall be at any time enforceable by
anyone.
The Holder agrees with the Company that these Warrants are issued, and
all the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein, including the following:
1. EXERCISE OF WARRANTS.
1.1 EXERCISE PERIOD: METHOD OF EXERCISE. These Warrants shall vest and
become exercisable as follows: (a) with respect to ***** shares of Common
Stock, one (1) year after the date first written above; and (b) with respect to
an additional ***** shares of Common Stock, at the end of each consecutive one
(1) year period thereafter until the Warrants have become exercisable with
respect to the total number of shares of Common Stock set forth above; provided,
however, that the vesting of the Warrants shall be subject to the condition that
that certain Advisory Agreement dated as of ___________________, 1997 (the
"Advisory Agreement") between SportsLine and the Holder, as amended or modified,
shall be in effect at the relevant vesting date(s), and no further Warrants
shall vest on or after the expiration, nonrenewal or termination of said
agreement. Subject to the foregoing, any vested Warrants may be exercised, in
whole or in part, at any time, or from time to time during the period commencing
on the date hereof and expiring on the date of expiration or earlier termination
of the Advisory Agreement, by presentation and surrender of these Warrants to
the Company at its principal office (which on the date hereof is 6340 N.W. 5th
Way, Ft. Lauderdale, Florida 33309), or at the office of its stock transfer
agent (which on the date hereof is the Company), if any, with the Warrant
Exercise Form attached hereto duly executed and accompanied by payment (either
in cash or by certified or official bank check or checks, payable to the order
of the Comparny) of the Exercise Price for the number of shares specified in
such form. If these Warrants are exercised in part only, the Company shall, upon
surrender of these Warrants
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
for cancellation, execute and deliver new Warrants evidencing the rights of the
Holder thereof to purchase the balance of Warrant Stock (and Other Securities)
purchasable hereunder. Upon receipt by the Company of these Warrants, together
with the Exercise Price, at its office, or by the Company's stock transfer agent
at its office, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the Warrant Stock (and Other Securities) issuable upon such
exercise, notwithstanding that the transfer books of the Company shall then be
closed or that certificates representing such Warrant Stock (or Other
Securities) shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of Warrant Stock (and Other
Securities) upon exercise of these Warrants.
2. RESERVATION OF SHARES AND OTHER SECURITIES. The Company will at all
times reserve for issuance and delivery upon exercise of these Warrants all
shares of Warrant Stock and other shares of capital stock of the Company (and
Other Securities) from time to time receivable upon exercise of these Warrants.
All such shares (and Other Securities) shall be duly authorized and, when issued
upon such exercise, shall be validly issued, fully paid and non-assessable and
free and clear of all preemptive rights.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of these Warrants, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional share in lieu of each fraction of a share otherwise issuable upon any
exercise of these Warrants, as determined by the Board of Directors in its
reasonable discretion.
4. EXCHANGE OF WARRANTS. These Warrants are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereofto
the Company or at the office of its stock transfer agent, if any, for other
Warrants of different denominations, entitling the Holder hereofto purchase in
the aggregate the same number of shares of Warrant Stock (and Other Securities)
purchasable hereunder.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights as a shareholder of the Company, either at law or in
equity, and the rights of the Holderare limited to those expressed herein.
6. ANTI-DILUTION PROVISIONS.
6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time
subdivide its outstanding shares of Common Stock (or Other Securities at the
time receivable upon the exercise of these Warrants) by recapitalization,
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common Stockto its shareholders, the number of
shares of Common Stock (or Other Securities) subject to these Warrants
immediately prior to such subdivision shall be proportionately increased and the
Exercise Price per share shall be proportionately decreased, and if the Company
shall at any time combine the outstanding shares of Common Stock (or Other
Securities) by recapitalization, reclassification or combination thereof, the
number of shares of Common Stock (or Other Securities) subject to these Warrants
immediately prior to such combination shall be proportionately decreased and the
Exercise Price per share shall be proportionately increased. Any such
adjustments pursuant to this Section 6.1 shall be effectve at the close of
business on the effective date of such subdivision or combination or, if any
adjustment is the result of a stock dividend or distribution, then the effective
date for such adjustment shall be the record date therefor.
6.2 ADJUSTMENT FOR REORGANIZATION. Consolidation. Merger. Etc. (a) In
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable upon the exercise of these
Warrants) after the date hereof or in case after such date the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then,
and in each such case, the Holder of these Warrants, upon the exercise hereof,
at any time after the consummation of such reorganization, consolidation, merger
or conveyance, shall be entitled to receive, in lieu of the securities and
property receivable upon the exercise of these Warrants prior to such
consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised these Warrants
immediately prior thereto (but had not exercised any rights with respect to such
securities or property in connection with the reorganization, consolidation,
merger or conveyance); in each such case, the terms of these Warrants shall be
applicable to the securities or property receivable upon the exercise of these
Warrants after such consummation.
(b) In any case where the Company shall consolidate with or merge into
another corporation, and shall not be the surviving corporation, or shall convey
all or substantially all of its assets to another corporation, then, and in each
such case, the surviving corporation or the corporation that shall have received
substantially all of the Company's assets shall expressly assume the obligations
of the Company under these Warrants in a form reasonably satisfactory to the
Holder hereof.
6.3 NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek to avoid
the
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
observance or performance of any of the terms of these Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holderof these Warrants against impairment. Without limiting
the generality of the foregoing, while these Warrants are outstanding, the
Company (a) will not permit the par value, if any, of the shares of Warrant
Stock to be above the amount payable therefor upon such exercise and (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue or sell fully paid and non-assessable
shares of Warrant Stock and Other Securities upon the exercise of these
Warrants.
6.4 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in the
number of shares of Warrant Stock or Other Securities receivable upon the
exercise of these Warrants, the Company at its expense will promptly compute
such adjustment in accordance with the terms of these Warrants and prepare a
certificate executed by an executive officer of the Company setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to the Holder.
6.5 NOTICES OF RECORD DATE. Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or Other Securities at the time receivable upon the exercise of these Warrants)
for the purpose of entitling them to receive any dividend (other than a cash
dividend at the same rate as the rate of the last cash dividend theretofore
paid) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities, or
to receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation, or any conveyance of all or substantially all
of the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding
up of the Company;
then, and in each such case, the Company shall mail or cause to be mailed to
each Holder of a Warrant at the time outstanding a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
to be fixed, as to which the
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
holders of record of Warrant Stock (or such other securities at the time
receivable upon the exercise of these Warrants) shall be entitled to exchange
their shares of Warrant Stock (or such other securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding up. Such notice shall be
mailed at least 20 days priorto the date therein specified and these Warrants
may be exercised priorto said date during the term of these Warrants.
8. RESTRICTIONS ON TRANSFER OF WARRANTS WARRANT STOCK AND OTHER
SECURITIES. The Warrant Stock and Other Securities may not be sold, transferred
or otherwise disposed of unless registered under the Securities Act of 1933 (the
"Securities Act") and any applicable state securities laws or pursuant to
available exemptions from such registration, provided that the seller delivers
to the Company an opinion of counsel satisfactory to the Company confirming the
availability of such exemption.
9. LEGEND. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of these Warrants
and the issuance of any of the shares of Warrant Stock or Other Securities, all
certificates representing such securities shall bear on the face thereof
substantially the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION,
PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY CONFIRMING THE AVAILABILITY OF SUCH
EXEMPTION. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME.
10. NOTICES. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice in writing
hereunder.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
11. APPLICABLE LAW. These Warrants shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without giving effect to
conflicts of law principles.
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
IN WITNESS WHEREOF, the Company has caused these Warrants to be signed
on its behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.
SPORTSLINE USA, INC.
By:
--------------------------------
Titie: President
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise Warrants to
purchase __________ shares of Common Stock of SportsLine USA, Inc., a Delaware
corporation, and hereby makes payment of $_______________ in full satisfaction
therefor.
__________________________________
Signature
__________________________________
Signature, if jointly held
__________________________________
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the Holder of the within Warrants)
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
________________________________________________________________________________
Social Security or Taxpayer Identification Number_______________________________
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
SportsLine USA, Inc.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
Gentlemen:
This letter is being furnished in connection with the acquisition by
the undersigned of warrants ("Warrants") to purchase shares of common stock,
$.01 par value ("Comman Stock"), of SportsLine USA, Inc., a Delaware corporation
(the "Company"). In connection with the acquisition of the Warrants, the
undersigned hereby represents and warrants to the Company as follows:
1. The undersigned is acquiring the Warrants solely for the
undersigned's own accourt and not for the account or beneficial interest of any
other person, and the Warrants are not being acquired with a view to or for
resale in connection with any distrbution within the meaning of the Act.
2. The undersigned acknowledges that (a) the offer and sale of the
Warrants and the Common Stock issuable upon exercise of the Warrants
(collectively, the "Securities") have not been registered under the Securities
Act of 1933, as amended (the "Act"), or applicable state securities laws, and
may not be sold, transferred, pledged, or otherwise disposed of unless
subsequently so registered or unless the undersigned delivers to the Company an
opinion of counsel satisfactory to the Company that registration under the Act
and any applicable state securities laws is not required; (b) the Company is
under no obligation to register or perfect any exemption for resale of the
Securities; and (c) any certificate evidencing the Securities will bear a
restrictive legend prohibiting the transfer thereof except in compliance with
applicable federal and securities laws. The undersigned understands that at
present there is no market for the Securities and that such a market is not
likely to exist in the foreseeable future.
3. In acquiring the Securities, the undersigned has not acted on the
basis of any representations end warranties concerning the business or financial
condition of the Company, other then those contained in documents furnished to
the undersigned by the Company specifically in connection with such acquisition.
The undersigned is an "accredited investor", as defined in Rule 501 of
Regulation D promulgated under the Act, has such knowledge and experience in
business, financial and investment makers that the undersigned is capable of
evaluating the merits and risks of an investment in the Securities, and has been
afforded the opportunity to ask questions of, and receive answers from, the
Company and to obtain any additronai information necessary to verify the
accuracy of any information provided by the Company, and in general had access
to all information the undersigned deemed material to an investment decision
with respect to the acquisition of the Securities.
The undersigned acknowledges that the Company will rely on foregoing
representations and warranties and agrees to indemnify and hold harmless the
Company, its officers and directors and any controlling persons of the Company
from and against any and all loss, damage or liability arising out of any
misrepresentation contained herein. This letter shall be binding upon the
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
undersigned's heirs, executors, administrators, legal representatives,
successors and assigns, and inure to the benefit of the Company's successors and
assigns.
Michael Jordan
_____________________
Dated:______________________________
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
EXHIBIT "G"
<PAGE>
____________________, 1997
SPORTSLINE USA, INC.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
ROBERTSON, STEPHENS & COMPANY LLC
COWEN & COMPANY
MONTGOMERY SECURITIES
as Representatives of the
Several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that Robertson, Stephens & Company LLC,
Cowen & Company and Montgomery Securities, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), proposed to
enter into an Underwriting Agreement (the "Underwriting Agreement") with
SportsLine USA, Inc. (the "Company"), providing for the initial public offering
by the Underwriters, including the Representatives, of common stock, $.01 par
value per share (the "Common Stock"), of the Company (the "Public Offering").
In consideration of the Underwriters' agreement to purchase and
undertake the Public Offering and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the undersigned agrees that, without
the prior written consent of Robertson, Stephens & Company LLC, the undersigned
will not directly or indirectly offer, sell, solicit an offer to buy, make any
short sale, pledge, grant any option to purchase, contract to sell, or otherwise
dispose of or transfer any shares of Common Stock of the Company (including,
without limitation, shares of Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission) or any securities
convertible into or exercisable or exchangeable for such Common Stock (including
shares of Common Stock which may be issued upon exercise of a stock option or
warrant) or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock (including,
without limitation, by way of equity swap, hedging, or any other form of
derivative transaction) (any of the foregoing, a "Transfer"), or exercise any
registration rights with respect to the Common Stock, in each case for the
period
<PAGE>
_________________, 1997
Page 2
ending 180 days from the date the Registration Statement (No. 333-25259) filed
by the Company in connection with the Public Offering is declared effective by
the Securities and Exchange Commission; provided, however, that the undersigned
may Transfer, including any Transfer as a bona fide gift, any such securities to
any person who, at or prior to the time of such Transfer, has executed and
delivered to the Representatives a letter agreement in the form hereof.
In addition, the undersigned agrees that the Company may, with respect
to any shares for which the undersigned is the record or beneficial holder,
cause the transfer agent for the Company to note stop transfer instructions with
respect to such shares on the transfer books and records of the Company.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and all obligations of the undersigned created hereunder shall be
binding upon the heirs, personal representatives, successors, and assigns of the
undersigned. This letter agreement shall automatically terminate on the earlier
of (i) August 1, 1997, in the event that the Underwriting Agreement is not
executed by the Company or on prior to that date and (ii) the date that the
Underwriting Agreement is terminated, in the event that the Underwriters do not
purchase the Common Stock and the Underwriting Agreement is terminated pursuant
to its terms.
Very truly yours,
Dated:______________________ _________________________________
Name of Holder
_________________________________
Signature
Dated:______________________ _________________________________
Name of Joint Holder
_________________________________
Signature
EXHIBIT 10.15
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
ADVISORY AGREEMENT
This Advisory Agreement, dated as of July 1st, 1997, between ETW Corp.
("ETW") and SportsLine USA, Inc. ("SportsLine") provides as follows:
SportsLine desires to contract with ETW for certain advisory services
related to its sports-oriented on-line service (the "Service"), and ETW is
willing to render such services (including the services of Tiger Woods
("Woods")) as hereinafter provided. In consideration of the mutual agreements
and covenants set forth in this Agreement, the receipt and adequacy of which is
hereby acknowledged, the parties agree as follows:
1. ESTABLISHMENT OF WOODS WEB SITE. SportsLine, will in consultation
with and subject to the approval of ETW, design, produce and maintain a
designated area of the Service that will exclusively feature content regarding
Woods and ETW and will be accessible to users of the Worldwide Web (the "Web")
portion of the Internet through a "free" area of the Service without the
necessity of being a subscriber to the Service (hereinafter, the "Woods Web
Site"). The Woods Web Site will be operated by SportsLine on SportsLine's
servers at a Web address (the "URL") mutually agreed upon by the parties
(tentatively, tiger.sportsline.com); SportsLine and ETW will also develop
"premium" features including, but not limited to, the exclusive official Woods
on-line "fan club" (described in more detail below) that will permit visitors to
the Woods Web Site who pay a specified fee to obtain access to periodically
updated information and/or applications not generally made available to other
visitors to the Woods Web Site ("Premium Features"); any such Premium Features
would contain such content, and be offered at prices and on terms, as may be
mutually agreed by SportsLine and ETW. In connection with the Woods Web Site,
SportsLine will, at its sole cost and expense:
(a) DESIGN AND MAINTENANCE. Maintain full responsibility for the
design, technical development, production and maintenance (including customer
phone support) of the Woods Web Site, including publishing any content as
provided by ETW in accordance with the terms hereof, which design shall, in all
events, be subject to the prior approval of ETW;
(b) MARKETING AND CONTENT. Coordinate all on-line marketing efforts
regarding the Woods Web Site and work closely with ETW and its representatives
to make recommendations regarding new content areas, Premium Features and other
initiatives for the Woods Web Site to ensure that ETW maximizes its association
with SportsLine which markering efforts and content shall, in all events, be
subject to the prior approval of ETW. It is understood and agreed that all
marketing efforts regarding the Woods Web Site, including but not limited to
contacting and procuring sponsors, endorsers or advertisers therefor, will be
coordinated exclusively through the IMG Group of Companies. Without limiting the
foregoing, all sponsors and endorsers of or advertisers on the Woods Web Site
and the terms of any contracts with such sponsors, endorsers or advertisers
shall be subject to ETW's prior approval;
(c) ACCOUNT EXECUTIVE AVAILABILITY. At ETW's request, make ETW's
Account Executive at SportsLine available to anend a reasonable number of
internal ETW meetings to ensure that SportsLine is fully apprised of ETW
marketing, merchandising and communications
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goals and objectives and, in connection therewith, execute any and all
confidentiality agreements reasonably requested by ETW;
(d) COMPUTERS. Provide ETW with use of a laptop computer and a desktop
computer during the Advisory Period (as defined below) to ensure that Woods or
other ETW representatives can take full advantage of the opportunity to monitor
the Woods Web Site and to interact with fans throughout the world;
(e) TRAINING AND ASSISTANCE. Make ETW's Account Executive at SportsLine
available to educate and train Woods and other ETW representatives with respect
to the functionality of the SportsLine Service and be available to assist them,
at their request, should they require any assistance regarding the use of the
computers described above in connection with this Agreement;
(f) INTERNET ACCESS. Develop and provide Internet access to the Woods
Web Site within ninety (90) days after the execution of this Agreement;
(g) CUSTOMER SERVICE AND BILLING. Be responsible for all customer
service, technical support, billing, credit card authorization and processing
associated with the sale of Premium Features; and
(h) FREE SUBSCRIPTIONS. In order to maximize the effectiveness of the
Woods Web Site, provide ETW with a reasonable number (to be mutually agreed
upon) of free subscriptions to the Service and reasonable number (to be mutually
agreed upon) of free accesses to Premium Features to be used by ETW and its
designees; and
(i) FIELD REPORTER. Within 30 days of the date hereof, SportsLine will
retain Mark Saltau, or another individual approved by ETW, as a field reporter
(the "Reporter") to be ETW's primary conduit of information to SportsLine's
executive producer assigned to ETW's account. SportsLine will, upon request of
ETW at any time, replace the individual retained as the Reporter with another
individual approved by ETW.
2. ENGAGEMENT OF ETW: DESCRIPTION OF ADVISORY SERVICES. (a) SportsLine
hereby engages and retains ETW, for a period of three (3) years commencing on
the date hereof, subject to any extensions, renewals or early termination
pursuant to the provisions hereof (the "Advisory Period"), to render the
following services (the "Advisory Services"):
(i) ADVISORY BOARD. Designate Woods to serve on SportsLine's
advisory board (it is understood and agreed that Woods will
not be required to attend or appear at any scheduled advisory
board meetings unless he chooses to do so, will not be a
member of SportsLine's Board of Directors, will not have any
vote, will have none of the duties or obligations applicable
to an actual Board member, including but not limited to
fiduciary duty, duty of loyalty, etc., and will not be
required to perform any services that would be subject to
federal or state securities laws);
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<PAGE>
(ii) CONSULTATION. Consult with and advise SportsLine from time to
time at SportsLine's request and ETW's reasonable convenience
with respect to corporate, business and marketing strategy
with respect to the Woods Web Site;
(iii) INTRODUCTION TO CORPORATE SPONSORS AND STRATEGIC PARTNERS.
Use its commercially reasonable efforts to introduce
SportsLine, upon SportsLine's request, to potential corporate
sponsors and strategic partners and to assist SportsLine in
the sale of advertising and sponsorships. All fees, charges
or other amounts payable for any such sponsorships and
advertising shall be payable to and retained by SportsLine;
provided, that SportsLine will be obligated to compensate ETW
with respect to such sponsorship or advertising revenues
which are generated by ETW in accordance with Section
4(a)(ii) hereof;
(iv) INTRODUCTION TO LICENSEES. Use its commercially reasonable
efforts to introduce SportsLine to ETW licensees who have the
right to sell ETW endorsed or logged merchandise for purposes
of possible sale of such merchandise through the Woods Web
Site and will reasonably cooperate with SportsLine and ETW's
licensees in such efforts. All fees, charges or other amounts
payable with respect to such sales received by SportsLine
shall be retained by SportsLine subject only to SportsLine's
obligations to pay any fees to such vendor and ETW royalties
on such sales negotiated with such vendor. SportsLine shall
be solely responsible for entering into and administering any
such arrangement with ETW merchandise vendors. Subject to
obtaining any necessary third party consents, if ETW elects
to create any custom memorabilia, such as items personally
autographed by Woods ("Woods Memorabilia"), for sale solely
through SportsLine, ETW shall pay SportsLine a percentage of
the retail sales price for such Woods Memorabilia to be
agreed upon by the parties;
(v) USE OF WOODS' NAME AND LIKENESS. Grant to SportsLine (A) the
non-exclusive, non-transferable, royalty-free, worldwide
right and license to include in its letterhead Woods' name as
a member of and listed with other members of SportsLine's
advisory board, such list appearing in a commercially
reasonable and customary fashion and (B) the exclusive,
non-transferable, royalty-free, worldwide right and license
to use Woods' name and likeness as reasonably necessary in
promoting the Woods Web Site and the Service; provided, that
SportsLine shall notify ETW of its intended use of such
materials and any such use shall be subject to ETW's consent
(which consent shall not be unreasonably withheld). For this
purpose, ETW shall, upon request, cause Woods to provide
SportsLine with any "stock" photographs of himself (with
respect to which ETW, Woods or his
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<PAGE>
authorized agent, IMG, has full ownership rights). SportsLine
shall have the right to produce and broadcast radio and
television commercials and print advertising utilizing Woods'
name and likeness as described above, as well as the ETW
Information (to the extent SportsLine obtains all necessary
third party consents), to promote the Woods Web Site and the
Service; provided that all such media promotion shall be
subject to ETW's prior written approval. It is understood
that any such media promotion shall not require the services
of Woods;
(vi) PERSONAL APPEARANCE. Upon request and at a time and location
of ETW's choosing, cause Woods to make a personal appearance
of no longer than 30 minutes in duration at a press
conference to announce the launching of the Woods Web Site
and the relationship between Woods and SportsLine. It is
understood that ETW shall have prior approval of all
information and material to be distributed or disseminated in
any fashion at such press conference and SportsLine agrees
not to distribute or disseminate any such material without
first obtaining ETW's approval; and
(vii) PRESS CONFERENCES. Upon request and subject to SportsLine
obtaining, at its own cost, all necessary consents,
permissions and access, and except as may be restricted by
other agreements or arrangements ETW or Woods has with third
parties as of the date hereof, allow SportsLine to simulcast
any and all of Woods' press conferences on the Woods Web
Site; and
(viii) MONTHLY UPDATES. Subject to SportsLine successfully retaining
the Reporter, submit (or cause to be submitted) 30 minutes of
audio and/or video content, on a monthly basis, each to be
published under Woods' name on the Woods Web Site on a
variety of appropriate topics relating to the sport of golf
and whatever other content ETW desires to include in the
Woods Web Site. To provide such content, ETW will, at ETW's
sole discretion, cause Woods, Mr. Earl Woods or IMG to
cooperate with the Reporter at a time and place convenient to
Woods, Mr. Earl Woods or IMG, as the case may be. It is
understood that Woods will so cooperate with the Reporter to
personally provide 10 minutes of such 30 minutes of content
which may be audio and/or videotaped.
(b) WOODS' AVAILABILITY. ETW agrees to devote a reasonable amount of
time, under the circumstances, toward the performances of its duties hereunder.
Whenever ETW is required to make Woods available, SportsLine understands and
agrees that any such occasion is subject to Woods personal and professional
schedule (for example, Woods will not be available during the week of any
tournament in which he is participating). It is not intended that ETW devote
full time and effort in providing the Advisory Services. SportsLine understands
that SportsLine's failure to
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<PAGE>
utilize services of Woods hereunder shall not result in any reduction in
payments to ETW hereunder, nor may unused appearances from one year of the
Advisory Period be carried forward to another year. The obligations of ETW to
provide the services of Woods hereunder are subject to the condition that
payments to ETW are current and up to date and SportsLine is not otherwise in
breach of any provisions ofthe Agreement. If ETW confirms Woods availability for
any appearance and Woods is unable to appear due to illness, injury or other
emergency, such non-appearance is not a breach of this Agreement and neither ETW
nor Woods shall be responsible for any expenses incurred due to such
non-appearance. It is understood that the recommendations and other material
prepared or delivered by ETW hereunder shall not be deemed guarantees,
representations or warranties of ETW. Notwithstanding anything to the contrary
contained herein, in addition to the time commitment required by paragraph
2(a)(vi), ETW shall not be required to spend more than 30 minutes per month in
the performance of all its obligations under this Agreement and ETW shall not be
required to cause Woods to spend more than 10 minutes a month in connection with
the performance by ETW of its obligations under this Agreement (such 10 minutes
(or such greater time as Woods expands) to be part of and credited toward the
aforementioned 30 minutes);
(c) TERMINATION OF RIGHTS UPON TERMINATION OR EXPIRATION OF AGREEMENT.
All rights of SportsLine to use, in any manner, Woods name or likeness, or to
refer to Woods, shall cease immediately upon termination or expiration of the
Advisory Period and this Agreement.
(d) OPTION TO EXTEND. ETW may, in its sole discretion, upon at least
ninety (90) days' written notice in advance of the scheduled expiration date of
the initial Advisory Period, extend the Advisory Period for up to an additional
two years.
3. FAN CLUB. (a) SportsLine will create, operate and maintain the
exclusive official Woods on-line fan club on the Woods Web Site that allows
Woods to communicate with his fans through regular E-Mail messages, columns and
newsletters, to record audio clips that allow fans to listen to live and
previously recorded interviews and insights and to play video clips and
highlights from previously recorded interviews and events (to the extent
SportsLine obtains all necessary third party consents) (collectively,
"Electronic Means"). At SportsLine's request, ETW will answer a maximum of five
(5) electronic mail questions per week received from members of Woods' official
on-line fan club, if and to the extent such questions are timely forwarded by
SportsLine, given Woods' schedule. In addition, SportsLine will create, operate
and maintain the exclusive official Woods off-1ine fan club that allows Woods to
communicate with his fans through means other than Electronic Means.
(b) With respect to both the official on-line and off-line fan clubs,
SportsLine shall, at its sole cost and expense, be responsible for the following
services (the "Fan Club Services"):
(i) Creating and marketing a fan club membership package which
shall be subject to ETW's prior approval;
(ii) Creating a mailing list consisting of Members (as defined
below). SportsLine agrees that throughout the Advisory
Period, SportsLine will correct, update and modify such
mailing list as a part of
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SportsLine's operation of the fan clubs. SportsLine agrees,
at the request of ETW given at any time or times during the
Advisory Period, to deliver to ETW, at SportsLine's cost, a
copy of the then-current mailing list for the fan clubs. Such
list shall be provided in whatever recording media ETW
reasonably requests. SportsLine specifically acknowledges and
agrees that such mailing list is the property of ETW, and
SportsLine shall have the right to use the fan club mailing
list in accordance with paragraphs 4(a)(iii) and 6(j) hereof.
SportsLine shall have no right (during the Advisory Period or
at any time thereafter) to make any other use of such
membership list for any other purpose whatsoever without
ETW's prior approval. SportsLine acknowledges and agrees that
ETW shall have the right to make use of the fan club
membership list in whatever manner ETW may choose (including,
without limitation, licensing or selling such list) for any
purpose ETW may designate without the obligation to pay any
fee or compensation to SportsLine;
(iii) Soliciting individuals to become "fan club members" (the
"Members");
(iv) Writing and sending and/or distributing to the Members
periodic newsletters, press releases and touring schedule
updates, all of which shall be subject to ETW's prior
approval;
(v) Providing Members with an "official" membership card,
information packet and other promotional materials relating
to the fan clubs, all of which shall be subject to ETW's
prior approval;
(vi) Providing Members with a sales brochure for
officially-licensed fan club merchandise, and arranging for
filling of orders submitted in response to such sales
brochure, all of which shall be subject to further agreement
between ETW and SportsLine; and . (vii) Collecting all income
generated from the fan clubs' activities accounting for and
distributing the income as set forth herein; and
(viii) Such other services and activities as are generally
recognized as appropriate to be provided by a fan club for a
well-known celebrity, as the parties may hereafter agree.
If at any time during the Advisory Period, SportsLine or ETW desires to
add additional Fan Club Services, then SportsLine may submit such request in
writing to ETW, or ETW may submit such request in writing to SportsLine, and
upon receipt thereof, the parties shall discuss in good faith the possibility of
adding such additional services.
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CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
(c) SportsLine shall operate the fan clubs in a professional and
financially responsible manner in accordance with the following guidelines:
(i) Fan club dues shall be established upon mutual agreement of
the parties;
(ii) ETW shall have final approval of all information, including
photographs, video clips, etc., to be sent, broadcast or made
accessible to Members and/or used in connection with the fan
clubs, and of the parameters or rules of any fan club
conventions and/or contests ("Fan Club Activities").
SportsLine shall submit each of these Fan Club Activities to
ETW in writing for ETW's approval;
(iii) SportsLine will use commercially reasonable efforts to
develop new marketing concepts for the fan clubs ("New Club
Concepts"), which SportsLine shall not implement until
SportsLine has received ETW's written approval for any such
New Club Concept; and
(iv) Before printing, publishing or distributing any one or more
items, SportsLine shall first submit to ETW at its address as
set forth herein for prior approval, a sample thereof in the
form in which it is proposed to be used by SportsLine. ETW
agrees that any material submitted hereunder will not be
unreasonably disapproved and, if any is disapproved, that
SportsLine will be advised of the specific grounds for
disapproval in each case.
4. PAYMENTS BY SPORTSLINE AND ETW.
(a) In full consideration for the Advisory Services, SportsLine shall
pay ETW the following compensation:
(i) WARRANTS. Warrants, in the form of Exhibit A attached hereto
(the "Warrants"), to purchase 200,000 shares of SportsLine's
Common Stock par value $.01 per share (the "Common Stock"),
or any stock or other securities into which the Common Stock
may hereafter be converted or for which such Common Stock may
be exchanged after giving effect to the terms of such
conversion or exchange (by way or reorganization,
recapitalization, merger, consolidation or otherwise) at an
exercise price of $**** per share (as such exercise price may
be adjusted pursuant to the terms of the Warrants). In
connection with the issuance of the Warrants, ETW agrees to
enter into the Lock-Up Agreement attached hereto as Exhibit
B, and any similar agreements required by SportsLine's
underwriters in connection with any future offerings of
securities.
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CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
(ii) NET SPONSORSHIP REVENUES. ***** of any Net Sponsorship
Revenues received by SportsLine for advertising and
sponsorships that appear in, or are otherwise directly
generated by, the Woods Web Site. Notwithstanding the
foregoing, ETW shall receive only ***** of Net Sponsorship
Revenues attributable to any under-delivered advertising
impressions ("make good" impressions) on the Woods Web Site
which ETW requests be fulfilled with SportsLine's general
advertising rotation. The term "Net Sponsorship Revenues"
means SportsLine's gross revenues from the sale of
sponsorships or advertising, MINUS reasonable documented
advertising sales commissions and fees (equaling a percent of
advertising gross revenues mutually agreed upon) payable by
SportsLine to any third party and other reasonable documented
out-of-pocket expenses (excluding normal overhead expenses)
incurred by SportsLine that are directly associated with the
generation of such revenues.
(iii) NET PREMIUM REVENUES. ***** of any Net Premium Revenues. The
term "Net Premium Revenues" means SportsLine's gross revenues
from the sale of Premium Features, including Woods on-line
fan club, and gross revenues from the operation of Woods
off-line fan club, MINUS reasonable documented out-of-pocket
expenses (excluding normal overhead expenses) incurred by
SportsLine that are directly associated with the generation
of such revenues. It is further agreed that at the end of the
Advisory Period, both SportsLine and ETW will have the right
to receive all names and pertinent information for each
Member, subject to the provisions of paragraph 6(j).
(iv) RETAINER. SportsLine will pay to ETW a non-refundable annual
fee (the "Retainer") without deduction or offset of
***** each Contract Year (as defined below) during the
Advisory Period, including any extensions or renewals
thereof, payable in four equal installments of ***** on or
prior to the first day of each full or partial Contract Year
Quarter (as defined below) during the Advisory Period.
"Contract Year" shall mean any consecutive 12-month period
commencing on the date hereof or any anniversary herof during
the Advisory Period, including any extensions or renewals
thereof. "Contract Year Quarter" shall mean the first three
months during any Contract Year and each subsequent
consecutive three month period during such Contract Year.
(v) PENSION CHARGES. SportsLine will pay all pension, welfare
and other charges as may be levied by any union(s) having
jurisdiction over Woods' appearance in any television or
radio commercial(s) produced hereunder which amounts shall
be in addition to any other amounts required to be paid
hereunder. Without limiting the
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foregoing, the parties agree for the purposes of this
subparagraph that the value of SportsLine's use of Woods in
such television or radio commercial(s) shall be only an
amount equal to the then-existing minimum or scale payments
required to be paid to principal performers appearing in a
commercial shoot and used in accordance with applicable
provisions of the applicable ACTRA, AFTRA or SAG contracts
or other collective bargaining agreement, as the case may be.
(b) QUARTERLY PAYMENTS. Except as otherwise expressly provided herein,
each party will make payments due to the other party under this Agreement on a
quarterly basis, within thirty (30) days following the end of the applicable
calendar quarter. Each such payment shall be accompanied by a statement showing
in reasonable detail how such payment was computed.
(c) METHOD OF PAYMENTS. All payments shall be made by check made
payable to "International Management, Inc." and sent to ETW, c/o International
Management, Inc., One Erieview Plaza, Suite 1300, Cleveland, Ohio 44114. If
SportsLine fails to timely fulfill any of its payment obligations, whether or
not such failure is subsequently cured, ETW may elect to have payments made
hereunder by wire transfer or bank transfer.
5. REIMBURSEmENT OF OUT-OF-POCKET EXPENSES. SportsLine shall reimburse
ETW promptly upon receipt of an invoice therefore for all reasonable,
accountable out-of-pocket expenses incurred by ETW (and/or Woods) in performing
Advisory Services (including but not limited to services of Woods) requested by
SportsLine under this Agreement and the services provided by ETW or Woods
hereunder (including, but not limited to first-class round-trip air travel, or,
at ETW's option, the value of first-class airfare for Woods and a companion of
Woods if Woods elects to travel by private jet); PROVIDED, HOWEVER, that any
single expense in excess of $500 must be approved in advance by SportsLine.
6. PROVISIONS OF CONTENT: ADDITIONAL RESPONSIBILITIES OF SPORTSLINE AND
ETW.
(a) COMPUTERS AND SUPPORT SOFTWARE. In addition to all other
obligations of SportsLine hereunder, SportsLine will provide to ETW during the
term of this Agreement the use of a laptop computer and a desktop computer and
related equipment and such software, subject to all applicable licenses, as is
necessary for ETW or its representatives to transmit information to SportsLine
in accordance with the terms of this Agreement. All such hardware and software
shall remain the property of SportsLine and shall be returned to SportsLine
within fourteen (14) days after termination of this Agreement. Any software that
SportsLine provides to ETW to further the purpose of this Agreement ("Support
Software") shall be provided subject to the following: (i) SportsLine grants to
ETW a royalty-free, nonexclusive personal, revocable license to use the Support
Software (and any accompanying user documentation) solely for the purpose and in
the manner stated in such user documentation; (ii) ETW shall not provide the
Support Software or documentation to any other person without SportsLine's
express prior written consent; and (iii) except as otherwise agreed in writing
by SportsLine, ETW may make copies of the Support Software only as necessary to
fulfill the purpose of the license herein granted, subject to all applicable
licenses. If the Support Software becomes unavailable due to a claim that it
infringes a
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third party's rights, SportsLine shall provide substitute software or a
procedure for accomplishing the same objectives. Immediately following
termination of the license herein granted, upon SportsLine's direction ETW shall
either return or destroy all copies of the Support Software and documentation.
SportsLine's sole liability for defective Support Software shall be replacement
of the program disks. All rights of ETW to any Support Software shall cease
immediately upon termination of this Agreement.
(b) ETW INFORMATION. For purposes of this Agreement, the term "ETW
Information" means all information created and/or delivered by ETW to SportsLine
for inclusion in the Service, including but not limited to Woods' name, likeness
and biography, trade name(s), trademarks and service mark(s), whether or not
registered, included in such information and including any statement made by ETW
or Woods during any interview or chat session conducted solely for the benefit
of SportsLine and broadcast or distributed over the Service but excluding any
statement made by ETW or Woods on any occasion, instance or event not created
solely for the benefit of SportsLine. ETW shall be solely responsible for the
content of all ETW Information, and represents and warrants to SportsLine that
to the best of ETW's knowledge (i) all ETW Information: (A) will be accurate and
ETW's or Woods' own and original creation, except for information validly
licensed for use by ETW or in the public domain; (B) will consist only of
information that ETW is authorized to use and to authorize SportsLine to use as
contemplated in this Agreement; (C) will not constitute a libel or defamation or
conflict with any copyright, right of privacy or other rights of any third
party; and (D) will conform to all applicable federal, state and local laws and
regulations; and (ii) ETW has the full right and authority to grant the rights
and consents set forth herein. SportsLine shall be entitled at any time to bring
any concerns it has regarding ETW Information to the attention of ETW, whereupon
the parties will cooperate in good faith to address SportsLine's concerns. If
SportsLine, in its reasonable judgment, believes that immediate action is
required with regard to any ETW Information, SportsLine may, to the extent
reasonably necessary, delete, modify or revise such information, provided that
SportsLine shall notify ETW of such action prior thereto, if reasonably possible
(or, if not, as soon thereafter as practicable), and all representations,
warranties, indemnifications and other obligations of ETW wherever with respect
to such ETW Information shall immediately terminate and be of no force and
effect with respect to any such modified or revised information. Except as
expressly provided herein, SportsLine shall distribute ETW Information only as
transmitted by ETW, and shall not, and shall not authorize any third party to,
modify or edit such information without ETW's prior written consent.
Notwithstanding anything to the contrary contained herein, no content shall
appear on the Woods Web Site that has not been approved in advance by ETW or
supplied by ETW for such purpose, and in no event shall the Woods Web Site
include any interactive games. At ETW's request, SportsLine will provide ETW
with a summary report, in a mutually agreed format, of user activity on the
Woods Web Site and any other information reasonably requested by ETW; such
reports shall be provided no more frequently than quarterly.
(c) CREATION OF WOODS WEB SITE. Subject to all of ETW's rights of
approval as set forth herein ETW shall use its commercially reasonable efforts
to provide SportsLine with sufficient cleared content to enable SportsLine to
construct the Woods Web Site within sufficient time to permit SportsLine to meet
the deadline set forth in paragraph 1(f), and will use commercially reasonable
efforts to assist SportsLine in acquiring and clearing any information and
content not otherwise in ETW's possession. ETW shall have complete control over
the content,
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sponsorship and advertisement of the Woods Web Site, and ETW shall be
responsible to provide SportsLine with all cleared content and information
(including but not limited to photos, biographical information, video and audio
clips, etc.) necessary to create and maintain the Woods Web Site.
(d) TRANSMISSION OF ETW INFORMATION. ETW shall transmit to SportsLine
all ETW Information and updates thereof necessary for inclusion in the Woods Web
Site (including any Premium Features). Information and updates shall be
transmitted by land-line telephone or electronically in a format to be agreed
upon by SportsLine and ETW, on a pre-scheduled basis and/or as such information
and updates become available, as the case may be. SportsLine shall provide ETW
with a Service Identification number or numbers that will allow ETW to gain
access to the Service at no cost or charge for purposes of electronically
delivering ETW Information and content updates. All content supplied by ETW
shall be consistent with the editorial standards used by SportsLine for content
displayed on the Service (which standards SportsLine reserves the right to amend
from time to time) provided SportsLine timely and accurately conveys such
standards to ETW.
(e) RIGHT, TITLE AND INTEREST TO ETW INFORMATION. All right, title and
interest in ETW Information, including, but not limited to Woods' name, likeness
and biography, trade name(s), trademarks and service mark(s), are and shall
remain ETW's, subject to the rights and licenses granted to SportsLine herein.
SportsLine shall not use the term "tiger" as a lower level domain name in
connection with SportsLine's current or future universal resource locator
addresses without ETW's consent, except to the extent necessary to permit
SportsLine to produce, display, and facilitate access to the Woods Web Site or
otherwise perform its obligations pursuant to this Agreement. SportsLine shall
have the non-exclusive, royalty-free worldwide right and license, at no cost, to
use, display (privately or publicly) and distribute ETW Information, or any
portion thereof, on the Service or in connection with any demonstration,
promotion or advertisement of the Service in any medium; to enter ETW
Information into SportsLine's computer database; and to store, process, retrieve
and transmit the same on the Service. Any advertisements, promotions, publicity
or other material containing Woods name, likeness and biography, all proposed
uses of the ETW Information outside of the Woods Web Site, and any use of ETW
trade name(s), trademark(s) and service mark(s) and Woods name or likeness other
than as included in ETW Information shall be subject to ETW's prior consent
(which consent shall not be unreasonably withheld), and provided further that in
no event shall such rights extend to use in connection with merchandise or
products for sale or resale other than as expressly provided herein or as
allowed by law. SportsLine's rights hereunder shall include, but not be limited
to, SportsLine's right, in its sole discretion, to offer subscribers the option
of printing and downloading ETW Information or any portion thereof as a function
of the Service generally.
(f) OPERATION OF SERVICE; NON-ETW INFORMATION; CHARGES FOR THE SERVICE.
Other than with respect to the Woods Web Site, SportsLine will have sole
discretion to determine all aspects of the operation of the Service and all
matters relating to the content, structure and sequence of material appearing on
the Service; provided, however, that ETW shall have approval over any links to
the Woods Web Site. SportsLine represents and warrants to ETW that, (i) to the
best of SportsLine's knowledge, all content on the Service other than ETW
Information (to the extent not revised, modified or deleted by SportsLine)
("Non-ETW Information"), (A) will be accurate and
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SportsLine's own and original creation, except for information validly licensed
for use by SportsLine or in the public domain; (B) will consist only of
information that SportsLine is authorized to use; (C) will not constitute a
libel or defamation or conflict with any copyright, right of privacy or other
rights of, any third party; and (D) will conform to all applicable federal,
state and local laws and regulations and (ii) SportsLine has the full right and
authority to grant the rights and consents set forth herein. ETW shall be
entitled at any time to bring any concerns it has regarding Non-ETW Information
to the attention of SportsLine, whereupon the parties will discuss in good faith
ETW's concerns. Without limiting the generality of the foregoing, SportsLine
shall have sole discretion to determine the amount and basis of any fee charged
to Subscribers for use of the Service and SportsLine will bill for and collect
all fees charged to Subscribers to use the Service (including any Premium
Services on the Woods Web Site). Nothing in this Agreement shall limit
SportsLine's rights regarding charges for any aspect of the Service (including
any product or service offered by SportsLine, whether alone or in conjunction
with others, through means of the Service) other than the Woods Web Site
(excluding Premium Features). All right, title and interest to SportsLine's
name, trade name(s), trademark(s) and service mark(s) ("SportsLine
Identification") are and shall remain SportsLine's. Nothing herein shall be
deemed to grant ETW any proprietary rights to any of SportsLine's trade name(s),
trademark(s) or service mark(s). ETW shall have the right to use SportsLine
Identification in connection with advertising and promoting the Woods Web Site,
subject to SportsLine's prior written consent, not to be unreasonably withheld.
(h) SUBSCRIBER AGREEMENT. SportsLine will distribute a subscriber
agreement prohibiting republication, redistribution, public broadcast, public
display, resale, offering for resale or other commercial exploitation of
copyrighted or trademarked materials published in the Service without the
copyright or trademark owner's consent.
(i) COMPLIANCE WITH INDUSTRY STANDARDS. SportsLine represents and
agrees that the Service will at all times during the Agreement be an on-line
service devoted to sports information, activities and events, and that the
Service will comply with all on-line broadcasting industry standards.
(j) DATABASE FROM WOODS WEB SITE. SportsLine shall supply to ETW, at
the end of the Advisory Period and in such format reasonably requested by ETW, a
database of names, addresses and any other information obtained by SportsLine
with respect to users of the Woods Web Site (including, e.g., purchasers of
Premium Features, Woods Memorabilia and other merchandise or services sold via
the Woods Web Site, etc.) and Members for ETW's or Woods use in any manner.
SportsLine is also entitled to keep a copy of and utilize the information in
such database for any lawful purpose, but shall not use it in any way to imply
an endorsement by ETW or Woods of any company, product or service.
(k) PROMOTION. Subject to the terms and conditions hereof, SportsLine
will actively promote the Woods Web Site within the Service and use its best
efforts to promote the Woods Web Site throughout the Web. SportsLine agrees that
the Woods Web Site will receive a minimum of One Hundred Sixty-Six Thousand Six
Hundred Sixty Six Dollars ($166,666) in on-line advertising and promotion during
each Contract Year during the Advisory Period. SportsLine will use its best
efforts to provide television exposure for the Woods Web Site.
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(l) MILLENNIUM COMPLIANCE. SportsLine represents and warrants that all
software developed by SportsLine and used on SportsLine's computer systems to
offer the Service (the "SportsLine Software") is, or prior to the calendar year
2000 A.D. will be, designed to be used prior to, during, and after the calendar
year 2000 A.D., and that the SportsLine Software will operate during each such
time period without error relating to date data, specifically including any
error relating to, or the product of, date data which represents or references
different centuries or more than one century. All date processing by SportsLine
Software will correctly process dates for any leap year.
7. NONEXCLUSIVITY OF THIS AGREEMENT. SportsLine understands and agrees
that, except as set forth in the next sentence, ETW shall not be prevented or
barred from rendering services of any nature for or on behalf of any other
person, firm, corporation or entity, subject to ETW's obligation to maintain
confidentiality of SportsLine's confidential information pursuant to Section 10.
Notwithstanding the foregoing, during the Advisory Period and subject to the
remainder of this Section, ETW shall not be employed by, act as a consultant to,
provide any chat sessions or Woods fan clubs to, or otherwise render services
similar in the aggregate to those provided hereunder with respect to
sports-related programming to or for any on-line service (regardless of whether
such service is accessed through the Internet, a commercial on-line service or
otherwise) other than, with respect to chat sessions, to or for any of ETW's
licensees or sponsors. Subject to SportsLine providing reasonable assistance as
requested by ETW, ETW will, when commercially reasonable and practicable,
request that content and interviews given to third parties (other than licensees
or endorsers of Woods) do not appear on the Internet or the World Wide Web. It
is understood ETW is not guaranteeing the foregoing. The foregoing is not
intended to prohibit ETW or Woods from advertising on other sites, allowing
licensees of ETW or Woods to advertise on other sites, or participating in
on-line advertisements, interviews or articles or in on-line chat sessions for
any of ETW's licensees or sponsors; provided that any such advertisement,
interviews or articles shall include to the extent possible, subject to the
other site owner's consent, a graphical "icon" designed to link on-line users to
the Woods Web Site. ETW shall use good faith commercially reasonable efforts to
enlist the cooperation of other site owners who may wish to interview Woods or
do news articles on ETW or Woods, to either transmit such interviews/articles
over the Woods Web Site or provide a link to the Woods Web Site. Neither ETW nor
Woods is responsible for initiating action against, enjoining or otherwise
attempting to dissuade any person or entity not licensed by ETW, including
without limitation, any former licensee of ETW, the media or any advertiser,
promoter or other entity, which in contravention of this Agreement or otherwise,
makes unauthorized use of anything, including without limitation, any
unauthorized use of the ETW Information or ETW's or Woods' name, trade name,
trademarks, service marks, or logos, in promoting or advertising any product (or
products) or services whatsoever, including without limitation, any products
which are the same as or similar to or directly competitive with the Service.
Neither ETW nor Woods shall incur any liability to SportsLine or any third party
arising out of any such activity by any such person or entity. ETW agrees that
at SportsLine's sole cost and expense, ETW shall give such reasonable assistance
to SportsLine as may be required to cause any such person or entity to cease and
desist from such activities, or in connection with any lawsuit or other
proceeding by SportsLine against such person or entity. ETW understands and
agrees that SportsLine shall not be prevented or barred
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from retaining other persons or entities to provide services of the same nature
or similar nature as those described herein or of any nature whatsoever.
8. TERMINATION BY ETW. (a) ETW shall have the right to terminate this
Agreement immediately upon written notice to SportsLine if:
(i) SportsLine is adjudicated as insolvent or declares
bankruptcy;
(ii) SportsLine fails in any obligation for payments due ETW
pursuant to this Agreement, and within fifteen (15) days
following SportsLine's receipt of ETW's written notice of
such failure SportsLine has not rectified such failure; or
(iii) SportsLine breaches any other material term of this
Agreement, which breach SportsLine has failed to cure within
thirty (30) days after SportsLine's receipt of ETW's written
notice of such breach.
(b) TERMINATION BY SPORTSLINE. SportsLine shall have the right to
terminate this Agreement immediately upon written notice to ETW if ETW breaches
any material term of this Agreement, which breach ETW has failed to cure within
thirty (30) days after ETW's receipt of SportsLine's written notice of such
breach;
(c) EFFECT OF TERMINATION. As of the effective date of a termination by
SportsLine due to ETW's breach, ETW shall not be entitled to any further
remuneration hereunder, other than remuneration accrued or vested to such
effective termination date. Upon the expiration or termination of the Advisory
Period and this Agreement for any reason, all licenses and rights granted
hereunder shall immediately terminate.
9. COMPLIANCE WITH LAWS. Except as otherwise expressly provided herein,
each party agrees to comply with applicable federal, state and local laws in
connection with the development and display of the Woods Web Site and the
promotion and operation of the fan clubs. SportsLine will be solely responsible
to ensure that all aspects of the Service (other than the ETW Information, to
the extent not modified or revised by SportsLine), including the promotion
thereof, comply with applicable law.
10. CONFIDENTIALITY. All information disclosed by either party to the
other party, including but not limited to the terms and conditions of this
Agreement or any other agreement between the parties, trade secrets of the
party, any nonpublic information relating to any party's product plans, designs,
ideas, concepts, costs, prices, finances, marketing plans, business
opportunities, personnel, research, development or know-how and any other
nonpublic technical or business information of a party, that is marked
"Confidential" or identified by the disclosing party in writing as confidential
before or within thirty days after disclosure to the receiving party, will, upon
receipt of notice of confidentiality, be treated as confidential by the
receiving party and not disclosed to any third party without the disclosing
party's prior written consent. "Confidential Information" as referred to in this
Section does not include (a) information that is generally available to the
public other than as a result of disclosure in violation of this Agreement, (b)
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information already known or which becomes known to the receiving party from a
third party source which is not, to the receiving party's knowledge, under an
obligation of confidentiality, (c) information independently developed by the
receiving party (as shown by competent documentation), and (d) otherwise
confidential information that is required to be disclosed by law, including
administrative or judicial action. Any breach of these confidentiality
provisions will entitle the injured party to seek injunctive relief and damages
without the necessity of giving notice or posting bond or other security This
paragraph 10 shall survive any expiration or earlier termination of this
Agreement.
11. INDEMNIFICATION. (a) SPORTSLINE INDEMNIFICATION. SportsLine hereby
indemnifies and agrees to defend and hold ETW and Woods free and harmless from
and against all claims, costs, liabilities, judgments, expenses or damages
(including reasonable attorneys' fees) (collectively, "Damages") arising out of
or in connection with (i) Woods' activities and position as a member of
SportsLine's Advisory Board, (ii) any information, other than ETW Information
(to the extent not deleted, modified or revised by SportsLine), displayed on the
Service, (iii) any breach of any representation, warranty or covenant of
SportsLine hereunder, (iv) the promotion and operation of the Woods fan clubs,
or (v) any use of or reference to ETW's name or logo or Woods name or likeness
not expressly permitted hereunder or based upon SportsLine's use of any
intellectual property other than ETW's name or logo or Woods name or likeness;
except to the extent any such Damages arise from the gross negligence or willful
misconduct of ETW or its employees or Woods.
(b) ETW INDEMNIFICATION. ETW hereby indemnifies and agrees to defend
and hold SportsLine free and harmless from and against all Damages arising out
of or in connection with (i) any ETW Information displayed on the Service (to
the extent not deleted, modified or revised by SportsLine), (ii) any breach of
any representation, warranty or covenant of ETW hereunder, or (iii) any use of
or references to SportsLine's name or logos by ETW not expressly permitted
hereunder, except to the extent such Damages arise from the gross negligence or
willful misconduct of SportsLine or its employees.
(c) NO LIABILITY FOR PUNITIVE OR CONSEQUENTIAL DAMAGES. Notwithstanding
anything stated or implied to the contrary herein, in no event shall either
party be liable to the other for exemplary, punitive or consequential damages,
even if advised of the possibility of such damages, in any manner arising out to
this Agreement or the breach of any term, covenant, representation, warranty or
obligation contained herein.
(d) NOTIFICATION. Each party shall notify the other as soon as
reasonably possible of any claim of which it becomes aware.
(e) SURVIVAL. This paragraph 11 shall survive any expiration or earlier
termination of this Agreement.
12. BOOKS AND RECORDS. SportsLine shall keep true and complete books
and records in which all information necessary to determine and verify all fees
and payments contemplated hereunder shall be reflected along with the amounts
payable to ETW under the terms of this Agreement. SportsLine shall maintain such
books and records for a period of at least two years
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<PAGE>
after the termination of this Agreement. During the term of this Agreement and
for a period of one year after such termination, ETW shall have the right, at
its expense and upon reasonable notice to SportsLine, to examine, or have
examined by its authorized representative, SportsLine's books and records, at
SportsLine's principal place of business, in order to determine or verify Net
Sponsorship Revenues or Net Premium Revenues amounts due, and the accuracy of
any reports furnished by SportsLine under this Agreement. In the event that an
error is discovered in the calculation of the amounts payable to ETW, the party
that received the benefit of the error shall promptly thereafter pay to the
other the amount of overpayment or underpayment, as the case may be. An
underpayment by SportsLine based on an error in such calculation shall not be
deemed to be a breach of this Agreement so long as the calculation was made in
good faith. If any underpayment by SportsLine for a period examined by ETW is
five percent (5%) or more, SportsLine shall pay ETW's reasonable out-of-pocket
costs with respect to such examination and the next subsequent reexamination.
ETW's receipt of any statement, or any payment, does not preclude it from
challenging the correctness of that statement or payment.
13. REMEDIES. (a) INJUNCTIVE RELIEF. In the event either party
materially breaches this Agreement, SportsLine and ETW agree that, in addition
to any and all other remedies available at law or in equity, the non-breaching
party shall be entitled to injunctive relief to the extent permitted by law from
further violation of this Agreement, before or during any proceeding as well as
on final determination thereof, without prejudice to any other right of either
party and without the necessity of giving notice or posting bond or other
security.
(b) ETW'S LIABILITY NOT TO EXCEED REMUNERATION PAID TO SPORTSLINE BY
ETW. Notwithstanding anything to the contrary herein, in the event SportsLine
incurs any expenses, damages or other liabilities (including, without
limitation, reasonable attorneys' fees) in connection with this Agreement or
ETW's services, other than with respect to third party claims against SportsLine
arising from ETW's negligence or misconduct or the ETW Information (to the
extent not deleted, modified or revised by SportsLine), ETW's liability to
SportsLine hereunder shall not exceed the remuneration, excluding reimbursement
of expenses, actually paid to SportsLine by ETW hereunder (with any remuneration
in the form of securities being valued at its fair market price on the date of
execution hereof). It is understood Woods is not a party hereto but is a
specific intended third party beneficiary hereo
14. INSURANCE. SportsLine shall provide and maintain, at its own
expense, commercial general liability insurance, including product liability and
advertising injury coverage, with limits of not less that Five Million Dollars
($5,000,000.00), shall cause such policy to be endorsed to state that Woods and
ETVV are additional named insureds thereunder. A certificate of insurance
evidencing such coverage shall be furnished to SportsLine within thirty (30)
days of the full execution of this Agreement. Such insurance policy shall
provide that the insurer shall not terminate or materially modify such policy or
remove ETW or Woods as additional named insureds without prior written notice to
ETW at least thirty (30) days in advance thereo
15. RELATIONSHIP OF THE PARTIES. The parties to this Agreement are
independent contractors, and this Agreement shall not be construed to create a
partnership, joint venture, employment or principal agent relationship between
the parties. It is understood that Woods is not a party to this Agreement and
has no liability whatsoever under this Agreement. Each party
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<PAGE>
shall be solely responsible to compensate any employees, agents or
representatives employed or engaged by it to perform duties under this Agreement
and for all taxes, imposts, duties and all charges of any governmental authority
arising from its activities under this Agreement. Neither SportsLine nor ETW,
nor any other person or entity employed by either SportsLine or ETW, are
authorized to make any warranty concerning the other party or incur or assume
any obligation or liability for the other party and nothing in this Agreement
gives or is intended to give any rights of any kind to any third party, except
as expressly set forth herein.
16. AMENDMENT: WAIVER. No amendment to this Agreement shall be valid
unless such amendment is in writing and is signed by both of the parties to this
Agreement. Any and all matters to be agreed upon by the parties shall be
evidenced by a writing signed by the parties. Any consent required of any party
hereunder must be in writing. Any of the terms and conditions of this Agreement
may be waived at any time in writing by the party entitled to the benefit
thereof, but a waiver in one instance shall not be deemed to constitute a waiver
in any other instance. A failure to enforce any provision of this Agreement
shall not operate as a waiver of the provision or of any other provision hereof.
17. SEVERABILITY. In the event that any provision of this Agreement
shall be held to be invalid, illegal or unenforceable in any circumstances, the
remaining provisions shall nevertheless remain in full force and effect and
shall be construed as if the unenforceable portion or portions were deleted.
18. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida.
19. ARBITRATION. Except as hereinabove provided in paragraph 13, the
parties agree to submit to arbitration any dispute related to this Agreement and
agree that the arbitration process shall be the exclusive means for resolving
disputes which the parties cannot resolve. Any arbitration hereunder shall be
conducted under the Dispute Resolution Rules of the American Arbitration
Association ("AAA") as modified herein. Arbitration proceedings shall take place
in Ft. Lauderdale, Florida, before a panel of at least three (3) arbitrators
each of whom shall be lawyers with experience in the area of intellectual
property law. All arbitration proceedings shall be confidential. Neither party
shall disclose any information about the evidence produced by the other party in
the arbitration proceedings, except in the course of judicial, regulatory, or
arbitration proceeding, or as may be demanded by government authority. Before
making any disclosure permitted by the preceding sentence, a party shall give
the other party reasonable advance written notice of the intended disclosure and
an opportunity to prevent disclosure. Each party shall have the right to take
the deposition of one individual and any expert witness retained by the other
party. Additional discovery may be had only where the arbitrator so orders, upon
a showing of substantial need. Only evidence that is directly relevant to the
issues may be obtained in discovery. Each party bears the burden of persuasion
of any claim or counterclaim raised by that party. The arbitration provisions of
this Agreement shall not prevent any party from obtaining injunctive relief from
a court of competent jurisdiction to enforce the obligations for which such
party may obtain provisional relief pending a decision on the merits by the
arbitrator. Each of the parties hereby consents to the jurisdiction of Florida
courts for such purpose. The arbitrator shall have authority to award any remedy
or relief that a court of the State of Florida could grant in
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<PAGE>
conformity to applicable law, except that the arbitrator shall have no authority
to award attorneys' fees or punitive damages. Any arbitration award shall be
accompanied by a written statement containing a summary of the issues in
controversy, a description of the award, and an explanation of the reasons for
the award. The arbitrator's award shall be final and judgment may be entered
upon such award by any court.
20. NOTICES. All notices or other communications hereunder shall be in
writing and shall be deemed to be given or made: on the same business day when
sent by confirmed facsimile, on the next business day after mailing when
delivered by overnight courier or on the fifth business day after mailing if
sent by first-class, registered or certified mail to the following address or
addresses or such other address or addresses as the parties may designate in
writing in accordance with this Section:
If to SportsLine: SportsLine USA, Inc.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
Attention: President
Facsimile No. (954) 351-9175
If to ETW: ETW Corp.
c/o IMG
One Erieview Plaza, Suite 1300
Cleveland, Ohio 44114
Attention: Hughes Norton
Facsimile No. (216) 522-1145
With a copy to: Brody and Ober, P.C.
135 Rennell Dnve
P.O. Box 572
Southport, Connecticut 06490-0572
Attention: Seth Brody
Facsimile No. (203) 255-8572
21. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted assigns.
Neither party may assign its rights or obligations hereunder without the prior
written consent of the other party, which consent may not be unreasonably
withheld or delayed; provided, however, that the duties of ETW hereunder may be
assigned or delegated by ETW to Woods. ETW hereby acknowledges that SportsLine's
ability to assign this Agreement in the event of a sale of all or substantially
all the assets of its business, may be a material factor in such transaction.
SportsLine hereby acknowledges that the identity and financial wherewithal of
the proposed assignee are material factors in the giving of any consent by ETW.
22. MISCELLANEOUS. (a) ETW agrees and acknowledges that all of Woods'
or ETW's respective employees, consultants and/or advisors and members of their
immediate families
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<PAGE>
(immediate family is defined a parent, sibling or any person residing in the
same household as employee or consultant) are not eligible to play SportsLine
contests for prizes.
(b) ETW and SportsLine each acknowledge that members of the IMG Group
of Companies have represented and assisted each of them in connection with this
Agreement and will be receiving compensation in connection therewith.
23. ENTIRE AGREEMENT. As of the effective date hereof, this Agreement
and the Exhibits attached hereto shall constitute the entire understanding
between ETW and SportsLine regarding the subject matter hereof, and cannot be
altered or modified except by an agreement in writing, signed by both parties.
Any previous agreements between the parties shall have no further force and
effect.
24. EXECUTION AND DELIVERY REQUIRED. This instrument shall not be
considered to be an agreement or contract nor shall it create any obligation
whatsoever on the part of ETW and SportsLine, or either of them, unless and
until it has been personally signed by representatives of ETW and SportsLine and
delivery has been made of a fully signed original. Acceptance of the offer made
herein is expressly limited to the terms of the offer.
25. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties in counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, each of the parties has executed this Advisory
Agreement as of the date first written above.
ETW CORP., a Florida corporation SPORTSLINE USA, INC., a Delaware
corporation
By /s/ EARL D. WOODS By /s/ MICHAEL LEVY
------------------------ -------------------------------
Name: Earl D. Woods Name: Michael Levy
Title: President Title: President
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<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
EXHIBIT "A"
TWO HUNDRED THOUSAND (200,000) WARRANTS
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THESE
WARRANTS (THE "WARRANT SHARES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS.
THE WARRANT SHARES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION, PROVIDED THAT THE
SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
CONFIRMING THE AVAILABILITY OF SUCH EXEMPTION. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
______________, 1997
SPORTSLINE, USA, INC.
WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK
FOR VALUE RECEIVED SPORTSLINE USA, INC., a Delaware corporation
("SportsLine" or the "Company"), hereby certifies that the ETW Corp., a Florida
corporation, or its registered assigns (the "Holder") is entitled, subject to
the provisions contained herein, to purchase from the Company Two Hundred
Thousand (200,000) fully paid and non-assessable shares of Common Stock (as
defined below), subject to adjustment as provided herein, at an exercise price
per share of Common Stock (the "Exercise Price") of $****.
The term "Common Stock" means the Common Stock, par value $.01 per
share, of the Company as constituted on the date hereof. The number of shares of
Common Stock to be received upon the exercise of these Warrants may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter referred to as "Warrant Stock." The term "Other Securities" means
any other securities that may be issued by the Company in addition to, or in
substitution for, the Warrant Stock.
References herein to the "Company" are to (i) SportsLine and any
successor thereto, (ii) any successor corporation resulting from the merger or
consolidation of SportsLine, or any successor thereto, with another corporation
or (ii) any corporation to which SportsLine, or any successor thereto, has
transferred its property or assets as an entirety or substantially as an
entirety.
<PAGE>
CONFIDENTIAL INFORMATION OMMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
ASTERISKS DENOTE SUCH OMISSION
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of these Warrants, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of these Warrants, if mutilated, the Company
shall execute and deliver new Warrants of like tenor and date. Any such new
Warrants, upon execution and delivery, shall constitute an additional
contractual obligation on the part of the Company, whether or not these Warrants
so lost, stolen, destroyed or mutilated shall be at any time enforceable by
anyone.
The Holder agrees with the Company that these Warrants are issued, and
all the rights hereunder shall be held subject to, all of the conditions,
limitations and provisions set forth herein, including the following:
1. EXERCISE OF WARRANTS.
1.1 EXERCISE PERIOD; METHOD OF EXERCISE. Subject to Section 1.2 hereof,
these Warrants shall vest and become exercisable in increments as follows:
(a) on and after the date hereof, ***** of the Warrants;
(b) on and after the first anniversary hereof, an additional
***** of the Warrants;
(c) on and after the second anniversary hereof, any or all remaining
Warrants;
provided, however, that the vesting of the Warrants shall be subject to the
condition that the Agreement dated as of ___________, 1997, between SportsLine
and the Holder, as amended or modified, shall be in effect at the relevant
vesting date(s), and no further Warrants shall vest on or after the expiration,
nonrenewal or termination of said agreement. Subject to the foregoing, any
vested Warrants may be exercised, in whole or in part, at any time, or from time
to time during the period commencing on the date hereof and expiring
____________, 2005, by presentation and surrender of these Warrants to the
Company at its principal office (which on the date hereof is 6340 N.W. 5th Way,
Ft. Lauderdale, Florida 33309), or at the office of its stock transfer agent
(which on the date hereof is the Company), if any, with the Warrant Exercise
Form attached hereto duly executed and accompanied by payment (either in cash or
by certified or official bank check or checks, payable to the order of the
Company) of the Exercise Price for the number of shares specified in such form.
If these Warrants are exercised in part only, the Company shall, upon surrender
of these Warrants for cancellation, execute and deliver new Warrants evidencing
the rights of the Holder thereof to purchase the balance of Warrant Stock (and
Other Securities) purchaseable hereunder. Upon receipt by the Company of these
Warrants, together with the Exercise Price, at its office, or by the Company's
stock transfer agent at its office, in proper form for exercise, the Holder
shall be deemed to be the holder of record of the Warrant Stock (and Other
Securities) issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed or that certificates representing such
Warrant Stock (or Other Securities shall not then be actually delivered to the
Holder. The Company shall pay any and all documentary stamp or similar issue or
transfer taxes
<PAGE>
payable in respect to the issue or delivery of Warrant Stock (and Other
Securities) upon exercise of these Warrants.
1.2 PERMITTED EXERCISE DATE. Notwithstanding anything to the contrary
herein, the Warrants shall not be exercisable, and the Holder agrees not to
exercise any of the Warrants, until the Permitted Exercise Date. For purposes
hereof, the term "Permitted Exercise Date" shall be the earlier of (i) thirty
(30) days prior to the closing of the first underwritten sale of Common Stock to
the public pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Securities Act of
1933, as amended, covering the offering and sale of Common Stock to the public,
or (ii) thirty (30) days prior to the closing of (a) the acquisition of all or
substantially all of the assets of the Company or (b) an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction owned, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction, (iii) May
5, 1997, or (iv) the first date after the date hereof on which the Company's
Board of Directors approves the grant to Company employees of options to
purchase Common Stock at a fair market value at or above $2.00 per share. The
Company will notify the Holder of the occurrence of the Permitted Exercise Date.
2. RESERVATION OF SHARES AND OTHER SECURITIES. The Company will at all
times reserve for issuance and delivery upon exercise of these Warrants all
shares of Warrant Stock and other shares of capital stock of the Company (and
Other Securities) from time to time receivable upon exercise of these Warrants.
All such shares (and Other Securities) shall be duly authorized and, when issued
upon such exercise, shall be validly issued, fully paid and non-assessable and
free and clear of all preemptive rights.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of these Warrants, but the
Company shall pay the Holder an amount equal to the fair market value of such
fractional share in lieu of each fraction of a share otherwise issuable upon any
exercise of these Warrants, as determined by the Board of Directors in its
reasonable discretion.
4. EXCHANGE OF WARRANTS. These Warrants are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof to
the Company or at the office of its stock transfer agent, if any, for other
Warrants of different denominations, entitling the Holder hereof to purchase in
the aggregate the same number of shares of Warrant Stock (and Other Securities)
purchaseable hereunder.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights as a shareholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed herein.
6. ANTI-DILUTION PROVISIONS.
<PAGE>
6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time
subdivide its outstanding shares of Common Stock (or Other Securities at the tie
receivable upon the exercise of these Warrants) by recapitalization,
reclassification or split-up thereof, or if the Company shall declare a stock
dividend or distribute shares of Common Stock to its shareholders, the number of
shares of Common Stock (or Other Securities) subject to these Warrants
immediately prior to such subdivision shall be proportionately increased and the
Exercise Price per share shall be proportionately decreased, and if the Company
shall at any time combine the outstanding shares of Common Stock (or Other
Securities) by recapitalization, reclassification or combination thereof, the
number of shares of Common Stock (or Other Securities) subject to these Warrants
immediately prior to such combination shall be proportionately decreased and the
Exercise Price per share shall be proportionately increased. Any such
adjustments pursuant to this Section 6.1 shall be effective at the close of
business on the effective date of such subdivision or combination or, if any
adjustment is the result of a stock dividend or distribution, then the effective
date for such adjustment shall be the record date therefor.
6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. (a) In
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable upon the exercise of these
Warrants) after the date hereof or in case after such date the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then,
and in each such case, the Holder of these Warrants, upon the exercise hereof,
at any time after the consummation of such reorganization, consolidation, merger
or conveyance, shall be entitled to receive, in lieu of the securities and
property receivable upon the exercise of these Warrants prior to such
consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised these Warrants
immediately prior thereto (but had not exercised any rights with respect to such
securities or property in connection with the reorganization, consolidation,
merger or conveyance); in each such case, the terms of these Warrants shall be
applicable to the securities or property receivable upon the exercise of these
Warrants after such consummation.
(b) In any case where the Company shall consolidate with or merge into
another corporation, and shall not be the surviving corporation, or shall convey
all or substantially all of its assets to another corporation, then, and in each
such case, the surviving corporation or the corporation that shall have received
substantially all of the Company's assets shall expressly assume the obligations
of the Company under these Warrants in a form reasonably satisfactory to the
Holder hereof.
6.3 NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of these Warrants, but will at
all times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder of these Warrants against impairment. Without limiting
the generality of the foregoing, while these Warrants are outstanding, the
Company (a) will not permit the par value, if any, of the shares of Warrant
Stock to be above the amount payable therefor upon such exercise and (b) will
<PAGE>
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue or sell fully paid and non-assessable
shares of Warrant Stock and Other Securities upon the exercise of these
Warrants.
6.4 CERTIFICATES AS TO ADJUSTMENTS. In each case of an adjustment in
the number of shares of Warrant Stock or Other Securities receivable upon the
exercise of these Warrants, the Company at its expense will promptly compute
such adjustment in accordance with the terms of these Warrants and prepare a
certificate executed by an executive officer of the Company setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to the Holder.
6.5 NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or Other Securities at the time receivable upon the exercise of these Warrants)
for the purpose of entitling them to receive any dividend (other than a cash
dividend at the same rate as the rate of the last cash dividend theretofore
paid) or other distribution, or any rights to subscribe for, purchase or
otherwise acquire any share of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation, or any conveyance of all or substantially all
of the assets of the Company to another corporation; or
(c) of any voluntary or involuntary dissolution, liquidation or winding
up of the Company;
then, and in each such case, the Company shall mail or cause to be mailed to
each Holder of a Warrant at the time outstanding a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up is to take place, and the time, if any,
to be fixed, as to which the holder of record of Warrant Stock (or such other
securities at the time receivable upon the exercise of these Warrants) shall be
entitled to exchange their shares of Warrant Stock (or such other securities)
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up. Such notice shall be mailed at least 20 days prior to the date
therein specified and these Warrants may be exercised prior to said date during
the term of these Warrants.
8. RESTRICTIONS ON TRANSFER OF WARRANTS, WARRANT STOCK AND OTHER
SECURITIES. The Warrant Stock and Other Securities may not be sold, transferred
or otherwise disposed of unless registered under the Securities Act of 1933 (the
"Securities Act") and any applicable state securities laws or pursuant to
available exemptions from such registration, provided that the seller delivers
to
<PAGE>
the Company an opinion of counsel satisfactory to the Company confirming the
availability of such exemption.
9. LEGEND. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of these Warrants
and the issuance of any of the shares of Warrant Stock or Other Securities, all
certificates representing such securities shall bear on the face thereof
substantialy the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT") OR UNDER APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AVAILABLE EXEMPTIONS FROM SUCH REGISTRATION,
PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY CONFIRMING THE AVAILABILITY OF SUCH
EXEMPTION. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF
TIME.
10. NOTICES. All notices required hereunder shall be in writing and
shal be deemed given when telegraphed, delivered personally or within two days
after mailing when mailed by certified or registered mail, return receipt
requested, to the Company at its principal office, or to the Holder at the
address set forth on the record books of the Company, or at such other address
of which the Company or the Holder has been advised by notice in writing
hereunder.
11. APPLICABLE LAW. These Warrants shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without giving effect to
conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused these Warrants to be signed
on its behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.
SPORTSLINE USA, INC.
By:
-------------------------------------
Title: President
<PAGE>
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercrse Warrants to purchase
___________ shares of Common Stock of SportsLine USA, Inc., a Delaware
corporation and hereby makes payment of $___________ in full satisfaction
therefor.
----------------------------------------
Signature
----------------------------------------
Signature, if jointly held
----------------------------------------
Date
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the Holder of the within Warrants)
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
________________________________________________________________________________
Social Security or Taxpayer Identification Number_______________________________
<PAGE>
EXHIBIT "B"
____________________, 1997
SPORTSLINE USA, INC.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
ROBERTSON, STEPHENS & COMPANY LLC
COWEN & COMPANY
MONTGOMERY SECURITIES
as Representatives of the
Several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that Robertson, Stephens & Company LLC,
Cowen & Company and Montgomery Securities, as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), proposed to
enter into an Underwriting Agreement (the "Underwriting Agreement") with
SportsLine USA, Inc. (the "Company"), providing for the initial public offering
by the Underwriters, including the Representatives, of common stock, $.01 par
value per share (the "Common Stock"), of the Company (the "Public Offering").
In consideration of the Underwriters' agreement to purchase and
undertake the Public Offering and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the undersigned agrees that, without
the prior written consent of Robertson, Stephens & Company LLC, the undersigned
will not directly or indirectly offer, sell, solicit an offer to buy, make any
short sale, pledge, grant any option to purchase, contract to sell, or otherwise
dispose of or transfer any shares of Common Stock of the Company (including,
without limitation, shares of Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission) or any securities
convertible into or exercisable or exchangeable for such Common Stock (including
shares of Common Stock which may be issued upon exercise of a stock option or
warrant) or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock (including,
without limitation, by way of equity swap, hedging, or any other form of
derivative transaction) (any of the foregoing, a "Transfer"), or exercise any
registration rights with respect to the Common Stock, in each case for the
period
<PAGE>
_________________, 1997
Page 2
ending 180 days from the date the Registration Statement (No. 333-25259) filed
by the Company in connection with the Public Offering is declared effective by
the Securities and Exchange Commission; provided, however, that the undersigned
may Transfer, including any Transfer as a bona fide gift, any such securities to
any person who, at or prior to the time of such Transfer, has executed and
delivered to the Representatives a letter agreement in the form hereof.
In addition, the undersigned agrees that the Company may, with respect
to any shares for which the undersigned is the record or beneficial holder,
cause the transfer agent for the Company to note stop transfer instructions with
respect to such shares on the transfer books and records of the Company.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and all obligations of the undersigned created hereunder shall be
binding upon the heirs, personal representatives, successors, and assigns of the
undersigned. This letter agreement shall automatically terminate on the earlier
of (i) August 1, 1997, in the event that the Underwriting Agreement is not
executed by the Company or on prior to that date and (ii) the date that the
Underwriting Agreement is terminated, in the event that the Underwriters do not
purchase the Common Stock and the Underwriting Agreement is terminated pursuant
to its terms.
Very truly yours,
Dated:______________________ _________________________________
Name of Holder
_________________________________
Signature
Dated:______________________ _________________________________
Name of Joint Holder
_________________________________
Signature
SPORTSLINE USA, INC.
PLACEMENT AGENCY AGREEMENT
November __, 1997
Sportsline USA, Inc.
6340 N.W. 5th Way
Fort Lauderdale, FL 33309
Ladies and Gentlemen:
This placement agency agreement ("the Agreement") outlines the
terms upon which BancAmerica Robertson Stephens, Cowen & Company and NationsBanc
Montgomery Securities, Inc. (collectively, the "Placement Agents") are engaged
by Sportsline USA, Inc., a Delaware corporation (the "Company"), to act as its
financial advisors and exclusive placement agents in connection with the
offering by the Company (the "Concurrent Offering") of up to $7 million (the
"Concurrent Shares") of its stock, par value $0.01 per share (the "Common
Stock"). The Concurrent Offering of Concurrent Shares is registered on
Registration Statement No. 333-25259 (as such Registration Statement may be
amended from time to time, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), filed by the Company with the Securities
and Exchange Commission (the "Commission"). The Company will also enter into an
underwriting agreement with BancAmerica Robertson Stephens, Cowen & Company and
NationsBanc Montgomery Securities, Inc., as representatives of the several
underwriters to be named in SCHEDULE A thereto (collectively, the
"Underwriters"), relating to the offering of Common Stock by the Underwriters
(the "Initial Public Offering" and, together with the Concurrent Offering, the
"Offerings"). The Initial Public Offering is also registered on the Registration
Statement. To the extent designated herein, portions of the underwriting
agreement relating to the Initial Public Offering, in the form filed as Exhibit
1.1 to the Registration Statement and attached hereto as ANNEX A (as such
Underwriting Agreement my be amended from time to time, the "Underwriting
Agreement"), shall be deemed to be incorporated by reference herein and form a
part hereof. All capitalized terms not defined herein shall have the meaning
ascribed to them in the Underwriting Agreement.
1. SERVICES.
A. The Company hereby appoints the Placement Agents as the
Company's exclusive placement agents in connection with the Concurrent Offering
and, subject to the terms and conditions contained or incorporated by reference
herein, the Placement Agents hereby accept such appointment.
B. The Placement Agents agree to provide advisory services to
the Company as to the structure of the Concurrent Offering. Except as
specifically set forth herein, the Placement Agents
<PAGE>
do not assume any additional duties or responsibilities with respect to the
Concurrent Offering and no other duties shall be implied from this Agreement.
The Company acknowledges that purchasers of the Concurrent Offering are not, and
will not be treated as, "customers" of the Placement Agents for purposes of the
rules of the National Association of Securities Dealers, Inc. (the "NASD") and
that the Placement Agents shall have no responsibility for the performance or
non-performance of any purchaser in the Concurrent Offering or for the
performance or non-performance of the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. The Company hereby makes to the Placement Agents the representations
and warranties and agrees to the agreements set forth in Section 2 and 4 of the
Underwriting Agreement.
B. The Company agrees with the Placement Agents to provide the
Placement Agents with such copies of the Registration Statement, Prospectus, any
Preliminary Prospectus and such other documents and instruments as the Placement
Agents may reasonably request; and
C. (i) The Company agrees with each Placement Agent that:
(a) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, and
any instruments related to any of the foregoing; the cost of all
certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Placement Agents copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, and
any amendments or supplements to any of the foregoing; NASD filing fees
and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and
reasonable fees and disbursements of the Placement Agents' counsel in
connection with such NASD filings and Blue Sky qualifications); and all
other expenses directly incurred by the Company in connection with the
performance of their obligations hereunder.
(b) In addition to its other obligations under Section 4.A.
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 4.A. hereof, it will reimburse the
Placement Agents on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Placement Agents for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Placement
Agents shall promptly return such payment to the Company together with
interest, compounded daily, determined on the basis of the prime rate
(or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans posted by a substantial
majority of the nation's thirty (30) largest banks (the "Prime Rate").
Any such interim reimbursement payments which are not made to the
Placement Agents within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
(ii) In addition to their other obligations under Section 4.C. hereof,
the Placement Agents severally and not jointly agree that, as an interim measure
during the pendency of
2
<PAGE>
any claim, action, investigation, inquiry or other proceeding described in
Section 4.C. hereof, they will reimburse the Company on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Placement Agents' obligation to reimburse the Company for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
shall promptly return such payment to the Placement Agents together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(iii) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 2.C.(i)(b) and
2.C(ii) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 2.C.(i)(b) and
2.C.(ii) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 4.A. and 4.B. hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8.D. hereof.
D. The obligations of the Placement Agents hereunder and the
closing of the sale of the Concurrent Shares in the Concurrent Offering (the
"Concurrent Time of Delivery") shall be subject to the satisfaction of the
conditions set forth in Section 6 of the Underwriting Agreement. For purposes of
this Section 6, all references to "Underwriters" and "Shares" in the
introductory paragraph of Section 6 of the Underwriting Agreement shall be
deemed to refer to the Placement Agents and Concurrent Shares, respectively.
Also for purposes of this Section 2.D., (a) the opinions of counsel for the
Company, (b) the letter or letters of Arthur Andersen LLP and (c) the
certificates of officers of the Company (provided for the Section 6(g) of the
Underwriting Agreement), shall each also be addressed and furnished to the
Placement Agents at the Concurrent Time of Delivery and all references in
Section 6 of the Underwriting Agreement to "your reasonable satisfaction,"
"satisfactory to you," "judgment of the Representatives" or similar language
shall be deemed to refer to a determination by the Placement Agents.
3. FEES.
A. As compensation for their services under this Agreement, the
Placement Agents will receive at the Concurrent Time of Delivery a fee (the
"Placement Fee") from the Company relating to the Concurrent Shares equal to 7%
of the amount equal to Initial Public Offering Price, multiplied by the number
of Shares sold in the Concurrent Offering, by wire transfer in immediately
available funds to a bank account or accounts designated by the Placement
Agents. Payment of such Placement Fee shall be a condition of the Concurrent
Time of Delivery. In the event the Concurrent Offering is terminated by the
Placement Agents because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, the
Company agrees to reimburse the Placement Agents for all out-of-pocket expenses
(including the fees and disbursements of counsel) reasonably incurred by them in
connection with the transactions contemplated by this Agreement.
4. INDEMNIFICATION AND EXCULPATION.
3
<PAGE>
A. The Company agrees to indemnify and hold harmless each Placement
Agent against any losses, claims, damages or liabilities, joint or several, to
which such Placement Agent may become subject, under the Act, the Exchange Act
or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
the Company herein contained or incorporated, (ii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Placement Agent for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Placement Agent furnished to the Company by
such Placement Agent, directly or through you, specifically for use in the
preparation thereof and, PROVIDED FURTHER, that the indemnity agreement provided
in this Section 4.A. with respect to any Preliminary Prospectus shall not inure
to the benefit of any Placement Agent from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) of the Underwriting
Agreement.
The indemnity agreement in this Section 4.A. shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Placement Agent within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
B. Each Placement Agent, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become subject under the
Act or otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or based
upon (i) any breach of any representation, warranty, agreement or covenant of
such Placement Agent herein contained or incorporated, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (ii) and (iii) of
this Section 4.C. to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Placement Agent, directly or through you, specifically for use
in the preparation thereof, and agrees to reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action.
4
<PAGE>
The indemnity agreement in this Section 4.B. shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Placement Agent may otherwise have.
C. Promptly after receipt by an indemnified party under this Section 4
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 4, notify the indemnifying party in writing of the commencement thereof
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 4. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 4 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Sections 4.A.
and 4.B. hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; PROVIDED that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
has been threatened to be named a party and indemnification has been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on all claims
that are the subject matter of such proceeding.
D. In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 4
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 4 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Placement Agents
severally and not jointly are responsible pro rata for the portion represented
by the percentage of the Placement Fee received by each Placement Agent, and the
Company are responsible for the remaining portion, PROVIDED, HOWEVER, that (i)
no Placement Agent shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Placement
5
<PAGE>
Agent exceeds the amount of damages which such Placement Agent has otherwise
required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 4.E. shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Placement Agent, the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
E. The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 4, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 4 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
The provisions of this Agreement relating to reimbursement,
indemnification and contribution shall survive termination, modification or
completion of the engagement of the Placement Agents and shall be binding upon
any successors or assigns of the Company.
5. OTHER.
A. The Company represents and warrants that no person or organization,
other than the Placement Agents, are, as a result of any action by the Company,
entitled to compensation for services as a finder, broker, placement agent or
investment banker in connection with the Concurrent Offering.
B. This Agreement shall be deemed to be effective as of the date hereof
and the term of this engagement shall be from the date hereof until the earlier
of (i) termination of the Concurrent Offering and (ii) the completion of the
Offerings. Notwithstanding the foregoing if at any time the Company violates any
of its covenants and agreements contained herein or in any of the conditions set
forth in Section 2.D. are not satisfied, the Placement Agents shall have the
right to terminate their obligations hereunder upon prior notice to the Company.
In the event of any termination of this Agreement or if for any reason the
Concurrent Offering is terminated, the Company shall be responsible for (i) the
reimbursement of all fees, disbursements, costs and expenses, as provided in
Section 2.C., and (ii) its obligations arising under Section 4.
C. The Company agrees that the Placement Agents shall have the right to
advertise their participation in the Concurrent Offering in "tombstone" or other
appropriate financial advertisements in newspapers, magazines, trade periodicals
or other publications. The Placement Agents agree that such tombstone or other
advertisements shall not be published without the prior approval of the Company,
provided that such approval is not unreasonably withheld or delayed.
D. The invalidity or unenforceability of any provisions of this
Agreement shall in no way offset the validity or enforceability of any other
provision. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York. The term and provisions of
this Agreement are solely for the benefit of the Company and the Placement
Agents and the other indemnified parties and their respective successors,
assigns, heirs and personal representatives, and no other person shall acquire
or have any right by virtue of this letter.
E. All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Placement Agency
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to BancAmerica Robertson
6
<PAGE>
Stephens, 555 California Street, Suite 2600, San Francisco, California 94104,
telecopier number (415) 781-0278, Attention: General Counsel, with a copy to
Brobeck, Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, New York
10019, telecopier number (212) 586-7878, Attention: Ellen B. Corenswet, Esq.; if
sent to the Company, such notice shall be mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to 6340 N.W. 5th
Way, Fort Lauderdale, Florida 33309, telecopier number (954) 351-9175,
Attention: Michael Levy, Chief Executive Officer, with a copy to Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami,
Florida 33131, telecopier number (305) 579-0717, Attention: Kenneth C. Hoffman,
Esq.
F. This Agreement shall inure to the benefit of and be binding upon the
several Placement Agents and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 4 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or entity.
G. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
7
<PAGE>
Please confirm that the terms described here are in accordance with
your understanding by signing and returning to use the enclosed duplicate of
this letter.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
COWEN & COMPANY
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: BANCAMERICA ROBERTSON STEPHENS
By:
-----------------------------------
Authorized Signatory
ACCEPTED as of the date first
written above:
SPORTSLINE USA, INC.
By:
--------------------------
8
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report on the financial statements of SportsLine USA, Inc. dated January
31, 1997 (except with respect to the matters discussed in Note 9, as to which
the date is November , 1997) and to all references to our Firm included in
this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
November 10, 1997.
