AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1998
REGISTRATION STATEMENT NO. 333-48263
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
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:
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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.
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<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 MARCH 26, 1998
[SPORTSLINE LOGO]
4,000,000 SHARES
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 2,285,430 shares
are being sold by SportsLine USA, Inc. ("SportsLine USA" or the "Company") and
1,714,570 shares are being sold by certain shareholders of the Company. See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SPLN." On March 24, 1998, the last sale price of the Common Stock as reported
by the Nasdaq National Market was $29.03 per share. See "Price Range of Common
Stock."
----------------
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 PROCEEDS TO
PUBLIC COMMISSIONS COMPANY (1) SELLING SHAREHOLDERS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Share ........ $ $ $ $
- --------------------------------------------------------------------------------
Total (2) ........ $ $ $ $
================================================================================
</TABLE>
(1) Before deducting offering expenses payable by the Company estimated at
$500,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 600,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ , respectively.
----------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any
order in whole or in part. It is expected that delivery of such shares will be
made through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
SALOMON SMITH BARNEY
The date of this Prospectus is , 1998
<PAGE>
[INSIDE FRONT COVER]
[Appearing on the inside front cover of the Prospectus will be color
pictures of the Company's Welcome Web Page, March Mayhem Web Page, Winter
Olympics Web Page, Football Web Page, SportsLine Worldwide Web Page, GolfWeb
Web Page, Soccernet Web Page and Baseball Web Page.]
INFORMATION ON THE COMPANY'S WEB SITES SHALL NOT BE DEEMED TO CONSTITUTE A
PART OF THIS PROSPECTUS.
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER 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.
----------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary .................................................................................. 4
Risk Factors ............................................................................. 7
Use of Proceeds .......................................................................... 21
Price Range of Common Stock .............................................................. 21
Dividend Policy .......................................................................... 21
Capitalization ........................................................................... 22
Selected Supplemental Consolidated Financial Data ........................................ 23
Management's Discussion and Analysis of Supplemental Consolidated Financial Condition
and Results of Operations ............................................................... 24
Selected Historical Financial Data ....................................................... 31
Management's Discussion and Analysis of Historical Financial Condition and Results of 32
Operations
Business ................................................................................. 39
Management ............................................................................... 57
Certain Transactions ..................................................................... 66
Principal and Selling Shareholders ....................................................... 68
Description of Capital Stock ............................................................. 71
Shares Eligible for Future Sale .......................................................... 74
Underwriting ............................................................................. 75
Legal Matters ............................................................................ 76
Experts .................................................................................. 77
Available Information .................................................................... 77
Additional Information ................................................................... 77
Index to Financial Statements ............................................................ F-1
</TABLE>
----------------
"SportsLine USA" 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.
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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
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 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 (i) sports superstars such as Joe Namath, Michael
Jordan (jordan.sportsline.com), Tiger Woods (tigerwoods.com), Shaquille O'Neal
(shaq.com), Cal Ripken, Jr. (2131.com) and Wayne Gretzky (gretzky.com), (ii)
specific sports such as golf (golfweb.com), cricket (cricinfo.org) and soccer
(soccernet.com), (iii) international sports coverage
(sportsline.com/u/worldwide) and (iv) electronic odds and analysis on major
sports events (vegasinsider.com). The Company's objective is to become the
leading Internet-based sports media company and to create a global sports
brand. To this end, the Company focuses exclusively on sports and distinguishes
itself from other content providers by offering innovative, timely and
comprehensive sports content.
The Company generates revenue from multiple sources. Since March 31, 1996,
a majority of the Company's revenue has been derived from advertising. More
than 200 advertisers have purchased sponsorships and advertisements from the
Company, including numerous major automotive, consumer products, financial,
publishing and entertainment, technology and telecommunications companies.
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 derives
revenue from transactions on its Web sites, including the sale of limited
edition collectibles and memorabilia, licensed apparel and other sports-related
products, syndication of its programming in other media, and development of Web
sites for third parties. 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 2,834,000
page views and 478,000 visits during January 1998, increases of 282% and 348%,
respectively, from January 1997 to January 1998. According to Media Metrix, for
the month of February 1998 the Company's Web sites were ranked first among
sports Web sites in terms of audience reach, with approximately 6.6% of all
people who used the Web from work and approximately 4.8% of all people who used
the Web from home visiting the Company's Web sites at least once during the
month. The Company had approximately 51,000 paying members as of February 28,
1998.
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 CBS and other leading sports news organizations as well as the Company's
superstar athletes; distributes instant odds and picks from well-known
handicappers; 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 all-sports radio programming which is broadcast over the Internet
and on traditional radio stations in more than 50 markets in association with
the SportsFan Radio Network.
4
<PAGE>
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 through 2001, primarily during CBS television
sports broadcasts such as the NFL, the NCAA Men's Basketball Tournament, NCAA
Football, PGA Tour events, U.S. Open tennis and the Daytona 500. The Company
believes that its relationship with CBS, in particular the branding of its
flagship Web site as "cbs.sportsline.com" and the promotion the Company will
receive on CBS television broadcasts, will enable it to establish SportsLine as
a broadly recognized consumer brand. 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 13 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. In July
1997, the Company entered into an agreement with Microsoft Corporation
("Microsoft") pursuant to which cbs.sportsline.com is bundled into Microsoft's
"Active Desktop" as part of Microsoft's release of the latest version of
Internet Explorer ("IE4"). cbs.sportsline.com is also featured as a default
content "channel" in the Channel Finder of Netscape Communication Corporation's
("Netscape") 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's SportsLine WorldWide
Web site offers coverage of international sports, such as cricket and soccer,
through strategic relationships with major publishing organizations in Brazil
(O ESTADO DE SAO PAULO), France (LE MONDE), Germany (Verlagsgruppe Fleet), the
Netherlands (World Online) and Spain (EL PAIS). The Company has also
established strategic marketing relationships with sports superstars,
personalities, organizations and affinity groups.
The Company seeks to capitalize on the market opportunities created by the
worldwide 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.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ....................... 2,285,430 shares
Common Stock offered by the Selling Shareholders .......... 1,714,570 shares
Common Stock to be outstanding after the Offering ......... 18,449,988 shares (1)
Use of Proceeds ........................................... For working capital and other general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol ............................. "SPLN"
</TABLE>
SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA (2)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue ............................................... $ 100 $ 3,058 $ 12,014
Gross margin (deficit) ................................ (718) (1,175) 1,583
Loss from operations .................................. (6,182) (16,372) (34,971)
Net loss .............................................. $ (6,108) $ (16,103) $ (34,177)
Net loss per share--basic and diluted ................. $ (1.59) $ (2.31) $ (3.08)
Weighted average common and common equivalent shares
outstanding--basic and diluted ...................... 3,835,977 6,971,369 11,107,534
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------
SUPPLEMENTAL AS ADJUSTED (3)
-------------- ----------------
<S> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash and marketable securities .............. $33,988 $ 96,185
Working capital ............................. 31,284 93,481
Total assets ................................ 45,726 107,923
Long-term obligations ....................... 458 458
Total shareholders' equity .................. 36,985 99,182
</TABLE>
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(1) Excludes 1,647,323 shares of Common Stock issuable pursuant to stock
options outstanding as of February 28, 1998 (of which options to purchase
approximately 342,068 shares were exercisable) with a weighted average
exercise price of $7.10 per share and 2,019,151 shares of Common Stock
issuable upon the exercise of warrants outstanding as of February 28, 1998
(of which warrants to purchase approximately 1,518,318 shares were
exercisable) with a weighted average exercise price of $8.10 per share.
See "Management--Stock Plans" and "Description of Capital Stock--Options
and Warrants." Also excludes 2,751,925 shares of Common Stock issuable
pursuant to the Company's agreement with CBS (including 1,140,000 shares
issuable upon the exercise of warrants to be granted to CBS). See "Certain
Transactions--CBS Agreement."
(2) On January 29, 1998, the Company acquired all of the outstanding capital
stock of GolfWeb in exchange for approximately 844,490 shares of Common
Stock and the assumption of stock options and warrants to purchase up to
approximately 53,300 shares of Common Stock. The supplemental consolidated
financial data gives effect to the acquisition, which is being accounted
for under the "pooling-of-interests" accounting method. See Note 2 to the
Company's Supplemental Consolidated Financial Statements.
(3) Adjusted to give effect to the sale of 2,285,430 shares of Common Stock
offered hereby by the Company at an assumed public offering price of
$29.03 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
----------------
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 its subsidiaries, and the terms "cbs.sportsline.com," "vegasinsider.com"
and "golfweb.com" refer to the Company's Web sites, located at
http://cbs.sportsline.com, http://www.vegasinsider.com and
http://www.golfweb.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.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE
IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS,
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS
PROSPECTUS.
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 other 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 December 31, 1997, the
minimum guaranteed payments required to be made by the Company under such
agreements were $15,151,000. The Company's minimum guaranteed payments are
subject to reduction in the case of certain agreements based upon the
appreciation of warrants issued, the value of stock received on exercise of
such warrants and the amount of profit sharing earned under the related
agreements. Also, the Company recorded noncash expense of $7,835,000 for year
ended December 31, 1997 related to the CBS agreement and will record an
additional $54,004,000 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 30 to 36 months. As of December 31, 1997, the Company had
a supplemental consolidated accumulated deficit of $56,792,239.
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
7
<PAGE>
financial condition. Further, in view of the rapidly evolving nature of the
Company's business and its limited operating history, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance. See "Selected Supplemental Consolidated Financial Data,"
"Management's Discussion and Analysis of Supplemental Consolidated Financial
Condition and Results of Operations" and Notes 5 and 8 of Notes to Supplemental
Consolidated Financial Statements.
UNPREDICTABILITY OF FUTURE REVENUE; POTENTIAL FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS; SEASONALITY
As a result of the Company's relatively short operating history and the
emerging nature of the markets in which it competes, the Company is limited in
its ability to accurately forecast its revenue. The Company derives revenue
from a mix of advertising, merchandise sales, membership and premium service
fees, content licensing, Web site development and syndication fees. Through
December 31, 1997, Web site development and syndication revenue have not been
significant. 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;
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. sports seasons and lower at other times of the year,
particularly during the summer months. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events, such as the Olympics, the Ryder Cup and the World Cup,
although such events do not occur every year. 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 Supplemental Consolidated Financial Condition and Results of
Operations."
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DEPENDENCE ON CBS RELATIONSHIP
In March 1997, the Company entered into a five-year agreement with CBS,
pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." Over the term of the agreement, the Company has the right
to use certain CBS logos and television-related sports content and expects to
receive, among other things, at least $57 million of network television
advertising and on-air promotions. In connection therewith, the Company
recorded noncash expense of $7,835,000 for the year ended December 31, 1997
related to the CBS agreement and will record an additional $54,004,000 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 disability) 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 Supplemental
Consolidated Financial Condition and Results of Operations," "Certain
Transactions--CBS Agreement" and Note 5 of Notes to Supplemental Consolidated
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 strategic agreements are short-term in nature, such as the
Company's agreement with AOL, which expires in September 1998. In addition,
certain of the Company's agreements with its strategic partners may be
terminated by either party on short notice. The failure to maintain or renew
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
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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, 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 AOL 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 and renew 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.
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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 or renew agreements with the Company on the same or
similar terms as those currently in effect. If the Company is required to
increase the fees payable to its content providers, such increased payments
could have a material adverse effect on the Company's business, results of
operations and financial condition. Moreover, the 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 Supplemental Consolidated
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH ACQUISITIONS
On January 29, 1998, the Company acquired GolfWeb. The Company intends to
continue to pursue opportunities to acquire or invest in businesses, products
and technologies that would complement or expand its existing business. Such
acquisitions and investments involve a number of risks that could adversely
affect the Company's operating results, including the diversion of management's
attention, the assimilation of the operations and personnel of acquired
companies, the amortization of acquired intangible assets and the potential
loss of key employees of acquired companies. There can be no assurance that
GolfWeb or any businesses acquired by the Company in the future will be
successfully integrated or that the Company will be able to consummate future
acquisitions on satisfactory terms.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company intends to continue to expand internationally and expects that
its international operations will be subject to most of the risks inherent in
its business generally. There can be no assurance that revenue from
international operations will increase in the future or that operating losses
will not be incurred from such operations. 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.
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 a trial is currently scheduled for September 1998. The
Company intends to vigorously defend itself against the action. The legal costs
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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 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
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and a number of other marks, several of which include the term "SportsLine
USA." 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 USA" 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.
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 202 employees at December
31, 1997, and the Company expects to add additional 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.
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
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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.
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--Directors, Executive Officers and Key Employees."
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
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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 derives 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 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
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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 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
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
16
<PAGE>
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 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
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<PAGE>
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.
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
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has risen substantially since the
Company's initial public offering (the "IPO"), which was completed in November
1997. The trading price of the Common Stock has fluctuated and could be subject
to future fluctuations in response to quarterly variations in the Company's
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 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 Common Stock. See "Price Range of 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 47.5% of the
18
<PAGE>
outstanding Common Stock (approximately 46.0% 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 significantly
influence the outcome of all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
See "Management," "Principal and Selling 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 of the Common Stock offered hereby by the Company. Rather, the Company
intends to use the net proceeds from this offering for working capital and
other general corporate purposes, including expansion of the Company's
marketing and advertising sales efforts, content development and licensing,
international expansion and capital expenditures. A portion of the net proceeds
also may be used for the acquisition of or investments in businesses, products
and technologies that are complementary to those of the Company. Consequently,
the Board of Directors and management of the Company will have significant
flexibility in applying the net proceeds of this offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CHARTER AND BYLAWS
The Company is organized under the laws of the State of Delaware. Certain
provisions of Delaware law may have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, certain provisions
of the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and Amended and Restated Bylaws (the "Bylaws") may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a shareholder might consider in its best interest. The Certificate will
authorize the Board to determine the rights, preferences, privileges and
restrictions of unissued series of preferred stock and to fix the number of
shares of any series of preferred stock and the designation of any such series,
without any vote or action by the Company's shareholders. Thus, the Board can
authorize and issue shares of preferred stock with voting or conversion rights
that could adversely affect the voting or other rights of holders of the
Company's Common Stock. In addition, the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change of control of the
Company, since the terms of the preferred stock that might be issued could
potentially prohibit the Company's consummation of any merger, reorganization,
sale of substantially all of its assets, liquidation or other extraordinary
corporate transaction without the approval of the holders of the outstanding
shares of the Common Stock. Other provisions of the Certificate and Bylaws will
(i) divide the Company's Board of Directors into three classes, each of which
will serve for different three-year periods, (ii) provide that the shareholders
may not take action by written consent, but only at duly called annual or
special meetings of shareholders, (iii) provide that special meetings of the
shareholders may be called only by the Chairman of the Board of Directors or a
majority of the entire Board of Directors and (iv) establish certain advance
notice procedures for nomination of candidates for election as directors and
for shareholder proposals to be considered at annual shareholders' meetings.
See "Description of Capital Stock--Anti-takeover Effects of Certain Provisions
of Delaware Law and the Company's Certificate of Incorporation and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Common Stock currently outstanding, or
issuable upon exercise of outstanding stock options and warrants, are or will
become eligible for future sale in the public market at prescribed times
pursuant to applicable regulations or registration rights held by certain
security holders. All executive officers and directors of the Company and
certain of the Company's shareholders (including the Selling Shareholders), who
upon the completion of this offering will hold in the aggregate 8,853,981
shares of Common Stock, and options and warrants to purchase 944,039 shares of
Common Stock, have agreed 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 90 days after the date of this
19
<PAGE>
Prospectus, subject to certain exceptions. In addition, in connection with the
IPO, certain officers of the Company and certain of the Company's shareholders,
who are not subject to the foregoing and, upon the completion of this offering,
will hold in the aggregate 1,475,555 shares of Common Stock, and options and
warrants to purchase 528,499 shares of Common Stock, agreed that they will not,
without prior written consent of BancAmerica Robertson Stephens, directly or
indirectly, offer to sell, contract to sell or otherwise dispose of any shares
of Common Stock beneficially owned by them until May 11, 1998. 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.
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.
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."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,285,430 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $29.03 per share are estimated to be $62,197,000 ($78,657,000 if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Shareholders.
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 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.
PRICE RANGE OF COMMON STOCK
The Common Stock has been traded on the Nasdaq National Market under the
symbol "SPLN" since November 13, 1997. The following table sets forth for the
periods indicated the range of high and low closing sales prices per share of
the Common Stock as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
----------- ----------
<S> <C> <C>
1997
Fourth Quarter (commencing November 13, 1997) ......... $ 10.75 $ 7.75
1998
First Quarter (through March 24, 1998) ................ 31.69 11.75
</TABLE>
On March 24, 1998, the last sale price of the Common Stock, as reported by
the Nasdaq National Market, was $29.03 per share. As of February 28, 1998, the
Company had approximately 100 shareholders of record. The Company believes that
the number of beneficial owners of the Common Stock is in excess of 300.
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.
21
<PAGE>
CAPITALIZATION
The following table sets forth the supplemental consolidated
capitalization of the Company as of December 31, 1997 (i) on a supplemental
basis, and (ii) as adjusted to reflect the sale of 2,285,430 shares of Common
Stock offered hereby by the Company at an assumed public offering price of
$29.03 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds." This table should be read in conjunction with the
Company's Supplemental Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 (1)
-----------------------------
SUPPLEMENTAL AS ADJUSTED
-------------- ------------
(In thousands)
<S> <C> <C>
Long-term obligations, net of current maturities ....................... $ 458 $ 458
--------- ---------
Shareholders' equity (2):
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 ................................... -- --
Common stock, $0.01 par value; 50,000,000 shares authorized, 15,019,220
shares issued and outstanding, supplemental; 17,304,650 shares issued
and outstanding as adjusted ......................................... 150 173
Additional paid-in capital ............................................ 93,627 155,801
Accumulated deficit ................................................... (56,792) (56,792)
--------- ---------
Total shareholders' equity ........................................... 36,985 99,182
--------- ---------
Total capitalization ................................................ $ 37,443 $ 99,640
========= =========
</TABLE>
- ----------------
(1) On January 29, 1998, the Company acquired all of the outstanding capital
stock of GolfWeb in exchange for approximately 844,490 shares of Common
Stock and the assumption of stock options and warrants to purchase up to
approximately 53,300 shares of Common Stock. The supplemental consolidated
capitalization gives effect to the acquisition, which is being accounted
for under the "pooling-of-interests" accounting method. See Note 2 to the
Company's Supplemental Consolidated Financial Statements.
(2) Excludes 1,647,323 shares of Common Stock issuable pursuant to stock
options outstanding as of February 28, 1998 (of which options to purchase
approximately 342,068 shares were exercisable) with a weighted average
exercise price of $7.10 per share and 2,019,151 shares of Common Stock
issuable upon the exercise of warrants outstanding as of February 28, 1998
(of which warrants to purchase approximately 1,518,318 shares were
exercisable) with a weighted average exercise price of $8.10 per share.
See "Management--Stock Plans" and "Description of Capital Stock--Options
and Warrants." Also excludes 2,751,925 shares of Common Stock issuable
pursuant to the Company's agreement with CBS (including 1,140,000 shares
issuable upon the exercise of warrants to be granted to CBS). See "Certain
Transactions--CBS Agreement."
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<PAGE>
SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
The selected supplemental consolidated balance sheet data set forth below
as of December 31, 1996 and 1997, and the selected supplemental consolidated
statement of operations data for the years ended December 31, 1995, 1996 and
1997 have been derived from the Company's audited supplemental consolidated
financial statements, which statements have been audited by Arthur Andersen
LLP, independent certified public accountants, and appear elsewhere in this
Prospectus. The following data should be read in conjunction with "Management's
Discussion and Analysis of Supplemental Consolidated Financial Condition and
Results of Operations" and the Company's Supplemental Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 23, 1994
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31, (1)
DECEMBER 31, ----------------------------------------------
1994 1995 1996 1997
------------------ ------------- ------------- --------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Revenue ....................................... $ -- $ 100 $ 3,058 $ 12,014
Cost of revenue ............................... -- 818 4,233 10,431
---------- ---------- ---------- -----------
Gross margin (deficit) ........................ -- (718) (1,175) 1,583
Operating expenses:
Product development .......................... 58 721 1,445 2,541
Sales and marketing .......................... 59 1,456 7,115 14,019
General and administrative ................... 309 3,081 5,644 8,305
Depreciation and amortization ................ 16 206 993 11,689
---------- ---------- ---------- -----------
Total operating expenses .................... 442 5,464 15,197 36,554
---------- ---------- ---------- -----------
Loss from operations .......................... (442) (6,182) (16,372) (34,971)
Interest expense .............................. -- (51) (161) (146)
Interest and other income, net ................ 38 125 430 940
---------- ---------- ---------- -----------
Net loss ...................................... $ (404) $ (6,108) $ (16,103) $ (34,177)
========== ========== ========== ===========
Net loss per share--basic and diluted ......... $ (0.19) $ (1.59) $ (2.31) $ (3.08)
========== ========== ========== ===========
Weighted average common and common
equivalent shares outstanding--basic and
diluted ...................................... 2,071,869 3,835,977 6,971,369 11,107,534
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997
------------- ------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
BALANCE SHEET DATA:
Cash and marketable securities ......... $ 1,666 $ 1,175 $ 15,250 $ 33,988
Working capital (deficit) .............. 1,656 (1,349) 12,519 31,284
Total assets ........................... 1,962 3,901 19,984 45,726
Long-term obligations, net of current
maturities ............................ -- 770 685 458
Total shareholders' equity ............. 1,910 405 15,426 36,985
</TABLE>
- ----------------
(1) On January 29, 1998, the Company acquired all of the outstanding capital
stock of GolfWeb in exchange for approximately 844,490 shares of Common
Stock and the assumption of stock options and warrants to purchase up to
approximately 53,300 shares of Common Stock. The selected supplemental
consolidated financial data gives effect to the acquisition, which is
being accounted for under the "pooling-of-interests" accounting method.
See Note 2 to the Supplemental Consolidated Financial Statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF SUPPLEMENTAL
CONSOLIDATED 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 SUPPLEMENTAL
CONSOLIDATED 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 a daily average of 2,834,000 page views and 478,000 visits
during January 1998, increases of 282% and 348%, respectively, from January
1997 to January 1998. In addition, the Company had approximately 51,000 paying
members as of February 28, 1998.
The Company's activities during 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 66% and 29%, respectively, of the Company's total revenue in 1996
and 53% and 22%, respectively, of the Company's total revenue in 1997. The
Company also derived revenue from content licensing, primarily barter. In the
fall of 1997, the Company launched a redesigned merchandise area, The Sports
Store (thesportstore.com), from which it derives revenue offering consumers a
wide assortment of branded sports merchandise, licensed apparel, league, event
and team merchandise and unique sports superstar collectibles and memorabilia.
The Company also expects to syndicate its content in other media, such as
radio, and to develop web sites for third parties. Through December 31, 1997,
the Company has not received any syndication or any significant site
development 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. Merchandise revenue is recognized once the product has
been shipped and payment is assured.
On January 29, 1998, the Company acquired all of the outstanding capital
stock of GolfWeb in exchange for approximately 844,490 shares of Common Stock
and the assumption of stock options and warrants to purchase up to
approximately 53,300 additional shares of Common Stock. The acquisition is
being accounted for under the "pooling-of-interests" accounting method.
Accordingly, the Company's supplemental consolidated financial statements
include the accounts of GolfWeb. See Notes 2 and 5 of Notes to Supplemental
Consolidated Financial Statements.
24
<PAGE>
RESULTS OF OPERATIONS
REVENUE
Total revenue for the year ended December 31, 1997 was $12,014,000
compared to $3,058,000 for the year ended December 31, 1996 and $100,000 for
the year ended December 31, 1995. The increase in revenue in each period was
due to increased advertising sales, as well as increased revenue from the sale
of merchandise, memberships and premium service fees, and content licensing.
Advertising revenue for the years ended December 31, 1997, 1996 and 1995
accounted for approximately 53%, 66% and 30%, respectively, of total revenue.
Advertising revenue increased primarily as a result of a higher number of
impressions sold and additional sponsors advertising on the Company's Web
sites. During 1997, the Company increased its sales efforts, including
expanding its sales force and opening sales offices in New York City, San
Francisco, Chicago, and Atlanta. In addition to increased sales efforts, the
number of impressions available on the Company's Web sites increased as more
content was produced. Membership revenue increased as a result of additional
member signups and retention. Basic membership fees remained the same during
1996 and 1997. Premium service revenue increased due to increased participation
in the Company's fantasy sports contests as well as increased number of premium
products, including the Company's VEGASINSIDER.COM Web site, which was launched
in March 1997. Merchandising revenue increased to $1,049,000 for the year ended
December 31, 1997 compared to $151,000 and $0 for the years ended December 31,
1996 and 1995, respectively. During the fourth quarter of 1997, the Company
launched The Sports Store (thesportstore.com), which offers a variety of
branded sports merchandise, books, videos and unique collectible memorabilia.
See "Business--Merchandise." As of December 31, 1997, the Company had deferred
revenue of $1,840,000 relating to cash or receivables 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 19%, 16% and 4% of total revenue for the year ended
December 31, 1997, 1996 and 1995, respectively. In future periods, management
intends to maximize cash advertising and content licensing revenue, although
the Company will continue to enter into barter relationships as appropriate.
COST OF REVENUE
Cost of revenue consists primarily of content fees to third parties and
payroll and related expenses for the Company's editorial and operations staff
who are responsible for creating content on the Company's Web sites and radio
programs. Telecommunications, Internet access and computer related expenses for
the support and delivery of the Company's services are also included in cost of
revenue. Cost of revenue also consists of cost of merchandise sold as well as
prizes awarded to contestants in the Company's various contests. Also included
in cost of revenue are royalty and other payments paid to certain content
providers, technology and marketing partners and celebrity athletes based on
membership levels or percentage of revenue generated subject, in certain
instances, to specified minimum amounts.
Cost of revenue for the year ended December 31, 1997 was $10,431,000
compared to $4,233,000 and $818,000 for the years ended December 31, 1996 and
1995, respectively. The increase in cost of revenue from year to year was
primarily the result of increased content fees, athlete/personality fees
incurred, as well as increases in editorial and operations staff necessary for
the production of sports-related information and programming on the Company's
Web sites. In addition, telecommunications cost has increased each year as the
Company increased its capacity to provide support and delivery of its services
to the increased traffic on its Web sites. 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. As a percentage of revenue, cost
of revenue decreased to 87% for the year ended December 31, 1997 from 138% and
819%, for the years ended December 31, 1996 and 1995, respectively.
25
<PAGE>
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.
These costs are expensed as incurred.
Product development expense was $2,541,000 for the year ended December 31,
1997 compared to $1,445,000 and $721,000 for the years ended December 31, 1996
and 1995, respectively. The increase in product development expense in each
period was primarily attributable to increases in technical 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. Consequently, the
Company intends to continue to invest significant resources in product
development. As a percentage of revenue, product development expense decreased
to 21% for the year ended December 31, 1997 from 47% and 722%, for the years
ended December 31, 1996 and 1995, respectively.
SALES AND MARKETING. Sales and marketing expense consists of salaries and
related expenses, advertising, marketing, promotional, 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 and Internet search engines, 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 was $14,019,000 for the year ended December
31, 1997 compared to $7,115,000 and $1,456,000 for the years ended December 31,
1996 and 1995, respectively. The increase in sales and marketing expense in
each year was primarily the result of the growth in the number of personnel and
related costs and increased advertising on other Web sites and Internet search
engines. Barter transactions accounted for approximately 16%, 7% and 0% of
sales and marketing expense for the year ended December 31, 1997, 1996 and
1995, respectively. The increase in the proportionate amount of barter expense
was due to the use of barter for content licensing during 1997. As a percentage
of revenue, sales and marketing expense decreased to 117% for the year ended
December 31, 1997 from 233% and 1,458%, for the years ended December 31, 1996
and 1995, respectively.
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 year
ended December 31, 1997 was $8,305,000 compared to $5,644,000 and $3,081,000
for the years ended December 31, 1996 and 1995, respectively. 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 year to develop and maintain the administrative infrastructure
necessary to support the growth of its business. As a percentage of revenue,
general and administrative expense decreased to 69% for the year ended December
31, 1997 from 185% and 3,086%, for the years ended December 31, 1996 and 1995,
respectively.
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 year ended December
31, 1997 was $11,689,000 compared to $993,000 and $206,000 for the years ended
December 31, 1996 and 1995, respectively. The increase in depreciation and
amortization expense from 1995 to 1996 was primarily attributable to increases
in property and equipment. The increase in depreciation and amortization
expense from 1996 to 1997 was primarily due to the amortization of amounts
related to the CBS agreement and to a much lesser extent additional property
and equipment.
26
<PAGE>
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 expense over each
related contract year. See Note 5 of Notes to Supplemental Consolidated
Financial Statements. Total annual expense under the CBS agreement was
$7,835,000 for the year ended December 31, 1997, and will be $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 $146,000
for the year ended December 31, 1997 compared to $161,000 and $51,000 for the
years ended December 31, 1996 and 1995, respectively. The decrease in interest
expense from 1996 to 1997 was primarily due to the repayment of a $973,000 term
loan during 1996. In addition, in January 1997 the Company paid off the balance
due under a capital lease of telecommunications equipment.
INTEREST AND OTHER INCOME, NET. Interest and other income, net primarily
represents interest earned on cash and cash equivalents and marketable
securities. Interest and other income, net for the year ended December 31, 1997
was $940,000 compared to $430,000 and $125,000 for the years ended December 31,
1996 and 1995, respectively. The increase from year to year was primarily
attributable to the higher average investments in cash and cash equivalents
and, in 1997, marketable securities of the proceeds from the IPO. The Company
anticipates that interest income will increase in future periods as a result of
the investment of the net proceeds from the IPO and 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 December 31,
1997. As of December 31, 1997, the Company had approximately $56,000,000 of net
operating loss carryforwards for Federal income tax purposes, expiring from
2009 to 2012, 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 Supplemental
Consolidated Financial Statements.
27
<PAGE>
SELECTED UNAUDITED SUPPLEMENTAL CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited supplemental
consolidated quarterly statement of operations data for the years ended
December 31, 1996 and 1997. The selected supplemental consolidated 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 supplemental consolidated 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, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
----------- ---------- ----------- ---------- ----------- ---------- ----------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Advertising ................ $ 84 $ 434 $ 561 $ 934 $ 782 $ 1,185 $ 1,726 $ 2,636
Membership and
fee-based services ....... 66 127 212 478 521 538 673 969
Merchandising .............. -- 18 48 82 157 252 262 378
Other ...................... -- -- 6 8 15 58 930 932
-------- -------- -------- -------- -------- -------- -------- ---------
Total revenue ............. 150 579 827 1,502 1,475 2,033 3,591 4,915
Loss from operations ........ (2,943) (3,440) (4,604) (5,385) (6,370) (8,453) (9,761) (10,387)
Net loss .................... (2,977) (3,378) (4,545) (5,203) (6,225) (8,239) (9,608) (10,105)
Net loss per share--basic
and diluted ................ $ (0.61) $ (0.50) $ (0.64) $ (0.58) $ (0.67) $ (0.75) $ (0.87) $ (0.77)
</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 merchandise and
memberships and fee-based service fees increased sequentially in each of the
quarters presented. The impact of the AOL agreement is reflected in the
increase in other revenue starting in the third quarter of 1997.
As a result of the Company's relatively short operating history and the
emerging nature of the markets in which it competes, the Company is limited in
its ability 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
In November 1997, the Company sold 3,500,000 shares of Common Stock in the
IPO. Of the 3,500,000 shares sold in the IPO, 2,693,549 shares were sold to the
public at a price of $8.00 per share and 672,043 shares and 134,408 shares were
sold to Intel Corporation and Mitsubishi Corporation,
28
<PAGE>
respectively, at a price of $7.44 per share. In December 1997, the underwriters
exercised their over-allotment option to purchase an additional 525,000 shares
of Common Stock. The total net proceeds to the Company from the IPO were
approximately $30,000,000.
As of December 31, 1997, the Company's primary source of liquidity
consisted of $33,988,000 in cash and marketable securities. Prior to the IPO,
the Company financed its operations primarily through private placements of
common stock and convertible preferred stock. In January 1998, CBS exercised
warrants to purchase 380,000 shares of Common Stock, resulting in the net
proceeds of $3,800,000.
As of December 31, 1997, the Company owed $281,000 under its equipment
line of credit which was paid in full in February 1998.
The Company has obtained revolving credit facilities that provide for the
lease financing of computers and other equipment purchases. Outstanding amounts
under the facilities bear interest at variable rates of approximately 9%. As of
December 31, 1997, the Company owed $729,000 under these facilities.
As of December 31, 1997, the Company owed $632,000 under the GolfWeb
equipment lines of credit.
As of December 31, 1997, deferred advertising and content costs totaled
$517,000, which represented costs related to the CBS agreement to be amortized
to depreciation and amortization expense during the year ended December 31,
1998. Accrued liabilities totaled $3,258,000 as of December 31, 1997, an
increase of $1,633,000 from December 31, 1996, primarily due to increases in
accruals for advertising, software royalties and consulting fees.
Net cash used in operating activities was $22,048,000, $13,984,000 and
$4,986,000 for the years ended December 31, 1997, 1996 and 1995, 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 $3,937,000, $1,556,000 and
$1,622,000 for the years ended December 31, 1997, 1996 and 1995, 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 $43,217,000, $29,615,000,
and $6,117,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Financing activities consisted principally of the issuance of
equity securities, including shares of Common Stock sold in the IPO, and draws
on a term loan with a bank in December 1995 and January 1996 (which was
subsequently repaid in March 1996).
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 other 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 December 31, 1997, the minimum guaranteed payments
required to be made by the Company under such agreements were $15,151,000. The
Company's minimum guaranteed payments are subject to reduction in the case of
certain agreements based upon the appreciation of warrants issued, the value of
stock received on exercise of such warrants and the amount of profit sharing
earned under the related agreements.
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
29
<PAGE>
approximately $4,000,000 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 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 its current cash and marketable securities 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 30 to 36 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. While uncertainty
exists concerning the potential effects associated with such compliance, the
Company does not believe that year 2000 compliance will result in a material
adverse effect on its financial condition or results of operations.
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. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events, such as the Olympics, the Ryder Cup and the World Cup,
although such events do not occur every year. 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.
RECENT 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 Supplemental Consolidated 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. SFAS No. 128 has been adopted by the Company for
the year ended December 31, 1997 and is retroactively reflected in the
financial statements.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical balance sheet data set forth below as of December
31, 1996 and 1997, and the selected historical statement of operations data for
the years ended December 31, 1995, 1996 and 1997 have been derived from the
Company's audited historical financial statements, which statements have been
audited by Arthur Andersen LLP, independent certified public accountants, and
appear elsewhere in this Prospectus. The following data should be read in
conjunction with "Management's Discussion and Analysis of Historical 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)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------------
1994 1995 1996 1997
------------------ ------------- ------------ --------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ....................................... $ -- $ 52 $ 2,437 $ 10,327
Cost of revenue ............................... -- 757 3,395 7,650
---------- ---------- --------- -----------
Gross margin (deficit) ........................ -- (705) (958) 2,677
Operating expenses:
Product development .......................... 58 633 939 1,300
Sales and marketing .......................... 59 1,179 5,568 10,874
General and administrative ................... 309 2,662 4,795 7,515
Depreciation and amortization ................ 16 193 824 10,285
---------- ---------- --------- -----------
Total operating expenses .................... 442 4,667 12,126 29,974
---------- ---------- --------- -----------
Loss from operations .......................... (442) (5,372) (13,084) (27,297)
Interest expense .............................. -- (50) (136) (74)
Interest and other income, net ................ 38 92 365 836
---------- ---------- --------- -----------
Net loss ...................................... $ (404) $ (5,330) $ (12,855) $ (26,535)
========== ========== ========= ===========
Net loss per share--basic and diluted ......... $ (0.19) $ (1.42) $ (1.92) $ (2.54)
========== ========== ========= ===========
Weighted average common and common
equivalent shares outstanding--basic and
diluted ...................................... 2,071,869 3,748,241 6,681,043 10,459,138
========== ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997
------------- ------------- ------------- --------------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities ............... $ 1,666 $ 184 $ 13,994 $ 32,158
Working capital (deficit) .................... 1,656 (1,944) 11,779 30,567
Total assets ................................. 1,962 2,496 17,850 42,945
Long-term obligations, net of current
maturities .................................. -- 684 409 389
Total shareholders' equity (deficit) ......... 1,910 (452) 14,273 35,564
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL 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 a daily average of 2,834,000 page views and 478,000 visits
during January 1998, increases of 282% and 348%, respectively, from January
1997 to January 1998. In addition, the Company had approximately 51,000 paying
members as of February 28, 1998.
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 and 53% and 26%, respectively, of the Company's total revenue
in 1997. The Company also derived revenue from content licensing, primarily
barter. In the fall of 1997, the Company launched a redesigned merchandise
area, The Sports Store (thesportstore.com), from which it derives revenue
offering consumers a wide assortment of branded sports merchandise, licensed
apparel, league, event and team merchandise and unique sports superstar
collectibles and memorabilia. The Company also expects to syndicate its content
in other media, such as radio, and to develop web sites for third parties.
Through December 31, 1997, the Company has not received any syndication or any
significant site development 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. Merchandise revenue is recognized once the product has
been shipped and payment is assured.
On January 29, 1998, the Company acquired all of the outstanding capital
stock of GolfWeb in exchange for approximately 844,490 shares of Common Stock
and the assumption of stock options and warrants to purchase up to
approximately 53,300 additional shares of Common Stock. The acquisition is
being accounted for under the "pooling-of-interests" accounting method.
Accordingly, the Company's financial statements will be restated to include the
accounts of GolfWeb after post-combination results have been published (I.E.,
after the Company releases its financial results for the first quarter of
1998). See Note 9 of Notes to Financial Statements.
32
<PAGE>
RESULTS OF OPERATIONS
REVENUE
Total revenue for the year ended December 31, 1997 was $10,327,000
compared to $2,437,000 for the year ended December 31, 1996 and $52,000 for the
year ended December 31, 1995. The increase in revenue in each period was due to
increased advertising sales, as well as increased revenue from sale of
merchandise, memberships and premium service fees, and content licensing.
Advertising revenue for the years ended December 31, 1997, 1996 and 1995
accounted for approximately 53%, 64% and 0%, respectively, of total revenue.
Advertising revenue increased primarily as a result of higher number of
impressions sold and additional sponsors advertising on the Company's Web
sites. During 1997, the Company increased its sales efforts, including
expanding its sales force and opening sales offices in New York City, San
Francisco, Chicago, and Atlanta. In addition to increased sales efforts, the
number of impressions available on the Company's Web sites increased as more
content was produced. Membership revenue increased as a result of additional
member signups and retention. Basic membership fees remained the same during
1996 and 1997. Premium service revenue increased due to increased participation
in the Company's fantasy sports contests as well as increased number of premium
products, including the Company's VEGASINSIDER.COM Web site, which was launched
in March 1997. Merchandising revenue increased to $286,000 for the year ended
December 31, 1997 compared to $3,300 and $0 for the years ended December 31,
1996 and 1995, respectively. During the fourth quarter of 1997, the Company
launched The Sports Store (thesportstore.com), which offers a variety of
branded sports merchandise, books, videos and unique collectible memorabilia.
See "Business--Merchandise." As of December 31, 1997, the Company had deferred
revenue of $1,800,000 relating to cash or receivables 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 22%, 21% and 0% of total revenue for the year ended
December 31, 1997, 1996 and 1995, respectively. In future periods, management
intends to maximize cash advertising and content licensing revenue, although
the Company will continue to enter into barter relationships as appropriate.
COST OF REVENUE
Cost of revenue consists primarily of content fees to third parties and
payroll and related expenses for the Company's editorial and operations staff
who are responsible for creating content on the Company's Web sites and radio
programs. Telecommunications, Internet access and computer related expenses for
the support and delivery of the Company's services are also included in cost of
revenue. Cost of revenue also consists of cost of merchandise sold as well as
prizes awarded to contestants in the Company's various contests. Also included
in cost of revenue are royalty and other payments paid to certain content
providers, technology and marketing partners and celebrity athletes based on
membership levels or percentage of revenue generated subject, in certain
instances, to specified minimum amounts.
Cost of revenue for the year ended December 31, 1997 was $7,650,000
compared to $3,395,000 and $757,000 for the years ended December 31, 1996 and
1995, respectively. The increase in cost of revenue from year to year was
primarily the result of increased content fees, athlete/personality fees
incurred, as well as increases in editorial and operations staff necessary for
the production of sports-related information and programming on the Company's
Web sites. In addition, telecommunications cost has increased each year as the
Company increased its capacity to provide support and delivery of its services
to the increased traffic on its Web sites. 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. As a percentage of revenue, cost
of revenue decreased to 74% for the year ended December 31, 1997 from 139% and
1,456%, for the years ended December 31, 1996 and 1995, respectively.
33
<PAGE>
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.
These costs are expensed as incurred.
Product development expense was $1,300,000 for the year ended December 31,
1997 compared to $939,000 and $633,000 for the years ended December 31, 1996
and 1995, respectively. The increase in product development expense in each
period was primarily attributable to increases in technical 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. Consequently, the
Company intends to continue to invest significant resources in product
development. As a percentage of revenue, product development expense decreased
to 13% for the year ended December 31, 1997 from 39% and 1,217%, for the years
ended December 31, 1996 and 1995, respectively.
SALES AND MARKETING. Sales and marketing expense consists of salaries and
related expenses, advertising, marketing, promotional, 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 and Internet search engines, 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 was $10,874,000 for the year ended December
31, 1997 compared to $5,569,000 and $1,179,000 for the years ended December 31,
1996 and 1995, respectively. The increase in sales and marketing expense in
each year was primarily the result of the growth in the number of personnel and
related costs and increased advertising on other Web sites and Internet search
engines. Barter transactions accounted for approximately 21% and 9% of sales
and marketing expense for the year ended December 31, 1997 and 1996,
respectively. The increase in the proportionate amount of barter expense was
due to the use of barter for content licensing during 1997. As a percentage of
revenue, sales and marketing expense decreased to 105% for the year ended
December 31, 1997 from 229% and 2,267%, for the years ended December 31, 1996
and 1995, respectively.
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 year
ended December 31, 1997 was $7,515,000 compared to $4,794,000 and $2,662,000
for the years ended December 31, 1996 and 1995, respectively. 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 year to develop and maintain the administrative infrastructure
necessary to support the growth of its business. As a percentage of revenue,
general and administrative expense decreased to 73% for the year ended December
31, 1997 from 197% and 5,119%, for the years ended December 31, 1996 and 1995,
respectively.
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 year ended December
31, 1997 was $10,284,000 compared to $824,000 and $193,000 for the years ended
December 31, 1996 and 1995, respectively. The increase in depreciation and
amortization expense from 1995 to 1996 was primarily attributable to increases
in property and equipment. The increase in depreciation and amortization
expense from 1996 to 1997 was primarily due to the amortization of amounts
related to the CBS agreement and to a much lesser extent additional property
and equipment.
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
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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 expense over each related contract year. See Note 5 of Notes to
Financial Statements. Total annual expense under the CBS agreement was
$7,835,000 for the year ended December 31, 1997, and will be $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 $74,000 for
the year ended December 31, 1997 compared to $136,000 and $50,000 for the years
ended December 31, 1996 and 1995, respectively. The decrease in interest
expense from 1996 to 1997 was primarily due to the repayment of a $973,000 term
loan during 1996. In addition, in January 1997 the Company paid off the balance
due under a capital lease of telecommunications equipment.
INTEREST AND OTHER INCOME, NET. Interest and other income, net primarily
represents interest earned on cash and cash equivalents and marketable
securities. Interest and other income, net for the year ended December 31, 1997
was $836,000 compared to $365,000 and $92,000 for the years ended December 31,
1996 and 1995, respectively. The increase from year to year was primarily
attributable to the higher average investments in cash and cash equivalents
and, in 1997, marketable securities of the proceeds from the IPO. The Company
anticipates that interest income will increase in future periods as a result of
the investment of the net proceeds from the IPO and 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 December 31,
1997. As of December 31, 1997, the Company had approximately $44,000,000 of net
operating loss carryforwards for Federal income tax purposes, expiring from
2009 to 2012, 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.
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SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly statement of
operations data for the years ended December 31, 1996 and 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, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
----------- ---------- ----------- ---------- ----------- ---------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Advertising ................ $ 30 $ 312 $ 426 $ 783 $ 715 $ 930 $ 1,420 $ 2,349
Membership and
fee-based services ....... 66 127 212 478 520 537 672 963
Merchandising .............. -- -- -- 3 3 24 43 216
Other ...................... -- -- -- -- 15 58 930 932
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue ............. 96 439 638 1,264 1,253 1,549 3,065 4,460
Loss from operations ........ (2,334) (2,766) (3,613) (4,371) (4,754) (6,716) (8,017) (7,809)
Net loss .................... (2,374) (2,696) (3,585) (4,200) (4,603) (6,513) (7,874) (7,545)
Net loss per share--basic
and diluted ............... $ (0.50) $ (0.41) $ (0.54) $ (0.49) $ (0.52) $ (0.63) $ (0.76) $ (0.62)
</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 merchandise,
memberships and fee-based services increased sequentially in each of the
quarters presented. The impact of the AOL agreement is reflected in the
increase in other revenue starting in the third quarter of 1997.
As a result of the Company's relatively short operating history and the
emerging nature of the markets in which it competes, the Company is limited in
its ability 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
In November 1997, the Company sold 3,500,000 shares of Common Stock in the
IPO. Of the 3,500,000 shares sold in the IPO, 2,693,549 shares were sold to the
public at a price of $8.00 per share and 672,043 shares and 134,408 shares were
sold to Intel Corporation and Mitsubishi Corporation, respectively, at a price
of $7.44 per share. In December 1997, the underwriters exercised their over-
allotment option to purchase an additional 525,000 shares of Common Stock. The
total net proceeds to the Company from the IPO were approximately $30,000,000.
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As of December 31, 1997, the Company's primary source of liquidity
consisted of $32,158,000 in cash and marketable securities. Prior to the IPO,
the Company financed its operations primarily through private placements of
common stock and convertible preferred stock. In January 1998, CBS exercised
warrants to purchase 380,000 shares of Common Stock, resulting in the net
proceeds of $3,800,000.
As of December 31, 1997, the Company owed $281,000 under its equipment
line of credit which was paid in full in February 1998.
The Company obtained revolving credit facilities that provide for the
lease financing of computers and other equipment purchases. Outstanding amounts
under the facilities bear interest at variable rates of approximately 9%. As of
December 31, 1997, the Company owed $729,000 under these facilities.
As of December 31, 1997, deferred advertising and content costs totaled
$517,000, which represented costs related to the CBS agreement to be amortized
to depreciation and amortization expense during the year ended December 31,
1998. Accrued liabilities totaled $2,683,000 as of December 31, 1997, an
increase of $1,351,000 from December 31, 1996, primarily due to increases in
accruals for advertising, software royalties and consulting fees.
Net cash used in operating activities was $16,004,000, $10,915,000 and
$4,390,000 for the years ended December 31, 1997, 1996 and 1995, 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 $3,451,000, $1,183,000 and
$1,446,000 for the years ended December 31, 1997, 1996 and 1995, 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 $36,113,000, $25,908,000,
and $4,353,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Financing activities consisted principally of the issuance of
equity securities, including shares of Common Stock sold in the IPO, and draws
on a term loan with a bank in December 1995 and January 1996 (which was
subsequently repaid in March 1996).
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 other 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 December 31, 1997, the minimum guaranteed payments
required to be made by the Company under such agreements were $15,151,000. The
Company's minimum guaranteed payments are subject to reduction in the case of
certain agreements based upon the appreciation of warrants issued, the value of
stock received on exercise of such warrants and the amount of profit sharing
earned under the related agreements.
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 $4,000,000 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 no portion of the net proceeds has been
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<PAGE>
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 its current cash and marketable securities 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 30 to 36 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. While uncertainty
exists concerning the potential effects associated with such compliance, the
Company does not believe that year 2000 compliance will result in a material
adverse effect on its financial condition or results of operations.
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. In addition, the effect of such seasonal
fluctuations in revenue could be enhanced or offset by revenue associated with
major sports events, such as the Olympics, the Ryder Cup and the World Cup,
although such events do not occur every year. 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.
RECENT 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. SFAS No. 128 has been adopted by the Company for
the year ended December 31, 1997 and is retroactively reflected in the
financial statements.
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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 CBS and other leading sports news organizations, as well as the Company's
superstar athletes. 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 2,834,000 page views and 478,000 visits
during January 1998, increases of 282% and 348%, respectively, from January
1997 to January 1998. According to Media Metrix, for the month of February 1998
the Company's Web sites were ranked first among sports Web sites in terms of
audience reach, with approximately 6.6% of all people who used the Web from
work and approximately 4.8% of all people who used the Web from home visiting
the Company's Web sites at least once during the month. The Company had
approximately 51,000 paying members as of February 28, 1998.
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 NFL, 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 most
widely syndicated sports radio program, 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 13 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. In July 1997, the Company entered into
an agreement with Microsoft pursuant to which cbs.sportsline.com is bundled
into Microsoft's "Active Desktop" as part of Microsoft's release of IE4.
cbs.sportsline.com is also featured as a default content "channel" in the
Channel Finder of Netscape's 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
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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, 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 $7.7
billion in 2002.
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
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broader and more in-depth sports coverage on its Web sites than is available
from any other single source of media, including television, radio or print
publications. The Company differentiates its Web sites by (i) providing
comprehensive and innovative sports programming, including news and scores,
editorials, sports radio shows, contests, games and fantasy league products;
(ii) utilizing its editorial and technical resources to package proprietary and
third-party content in a compelling and entertaining format; (iii) 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 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 optimizing the speed of delivery of
its content and utilizing interactive multimedia software tools such as Active
X, Java, Shockwave, QuickTime Virtual Reality and streaming audio and video 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, and
instant odds and picks. The Company also expects to increase its revenue from
merchandising, including sales of limited edition collectibles and memorabilia,
licensed and CBS SportsLine branded apparel and merchandise and other sports
products, as well as by developing Web sites and fan clubs for sports
superstars, personalities, organizations and affinity groups.
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. In February 1998, the Company
launched SportsLine WorldWide (sportsline.com/u/worldwide), a Web site
dedicated to providing comprehensive coverage of international sports.
SportsLine WorldWide combines international sports coverage obtained through
the Company's relationships with Soccernet (soccernet.com) and CricInfo
(cricinfo.org), strategic relationships with major publishing organizations in
Brazil (O ESTADO DE SAO PAULO), France (LE MONDE), Germany (Verlagsgruppe
Fleet), the Netherlands (World Online) and Spain (EL PAIS), as well as content
from cbs.sportline.com and golfweb.com, to provide international sports
coverage to fans worldwide. In addition, following its acquisition of GolfWeb,
the Company also produces golf-related Web sites targeted to Australia, Canada,
Japan and the United Kingdom, and has overseas offices in London and Tokyo.
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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. In November 1997, the Company entered into an
agreement to syndicate certain of its radio programming nationally to
traditional over-the-air sports talk radio station affiliates of the SportsFan
Radio Network. 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.
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 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 Xchange and SportsTicker.
The Company also publishes exclusive editorials and analyses
from its in-house staff of 30 writers and editors and more than
35 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 and directly from the NBA, NFL and WNBA.
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.
</TABLE>
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<TABLE>
<S> <C>
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 Xchange and
columns, video and other content from College Sports
Xchange. Members can personalize the information and
programming they receive through the Company's "Personal
SportsPage" and "Personal SportsMail," which are delivered
over the Web or by e-mail.
COMMUNITY CONTENT The Company hosts monitored interactive chat sessions with
sports superstars and personalities, and experts on subjects
such as sports memorabilia and fantasy leagues. The Company
also hosts monitored forums devoted to sports-related topics.
AUDIO 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. One of the
Company's sports and talk radio shows is broadcast on
traditional radio stations in more than 50 markets in
association with the SportsFan Radio Network. The Company
also "cybercasts" syndicated radio shows from Sports Byline
USA, Sports Overnight America and various experts on
sports-related topics, and produces and distributes audio clips
of interviews, press conferences and other audio surrounding
major sports events.
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 coverage of major events such as the
XVIII Olympic Winter Games and the Super Bowl XXXI
features live video interviews and daily video clips covering
the events and sports celebrities. The Company also
distributes video highlights from NBA, NHL, CBS Sports and
other sporting events.
</TABLE>
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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 American Basketball League
College College
Auto Racing Olympic Sports
Boxing Rugby
Cricket Skiing
Cycling Soccer
Golf Tennis
Health and Fitness Volleyball
Horse Racing Women's Sports
</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 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. In
March 1998, cbs.sportsline.com was awarded the 1998 Webby Award for sports.
cbs.sportsline.com's comprehensive approach is exemplified by its coverage
of Major League Baseball. In addition to up-to-date news, scores, standings,
rosters, transaction reports and exclusive editorial commentary,
cbs.sportsline.com features Baseball LIVE!, an online "stadium" that utilizes
Shockwave technology to enable users to view a graphical depiction of real-time
play-by-play action of Major League Baseball games in progress. Additional
baseball coverage includes player and team statistics that are sortable by
position, team and standing; chat rooms and baseball newsgroup links and
contests. Fantasy league enthusiasts also can purchase SportsLine's fantasy
league products, which include Fantasy Baseball and Commissioner. Fantasy
Baseball enables participants to manage their own fantasy- or rotisserie-style
baseball league in season-long and playoff competitions. Participants form
leagues of up to 20 teams and utilize cbs.sportsline.com to administer all
player transactions (for example, drafts, trades, starting lineup selection,
disabled list and minor league moves) and obtain 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.
GOLFWEB.COM, acquired by the Company in January 1998, provides
golf-related content, interactive entertainment, membership services and
merchandise domestically. The Company also provides golf-related content,
interactive entertainment, membership services and merchandise internationally
through Web sites targeted to golf enthusiasts in Australia, Canada, Japan and
the United Kingdom. golfweb.com features tournament coverage from over 24 golf
tours worldwide, including the PGA, LPGA and Senior PGA, and is the official
Web site of the PGA European Tour. golfweb.com has a worldwide golf course
directory with information on over 21,000 golf courses, as well as the Web's
largest online discount golf pro shop.
SPORTSLINE WORLDWIDE, launched as a separate Web site in February 1998, is
dedicated to providing comprehensive coverage of international sports.
SportsLine WorldWide features sports content from
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Soccernet (soccernet.com), a Web site co-produced by the Company and THE DAILY
MAIL, CricInfo (cricinfo.org), a London-based organization sanctioned by the
International Cricket Council, and golfweb.com. SportsLine WorldWide also
offers coverage of international sports, such as cricket and soccer, through
strategic relationships with major publishing organizations in Brazil (O ESTADO
DE SAO PAULO), France (LE MONDE), Germany (Verlagsgruppe Fleet), the
Netherlands (World Online) and Spain (EL PAIS). Content provided by these
publishers is displayed in foreign languages on the SportsLine WorldWide Web
site, and the publishers distribute the Company's content in the English
language on their own Web sites.
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.
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 13 sports superstars and personalities, including
Joe Namath, Michael Jordan (jordan.sportsline.com), Tiger Woods
(tigerwoods.com), Shaquille O'Neal (shaq.com), Wayne Gretzky (gretzky.com), Cal
Ripken, Jr. (2131.com), Pete Sampras (sampras.com), Gabrielle Reece
(gabbyreece.com), Emerson Fittipaldi (emmo.com), Mike Schmidt, Bill Walton and
John Daly (gripitandripit.com). 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), the PGA European Tour (europeantour.com), Soccernet
(soccernet.com), CricInfo (cricinfo.org), the FedEx Orange Bowl
(orangebowl.org) 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. The Company intends to
capitalize on its Web site production capabilities and generate incremental
revenue by building Web sites for other sports superstars, personalities,
organizations and affinity groups that seek to establish a Web presence.
OTHER DISTRIBUTION CHANNELS
The 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
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commercial online services (Prodigy), third party Web sites (Delta Airlines),
high speed modems and television-based products (@Home, Media One and
Netchannel), and other Internet-based products (C|NET's Snap!, WebTV, Air Media
Live!, WaveTop and Audible). 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 more than 45 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 allow 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, Chicago, San Francisco, Detroit and
Atlanta. 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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From January 1, 1997 through February 28, 1998, more than 150
organizations from various industries advertised on the Company's Web sites,
including the following representative advertisers, each of which placed more
than $25,000 of advertising during this period:
AUTOMOTIVE
Acura
Buick
Chevrolet
Ford
Honda
Oldsmobile
Toyota
TECHNOLOGY
3Com
AOL
Autoweb.com
Compaq
Hewlett Packard
IBM
Intel
Microsoft
Netscape
PointCast
Preview Travel
RealNetworks
SAP
Sun Microsystems
CONSUMER
Anheuser Busch
Bausch & Lomb
Bugle Boy
Canon
Delta Airlines
Dupont
Gatorade
JC Penney
Pepsi
Perry Ellis
Rayovac
Reebok
Shell Oil
Sony Electronics
Xerox
TELECOMMUNICATIONS
AT&T
Bell South
Frontier Communications
MCI
Sprint
US WEST
PUBLISHING AND ENTERTAINMENT
Air Media
DirecTV
E-Pub
Electronic Arts
Harper Collins
MSNBC
FINANCIAL
AIG
Block Financial
Chase Manhattan Bank
Datek Securities
E*Trade
MBNA
Quick & Reilly
VISA
No advertiser accounted for more than 8% of the Company's revenue during
1996 or more than 7% of the Company's revenue during 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 has created an online fan club
for Tiger Woods and expects to create additional online fan clubs for other
superstar athletes. The Company also has the exclusive right to create the
"offline" fan club for Tiger Woods.
The following table sets forth certain information, as of February 28,
1998, 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.
GOLFWEB PLAYERS CLUB. Personalized golf instruction; performance tracking; discounts$29.95 annually
on golf travel and merchandise; weekly newsletter; online golf handicap.
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
FAN CLUBS CLUB TIGER. Membership certificate; personalized e-mail; quarterly
newsletter; limited edition merchandise, such as bag tag and ID card, Nike
$29.95 annually
T-shirt, collectible Titleist golf ball, special edition Topps photo and Tiger
Woods golf poster; All Star Cafe VIP Card.
PUBLICATIONS ONLINE SUBSCRIPTIONS. Ten professional and more than 25 college sports $4.99 - $59.95
publications.
</TABLE>
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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.
MERCHANDISE
During the fourth quarter of 1997, the Company launched The Sports Store
(thesportstore.com), which offers a variety of branded sports merchandise,
books, videos and unique collectible memorabilia, including (i) merchandise
from recognized sporting goods manufacturers, such as K-Swiss and Wilson (ii)
licensed apparel from Russell Athletics, Champion and Pro-Line (iii) league,
event and team merchandise branded by organizations such as the NFL, MLB, NCAA
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 Lee, (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.
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 NFL, 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 agreement with AOL, the Company has
secured until September 1998 a continuous brand 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, with links to the Company's Web
sites. 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.
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MICROSOFT. The Company's strategic marketing and content distribution
agreement with Microsoft provides for Microsoft to promote the Company's
service in conjunction with the commercial release of IE4 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 distributed by Microsoft within the United
States over the term of the agreement.
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, Joe Montana,
Cal Ripken, Jr., Pete Sampras, Gabrielle Reece, Mike Schmidt, Emerson
Fittipaldi, John Daly 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 also has a strategic relationship with
the San Francisco Forty Niners. 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 the PGA
European Tour, 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, and one of the Company's sports talk radio shows
is currently being broadcast on traditional radio stations in more than 50
markets in association with the SportsFan Radio Network. 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", WebTV, Audible, WaveTop, Air Media Live!
and C|NET's Snap!), third party Web sites, (Delta Airlines), high speed modems
and television-based products (@Home, Media One and Netchannel).
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,
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The Golf Channel and Sports Byline USA, the Company advertises on other Web
sites, in targeted publications and on sports talk radio stations, distributes
promotional materials at selected sports events and engages in an ongoing
public relations campaign. The Company is involved in a variety of promotions
where links to its Web sites or coupons offering free trial memberships are
bundled into software products distributed online or through other retail
channels. The Company also has conducted limited direct mail campaigns
targeting online or sports-oriented consumers. Whenever possible, the Company
utilizes cross promotional arrangements to secure advertising and other
promotional considerations.
The Company's agreement with CBS provides for cbs.sportsline.com to
receive, 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 NFL, 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 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
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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 AOL
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
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governing issues such as property ownership, libel and personal privacy is
uncertain and could expose the Company to substantial liability, for which the
Company might not be indemnified by content providers.
The Company's contests and sweepstakes may be subject to state and federal
laws governing lotteries and gambling. The Company seeks to design its contest
and sweepstakes rules to fall within exemptions from such laws and restricts
participation to individuals over 18 years of age who reside in jurisdictions
within the United States and Canada in which the contests and sweepstakes are
lawful. There can be no assurance that the Company's contests and sweepstakes
will be exempt from such laws or that the applicability of such laws to the
Company would not have a material adverse effect on the Company's business,
results of operations and financial condition.
INTELLECTUAL PROPERTY
The Company's performance and ability to compete are dependent to a
significant degree on its internally developed content and technology. The
Company relies on a combination of copyright and trademark laws, trade secret
protection, 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 a trial is currently scheduled for September 1998. 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
53
<PAGE>
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 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 USA." 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 202 full-time employees as of December 31, 1997, of which
64 were in editorial and operations, 67 were in technical and product
development, 49 were in sales and marketing, and 22 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
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<PAGE>
Company's employees are not represented by any collective bargaining
organization, and the Company considers its relations with its employees to be
good.
INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY
The Company makes its Web sites available through multiple servers,
primarily Sun Microsystems models Ultra 2 (18), Ultra 450 (6), Ultra 4000 (2),
Ultra 1 (3) and Sparc 1000E (4), as well as twenty-eight (28) 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 and maintains mirror sites for its Web sites at
a host facility in Santa Clara, California. 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 also leases on a month-to-month basis an additional 7,000 square
feet of office space near its corporate headquarters, and has sales offices in
Chicago, New York and San Francisco. GolfWeb maintains offices in Cupertino,
California; London, United Kingdom; and Tokyo, Japan. 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.
55
<PAGE>
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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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
AGE POSITION
NAME ----- --------------------------------------------
<S> <C> <C>
Michael Levy ................. 51 Chairman of the Board, President and
Chief Executive Officer
Kenneth W. Sanders ........... 41 Chief Financial Officer
Mark J. Mariani .............. 41 Executive Vice President, Sales
Andrew S. Sturner ............ 33 Vice President, Business Development
Thomas Jessiman .............. 37 Senior Vice President, Operations
G. Kenneth Dotson ............ 37 Vice President, Marketing
Thomas C. Eastwood ........... 43 Vice President, Chief Technology Officer
Ross Levinsohn ............... 34 Vice President, Programming and Enterprises
Thomas Wargo ................. 43 Vice President, Vegas Insider
Dan Leichtenschlag ........... 36 Vice President, Engineering
William H. Louden ............ 52 Vice President, Strategic Operations
Thomas Cullen ................ 38 Director
Gerry Hogan .................. 52 Director
Richard B. Horrow ............ 43 Director
Joseph Lacob ................. 42 Director
Sean McManus ................. 43 Director
Andrew Nibley ................ 46 Director
Derek Reisfield .............. 35 Director
Michael P. Schulhof .......... 55 Director
James C. Walsh ............... 57 Director
</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
1979 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 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 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,
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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.
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.
THOMAS JESSIMAN has served as the Company's Senior Vice President,
Operations since February 1998. Mr. Jessiman served as the Company's Vice
President, International from March 1997 to February 1998. 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.
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.
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.
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.
WILLIAM H. LOUDEN has served as Vice President, Strategic Operations since
March 13, 1998. From January 1996 to February 1998, Mr. Louden served as Senior
Vice President, Content & Communities at Delphi Internet Services Company, a
provider of Internet consumer and business community services. From September
1993 to December 1995, Mr. Louden served as President of Interactive
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Consulting group, a consulting group focused on Internet marketing and
management. From December 1991 to August 1993, Mr. Louden held various
management positions including Vice President and General Manager of U.S.
VideoTel, a regional information services company. From May 1985 to December
1991, Mr. Louden served as General Manager, Genie, a global information
services company controlled by General Electric Company. From February 1980 to
December 1984, Mr. Louden held various positions, including Director, Personal
Computing, in the communications and entertainment products divisions of
CompuServe, Inc., an Internet service provider and information services
company.
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 Preview Travel, Inc. and Third Age Media, Inc.
GERRY HOGAN, appointed a director of the Company in November 1996, has
served as Chairman and Chief Executive Officer of Cygnus Publishing, Inc., a
publisher of trade magazines since June 1997. From February 1993 to August
1995, Mr. Hogan served as President and Chief Executive Officer of the Home
Shopping Network. From October 1990 to February 1993, Mr. Hogan served as vice
chairman of Whittle Communications, L.P. 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, a venture capital
partnership, 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 President, Reuters NewMedia, Inc. ("Reuters NewMedia") since January
1998 and a director of Reuters NewMedia since January 1994. From January 1994
to January 1998, Mr. Nibley was the Editor and Executive Vice President of
Reuters NewMedia. 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.
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. Mr. Reisfield serves as
Chairman of the Board of Directors of Marketwatch.Com, LLC and also serves as a
member of the Board of Directors of Westinghouse (Persian) Gulf, Ltd.
MICHAEL P. SCHULHOF, appointed a director of the Company in November 1997,
is a private investor. From June 1974 to January 1996, 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 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.
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.
Messrs. Lacob, Nibley and Cullen 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 terminated upon completion
of the Company's initial public 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, terminated upon completion of
the Company's initial public offering.
The Board of Directors is divided into three classes, and each director
serves for a staggered three-year term, or until successors of such class have
been elected and qualified. Messrs. Nibley and Walsh 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 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 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 has established an Audit Committee and a
Compensation Committee. Messrs. Cullen, Lacob and Reisfield serve on the Audit
Committee, which is responsible for reviewing audit functions, including
accounting and financial reporting practices of the Company, the adequacy of
the Company's system of internal accounting control, the quality and integrity
of the Company's financial statements and relations with independent auditors.
Messrs. Hogan, Levy and
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McManus serve on the Compensation Committee, which is 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 reimburses 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 are 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, 1997 by the Company's Chief Executive Officer and its other
executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION (1) COMPENSATION AWARDS
------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALAR BONUS UNDERLYING OPTIONS COMPENSATION
- ------------------------------------------------- ------------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
Michael Levy,
President and Chief Executive Officer ......... $206,787 $75,000 150,000 $ 23,027 (2)
Mark J. Mariani,
Executive Vice President, Sales ............... 165,066 25,000 20,000 --
Kenneth W. Sanders,
Chief Financial Officer (3) ................... 72,717 15,000 100,000 47,579 (4)
Andrew S. Sturner,
Vice President, Business Development .......... 127,500 20,000 30,000 --
</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) Mr. Sanders joined the Company in September 1997.
(4) Represents relocation expenses paid by the Company to Mr. Sanders.
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The following table sets forth certain information concerning grants of
stock options made during 1997 to each Named Executive Officer.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1997
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 ............ 150,000 16.6 $ 8.00 12/5/07 $754,674 $1,912,491
Mark J. Mariani ......... 20,000 2.2 8.00 7/1/07 - 12/5/07 100,623 254,999
Kenneth W. Sanders ...... 100,000 11.1 8.00 8/27/07 - 12/5/07 503,116 1,274,994
Andrew S. Sturner ....... 30,000 3.3 5.00-8.00 3/1/07 - 12/5/07 135,841 344,248
</TABLE>
- ----------------
(1) All such options were granted under the Company's 1995 Stock Option Plan
and 1997 Incentive Compensation Plan and become exercisable in
installments over a period of four years. Under the 1995 Stock Option Plan
and 1997 Incentive Compensation 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, 1997 by each of the Named
Executive Officers. No options were exercised by the Named Executive Officers
in 1997.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 (1) DECEMBER 31, 1997 (2)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Michael Levy ............... 0 150,000 $ 0 $412,500
Mark J. Mariani ............ 33,333 66,667 337,330 611,600
Kenneth W. Sanders ......... 20,000 80,000 55,000 220,000
Andrew S. Sturner .......... 25,000 45,000 253,000 258,300
</TABLE>
- ----------------
(1) Exercisable in accordance with the provisions described in Note (1) to the
table entitled "Option Grants in Fiscal Year 1997."
(2) Based on the closing price for the Company's Common Stock on December 31,
1997 ($10.75), as reported by the Nasdaq National Market.
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 $8.00
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 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.
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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 shareholders 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
February 28, 1998, options to purchase a total of 1,029,137 shares of Common
Stock at a weighted average exercise price of $4.16 were outstanding under the
1995 Plan (of which options to purchase approximately 327,929 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 the 1997
Incentive Compensation Plan (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 is 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. As of
February 28, 1998, options to purchase a total of 618,186 shares of Common
Stock at a weighted average exercise price of $11.99 were outstanding under the
Incentive Plan (of which options to purchase approximately 14,139 shares were
then exercisable).
The following is a description of the types of Awards that may be granted
under the Incentive Plan:
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Committee is authorized
to grant stock options, including incentive and non-qualified stock
options, and stock appreciation rights ("SARs") entitling the Participant
to receive the amount by which the fair market value of a share of Common
Stock on the date of exercise exceeds the grant price of the SAR. The
exercise price per share subject to an option and the grant price of a SAR
are determined by the Committee, but must not be less than the fair market
value of a share of Common Stock on the date of grant. Each option is
exercisable after the period or periods specified in the related option
agreement, but no option may be exercised after the expiration of ten years
from the date of grant. Options granted to an individual who owns (or is
deemed to own) at least 10% of the total combined voting power of
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<PAGE>
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 those directors elected or
appointed after the completion of the Company's initial public 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
64
<PAGE>
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"). 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
commenced on November 13, 1997 and ends 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, was $8.00) 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. At December 31, 1997, employees'
contributions to the Purchase Plan were approximately $757,000, which will be
applied to the purchase of common stock on June 30, 1998.
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 $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. In January 1998, CBS exercised
warrants to purchase 380,000 shares of Common Stock at an exercise price of
$10.00 per share.
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 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
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<PAGE>
opportunity to license to the Company content specifically related to sports
outside the United States, if such content is already owned, licensed or
produced by Reuters NewMedia, and to license such content from Reuters NewMedia
if its proposal is equivalent to or better than proposals received from third
parties.
KLEINER PERKINS CAUFIELD & BYERS GUARANTY
In December 1995, Kleiner Perkins Caufield & Byers VII ("KPCB VII")
guaranteed a $1,500,000 loan the Company received from Silicon Valley Bank. In
return for executing the guaranty, the Company issued KPCB VII warrants to
purchase 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 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 1994 and received warrants to purchase an
additional 8,000 shares of Common Stock at an exercise price of $8.00 per share
in December 1997.
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 years ended December 31, 1995, 1996
and 1997 were $932, $18,645 and $49,967, respectively.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of February 28, 1998,
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 and Named
Executive Officer of the Company, (iii) all directors and executive officers of
the Company as a group and (iv) each of the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THE OFFERING SHARES BENEFICIALLY OWNED
(2) AFTER THE OFFERING (2)
----------------------- NUMBER OF ------------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------------------------------------- ----------- --------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND
5% SHAREHOLDERS
CBS Inc. (3) ................................. 2,248,075 13.6% -- 2,248,075 11.9%
US WEST Interactive Services, Inc. ........... 1,995,852 12.3 400,000 1,595,852 8.6
Thomas Cullen (4) ............................ 1,995,852 12.3 400,000 1,595,852 8.6
Kleiner Perkins Caufield & Byers (5) ......... 1,952,221 11.8 -- 1,952,221 10.4
Joseph Lacob (6) ............................. 1,952,221 11.8 -- 1,952,221 10.4
Michael Levy (7) ............................. 1,520,000 9.4 150,000 1,370,000 7.4
Estate of Burk Zanft (8) ..................... 1,000,000 6.1 -- 1,000,000 5.4
Reuters NewMedia, Inc. ....................... 845,672 5.2 -- 845,672 4.6
Andrew Nibley (9) ............................ 845,672 5.2 -- 845,672 4.6
James C. Walsh (10) .......................... 200,000 1.2 40,000 160,000 *
Mark J. Mariani (11) ......................... 40,000 * 10,000 30,000 *
Andrew S. Sturner (12) ....................... 30,499 * -- 30,499 *
Kenneth W. Sanders (13) ...................... 20,000 * -- 20,000 *
Richard B. Horrow (14) ....................... 12,500 * -- 12,500 *
Gerry Hogan (15) ............................. 10,000 * -- 10,000 *
Sean McManus ................................. -- * -- -- *
Derek Reisfield .............................. -- * -- -- *
Michael P. Schulhof (16) ..................... -- * -- -- *
All directors and executive officers
as a group (13 persons) (17) ................ 8,874,819 51.9 600,000 8,274,819 42.8
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OFFERING OWNED
(2) AFTER THE OFFERING (2)
------------------------ NUMBER OF -----------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- -------------------------------------------- ------------ --------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
OTHER SELLING SHAREHOLDERS
TCI Online Sports Holdings, Inc. ........... 666,666 4.1 133,333 533,333 2.9
Alliance Technology Ventures, Inc. ......... 445,692 2.8 445,692 -- *
KR Investment Co. (18) ..................... 353,607 2.2 70,607 283,000 1.5
Transatlantic Venture Partners, C.V. ....... 277,776 1.7 277,776 -- *
Institutional Venture Partners VI (18) ..... 246,058 1.5 49,258 196,800 1.1
Trinity Ventures V, L.P. (18) .............. 155,092 1.0 31,000 124,092 *
Thomas C. Eastwood (19) .................... 38,124 * 10,000 28,124 *
ATV/MJF Parallel Fund, L.P. ................ 35,671 * 35,671 -- *
Ed Patterman (18) .......................... 29,689 * 5,938 23,751 *
Natio Nouveaux Marches Europe .............. 26,666 * 26,666 -- *
Cynthia Typaldos (18) ...................... 24,171 * 4,834 19,337 *
Ross Levinsohn (20) ........................ 20,916 * 10,000 10,916 *
Thomas Wargo (21) .......................... 14,499 * 2,500 11,999 *
Institutional Venture Management
Founders Fund I, L.P. (18) ................ 7,120 * 1,420 5,700 *
Kevin Klier (18) ........................... 6,508 * 3,000 3,508 *
Institutional Venture Management (18)....... 5,166 * 1,066 4,100 *
Robert Vieraitis (18) ...................... 4,442 * 4,442 -- *
Jay and Gabrielle Kunin (18) ............... 1,711 * 1,000 711 *
Brian Axe (18) (22) ........................ 433 * 200 233 *
Robert Clark (18) .......................... 54 * 54 -- *
Harry Filer (18) ........................... 54 * 54 -- *
Linda Reid (18) ............................ 54 * 54 -- *
Nancy Boling (18) .......................... 5 * 5 -- *
Other Selling Shareholders
as a group (23) ........................... 2,360,174 14.5 1,114,570 1,245,604 6.7
</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) 16,164,558 shares of Common Stock outstanding as of
February 28, 1998, and (ii) shares issuable pursuant to options and
warrants held by the respective person or group which may be exercised
within 60 days after February 28, 1998 ("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.
(3) Reflects (i) 1,868,075 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 February 28, 1998 pursuant to the CBS agreement. See "Certain
Transactions--CBS Agreement." The address of CBS is 51 West 52nd Street,
New York, New York 10019.
(4) 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 80112.
(5) 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.
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(6) 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 (5) above. The address of Mr. Lacob is 2750
Sand Hill Road, Menlo Park, California 94025.
(7) Reflects 1,520,000 shares held of record. Excludes 150,000 shares issuable
upon exercise of stock options held by Mr. Levy not exercisable within 60
days.
(8) 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.
(9) 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.
(10) Reflects (i) 100,000 shares held of record and (ii) 100,000 shares subject
to presently exercisable warrants.
(11) Includes 40,000 shares subject to presently exercisable stock options.
Excludes 60,000 shares issuable upon exercise of stock options held by Mr.
Mariani not exercisable within 60 days.
(12) Includes 30,499 shares subject to presently exercisable stock options.
Excludes 39,501 shares issuable upon exercise of stock options held by Mr.
Sturner that are not exercisable within 60 days.
(13) Includes 20,000 shares subject to presently exercisable stock options.
Excludes 80,000 shares issuable upon exercise of stock options held by Mr.
Sanders not exercisable within 60 days.
(14) Includes 12,500 shares subject to presently exercisable warrants. Excludes
7,500 shares issuable upon exercise of warrants held by Mr. Horrow that
are not exercisable within 60 days.
(15) Includes 10,000 shares subject to presently exercisable warrants. Excludes
30,000 shares issuable upon exercise of warrants held by Mr. Hogan that
are not exercisable within 60 days.
(16) Excludes 40,000 shares issuable upon exercise of warrants held by Mr.
Schulhof that are not exercisable within 60 days and 20,000 shares
issuable upon exercise of stock options held by Mr. Schulhof that are not
exercisable within 60 days.
(17) Includes the information in the notes herein, as applicable. Reflects (i)
7,951,820 shares held of record, (ii) 90,500 shares subject to presently
exercisable stock options and (iii) 832,500 shares subject to presently
exercisable warrants. Excludes (i) 329,501 shares issuable upon exercise
of stock options and (ii) 77,500 shares issuable upon exercise of warrants
not exercisable within 60 days.
(18) Reflects shares issued by the Company in connection with the acquisition
of GolfWeb.
(19) Includes 38,124 shares subject to presently exercisable stock options.
Excludes 11,876 shares issuable upon exercise of stock options held by Mr.
Eastwood that are not exercisable within 60 days.
(20) Includes 20,916 shares subject to presently exercisable stock options.
Excludes 34,084 shares issuable upon exercise of stock options held by Mr.
Levinsohn that are not exercisable within 60 days.
(21) Includes 14,499 shares subject to presently exercisable stock options.
Excludes 25,501 shares issuable upon exercise of stock options held by Mr.
Wargo that are not exercisable within 60 days.
(22) Reflects (i) 252 shares held of record and (ii) 181 shares subject to
presently exercisable stock options. Excludes 6,586 shares issuable upon
exercise of stock options held by Mr. Axe that are not exercisable within
60 days.
(23) Includes the information in the notes herein, as applicable. Reflects (i)
2,286,505 shares held of record and (ii) 73,739 shares subject to
presently exercisable stock options. Excludes 78,047 shares issuable upon
exercise of stock options not exercisable within 60 days.
70
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists 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 February 28, 1998, there were 16,164,558 shares of Common Stock
outstanding and held of record by approximately 100 stockholders. Based upon
the number of shares outstanding as of that date and giving effect to the
issuance of the 2,285,430 shares of Common Stock offered hereby by the Company,
there will be 18,449,988 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. There are no shares of preferred stock
outstanding.
PREFERRED STOCK
As of February 28, 1998, no shares of preferred stock were outstanding.
The Board of Directors is 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 February 28, 1998, options to purchase a total of 1,647,323 shares
("Option Shares") of Common Stock were outstanding. After completion of this
offering, approximately 68,500 of the Option Shares will be subject to lock-up
agreements through May 11, 1998 and approximately 131,500 additional Option
Shares will be subject to lock-up agreements for a period of 90 days after the
date of this Prospectus.
As of February 28, 1998, warrants to purchase a total of 2,019,151 shares
("Warrant Shares") of Common Stock were outstanding. After completion of this
offering, approximately 460,000 of the Warrant Shares will be subject to
lock-up agreements through May 11, 1998 and approximately 812,500 additional
Warrant Shares will be subject to lock-up agreements for a period of 90 days
after the date of this Prospectus.
71
<PAGE>
REGISTRATION RIGHTS
Certain securityholders of the Company (the "Rightsholders") are entitled
to require the Company to register under the Securities Act of 1933, as amended
(the "Securities Act"), up to a total of 9,378,434 shares (the "Registrable
Shares") of outstanding Common Stock (including 1,469,138 Registrable Shares
being sold by Selling Shareholders in this offering) 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. In addition, the
Company granted to the GolfWeb shareholders registration rights for the 844,490
shares of Common Stock issued pursuant to the GolfWeb acquisition (including
172,932 shares being sold by Selling Shareholders in this offering) 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 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 is 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 of Directors, 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.
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.
72
<PAGE>
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.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 18,449,988 shares
of Common Stock outstanding (assuming no exercise of outstanding options or
warrants). Of these shares, the 2,285,430 shares sold in this offering and the
4,025,000 sold in the Company's IPO 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.
Approximately 12,100,000 of the outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 (the "Restricted
Shares"). Of the Restricted Shares, 10,148,425 shares will be subject to
lock-up agreements as described below. Upon expiration of these agreements all
of the Restricted Shares will be available for sale in the public market,
subject to the provisions of Rule 144 under the Securities Act. Upon completion
of this offering, the holders of 10,448,929 of the Restricted Shares will be
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
184,400 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--Possible
Volatility of Stock Price."
The Company has filed registration statements 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.
Accordingly, shares issued under the Company's stock plans are 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 and, in
certain cases, lock-up agreements.
All executive officers and directors of the Company and certain of the
Company's shareholders (including the Selling Shareholders), who upon the
completion of this offering will hold in the aggregate 8,853,981 shares of
Common Stock, and options and warrants to purchase 944,039 shares of Common
Stock, have agreed 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 90 days after the date of this
Prospectus, subject to certain exceptions. In addition, in connection with the
IPO, certain officers of the Company and certain of the Company's shareholders,
who are not subject to the foregoing and, upon the completion of this offering,
will hold in the aggregate 1,475,555 shares of Common Stock, and options and
warrants to purchase 528,499 shares of Common Stock, agreed that they will not,
without prior written consent of BancAmerica Robertson Stephens, directly or
indirectly, offer to sell, contract to sell or otherwise dispose of any shares
of Common Stock beneficially owned by them until May 11, 1998. 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.
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.
74
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, NationsBanc Montgomery Securities LLC,
PaineWebber Incorporated and Smith Barney Inc. (the "Representatives"), have
severally agreed with the Company and the Selling Shareholders, 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 such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER ----------
<S> <C>
BancAmerica Robertson Stephens ................
NationsBanc Montgomery Securities LLC .........
PaineWebber Incorporated ......................
Smith Barney Inc. .............................
Total ..................................... 4,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not more than $ per
share, of which $ may be reallowed to other dealers. After the completion
of this 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 and the Selling
Shareholders 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 600,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 2,285,430 shares that the Underwriters have agreed to
purchase from the Company. 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. 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.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders 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 8,853,981
shares of the Company's Common Stock (including the Selling Shareholders), have
agreed, for a period of up to 90 days after the date of this Prospectus, that,
subject to certain exceptions, they will not contract to sell or otherwise
75
<PAGE>
dispose of any shares of Common Stock, any options or warrants to purchase
shares of Common Stock or any securities convertible into, or exchangeable for,
shares of Common Stock, owned directly by such holders or with respect to which
they have the power of disposition, without the prior written consent of
BancAmerica Robertson Stephens. However, BancAmerica Robertson Stephens may, in
its sole discretion, and at any time or from time to 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 90 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.
The Representatives have advised the Company that, pursuant to Regulation
M under the Exchange Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of the
Common Stock on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with the offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.
In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the
business day prior to the pricing of the offering, before the commencement of
offers or sales of the Common Stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess
of the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
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.
76
<PAGE>
EXPERTS
Each of the historical and the Supplemental Consolidated Financial
Statements of the Company included in this Prospectus and Registration
Statement to the extent and for the periods indicated in their reports, 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 reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, the exhibits and the schedule forming a part thereof and the reports
and other information filed by the Company with the Commission in accordance
with the Exchange Act may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission locate at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. 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.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedule thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedule filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or any other document to which reference is made are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document 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 and the exhibits and schedule thereto may be inspected without charge
at the offices of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
at 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the fees
prescribed by the Commission. 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.
77
<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, 1996 and 1997 ............................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and 1997 . F-4
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997 ............................................ F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 . F-6
Notes to Financial Statements ................................................. F-7
Report of Independent Certified Public Accountants on Supplemental Consolidated
Financial Statements ........................................................ F-21
Supplemental Consolidated Balance Sheets as of December 31, 1996 and 1997 ..... F-22
Supplemental Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 ............................................ F-23
Supplemental Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1996 and 1997 ........................ F-24
Supplemental Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 ............................................ F-25
Notes to Supplemental Consolidated Financial Statements ....................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
SportsLine USA, Inc.:
We have audited the accompanying balance sheets of SportsLine USA, Inc. (a
Delaware corporation) as of December 31, 1996 and 1997, and the related
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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 audits 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, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 29, 1998.
F-2
<PAGE>
SPORTSLINE USA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 13,993,785 $ 30,652,011
Marketable securities ......................................... -- 1,505,909
Deferred advertising and content costs ........................ -- 517,084
Accounts receivable ........................................... 561,390 2,131,937
Prepaid expenses and other current assets ..................... 391,386 2,752,700
------------- -------------
Total current assets ........................................ 14,946,561 37,559,641
RESTRICTED CERTIFICATES OF DEPOSIT ............................. 138,601 138,601
PROPERTY AND EQUIPMENT, net .................................... 2,241,630 3,433,285
OTHER ASSETS ................................................... 522,950 1,813,751
------------- -------------
$ 17,849,742 $ 42,945,278
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 631,712 $ 1,889,501
Accrued liabilities ........................................... 1,332,140 2,682,668
Current portion of long-term borrowings ....................... 224,522 280,652
Current portion of capital lease obligations .................. 200,945 339,553
Deferred revenue .............................................. 778,286 1,800,466
------------- -------------
Total current liabilities ................................... 3,167,605 6,992,840
LONG-TERM BORROWINGS, net of current portion ................... 280,652 --
CAPITAL LEASE OBLIGATIONS, net of current portion .............. 128,080 388,813
------------- -------------
Total liabilities ........................................... 3,576,337 7,381,653
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 8 and 9)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 0 and 1,000,000 shares
authorized, none issued and outstanding as of December 31,
1996 and 1997, respectively ................................. -- --
Series A, B and C convertible preferred stock, $0.01 par value,
14,496,109 and 0 shares authorized, issued and outstanding
as of December 31, 1996 and 1997, respectively .............. 144,961 --
Common stock, $0.01 par value, 50,000,000 shares authorized,
2,601,875 and 14,176,494 issued and outstanding as of
December 31, 1996 and 1997, respectively .................... 26,019 141,765
Additional paid-in capital .................................... 32,691,513 80,545,569
Accumulated deficit ........................................... (18,589,088) (45,123,709)
------------- -------------
Total shareholders' equity .................................. 14,273,405 35,563,625
------------- -------------
$ 17,849,742 $ 42,945,278
============= =============
</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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUE ....................................... $ 52,097 $ 2,436,690 $ 10,326,912
COST OF REVENUE ............................... 756,874 3,395,291 7,649,962
------------ ------------- -------------
GROSS MARGIN (DEFICIT) ........................ (704,777) (958,601) 2,676,950
OPERATING EXPENSES:
Product development .......................... 632,659 939,463 1,300,169
Sales and marketing .......................... 1,179,106 5,568,550 10,873,753
General and administrative ................... 2,662,269 4,794,118 7,514,608
Depreciation and amortization ................ 192,869 823,653 10,284,372
------------ ------------- -------------
Total operating expenses ................... 4,666,903 12,125,784 29,972,902
------------ ------------- -------------
LOSS FROM OPERATIONS .......................... (5,371,680) (13,084,385) (27,295,952)
INTEREST EXPENSE .............................. (50,074) (136,309) (74,480)
INTEREST AND OTHER INCOME, net ................ 91,851 365,320 835,811
------------ ------------- -------------
NET LOSS ...................................... $ (5,329,903) $ (12,855,374) $ (26,534,621)
============ ============= =============
NET LOSS PER SHARE--BASIC AND DILUTED ......... $ (1.42) $ (1.92) $ (2.54)
============ ============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING--BASIC
AND DILUTED .................................. 3,748,241 6,681,043 10,459,138
============ ============= =============
</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
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ................. -- $ -- 2,600,000 $ 26,000
Net proceeds from issuance of Series A
convertible preferred stock ............... 3,000,000 30,000 -- --
Proceeds from issuance of common
stock warrants ............................ -- -- -- --
Non-cash issuance of common
stock warrants pursuant to consulting
agreement ................................. -- -- -- --
Net loss ................................... -- -- -- --
--------- ----------- --------- --------
Balance, December 31, 1995 ................. 3,000,000 30,000 2,600,000 26,000
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 -- --
Proceeds from exercise of common
stock options ............................. -- -- 1,875 19
Non-cash issuance of common stock
warrants pursuant to consulting
agreements ................................ -- -- -- --
Net loss ................................... -- -- -- --
--------- ----------- --------- --------
Balance, December 31, 1996 ................. 14,496,109 144,961 2,601,875 26,019
Proceeds from issuance of common stock ..... -- -- 4,025,000 40,250
Proceeds from exercise of common
stock options ............................. -- -- 38,912 389
Proceeds from exercise of common
stock warrants ............................ -- -- 960,000 9,600
Conversion of preferred stock into
common stock .............................. (14,496,109) (144,961) 5,798,434 57,984
Non-cash issuance of common stock and
common stock warrants pursuant to
CBS agreement ............................. -- -- 752,273 7,523
Non-cash issuance of common
stock warrants pursuant to consulting
agreements ................................ -- -- -- --
Net loss ................................... -- -- -- --
----------- ----------- --------- --------
Balance, December 31, 1997 ................. -- $ -- 14,176,494 $141,765
=========== =========== ========== ========
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1994 ................. $ 2,287,900 $ (403,811) $ 1,910,089
Net proceeds from issuance of Series A
convertible preferred stock ............... 2,883,361 -- 2,913,361
Proceeds from issuance of common
stock warrants ............................ 37,500 -- 37,500
Non-cash issuance of common
stock warrants pursuant to consulting
agreement ................................. 17,000 -- 17,000
Net loss ................................... -- (5,329,903) (5,329,903)
----------- ------------- --------------
Balance, December 31, 1995 ................. 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
Proceeds from exercise of common
stock options ............................. 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 ................. 32,691,513 (18,589,088) 14,273,405
Proceeds from issuance of common stock ..... 28,623,407 -- 28,663,657
Proceeds from exercise of common
stock options ............................. 24,179 -- 24,568
Proceeds from exercise of common
stock warrants ............................ 7,910,400 -- 7,920,000
Conversion of preferred stock into
common stock .............................. 86,977 -- --
Non-cash issuance of common stock and
common stock warrants pursuant to
CBS agreement ............................. 8,293,598 -- 8,301,121
Non-cash issuance of common
stock warrants pursuant to consulting
agreements ................................ 2,915,495 -- 2,915,495
Net loss ................................... -- (26,534,621) (26,534,621)
----------- ------------- --------------
Balance, December 31, 1997 ................. $80,545,569 $ (45,123,709) $ 35,563,625
=========== ============= ==============
</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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................. $ (5,329,903) $ (12,855,374) $ (26,534,621)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ....................... 192,869 823,653 10,284,372
Provision for doubtful accounts ..................... -- 22,045 60,000
Changes in operating assets and liabilities--
Accounts receivable ................................ (3,087) (580,348) (1,630,547)
Prepaid expenses and other assets .................. (197,888) (66,404) (1,813,602)
Accounts payable ................................... 620,370 (31,847) 1,257,789
Accrued liabilities ................................ 281,062 1,042,216 1,350,528
Deferred revenue ................................... 47,050 731,236 1,022,180
------------ ------------- -------------
Net cash used in operating activities .............. (4,389,527) (10,914,823) (16,003,901)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities .................... -- -- (1,505,909)
Purchases of property and equipment .................. (868,150) (1,622,368) (1,944,830)
Net redemption (purchase) of restricted certificates
of deposit ......................................... (578,067) 439,466 --
------------ ------------- -------------
Net cash used in investing activities .............. (1,446,217) (1,182,902) (3,450,739)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and
common stock warrants and options .................. 37,500 1,172 36,608,225
Net proceeds from issuance of convertible
preferred stock .................................... 2,913,361 27,019,697 --
Proceeds (repayment) of term loan .................... 973,000 (973,000) --
Proceeds from long-term borrowings ................... 472,968 144,468 --
Repayment of long-term borrowings .................... -- (112,262) (224,522)
Repayment of capital lease obligations ............... (43,607) (172,513) (270,837)
------------ ------------- -------------
Net cash provided by financing activities .......... 4,353,222 25,907,562 36,112,866
------------ ------------- -------------
Net increase (decrease) in cash and
cash equivalents ................................ (1,482,522) 13,809,837 16,658,226
CASH AND CASH EQUIVALENTS, beginning of year .......... 1,666,470 183,948 13,993,785
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, end of year ................ $ 183,948 $ 13,993,785 $ 30,652,011
============ ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Non-cash issuance of common stock and common stock
warrants pursuant to consulting agreements ......... $ -- $ -- $ 8,301,121
============ ============= =============
Non-cash issuance of common stock warrants pursuant
to consulting agreements ........................... $ 17,000 $ 559,863 $ 2,915,495
============ ============= =============
Equipment acquired under capital leases .............. $ 545,145 $ -- $ 670,178
============ ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ............................... $ 50,074 $ 121,027 $ 91,204
============ ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
SportsLine USA, Inc. (the "Company") was incorporated on February 23, 1994
and began recognizing revenue from its operations in September 1995. The
Company 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's flagship site on the World Wide Web (the
"Web"), cbs.sportsline.com, 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, specific sports such as golf, cricket and soccer,
international sports coverage and electronic odds and analysis on major sports
events.
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 CBS and other 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 broadcasted over the Internet, and syndicated to traditional
radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with
original maturities of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities includes highly liquid investments with original
maturities in excess of three months. Such marketable securities are carried at
cost which approximates market value.
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 first became commercially available. Such costs totaled
approximately $222,000, $782,000 and $4,090,000 for the years ended December
31, 1995, 1996 and 1997, respectively. Accumulated amortization on such amounts
was approximately $40,000, $200,000 and $1,516,000 at December 31, 1995, 1996
and 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 and $1,316,000 for the
years ended December 31, 1995, 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-7
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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 $297,000 and
$331,000 as of December 31, 1996 and 1997, respectively.
REVENUE RECOGNITION
Through 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, content licensing and
merchandise 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 an advertisement is viewed by users of the Company's Web sites.
MEMBERSHIP REVENUE
The Company offers monthly and yearly memberships to certain of the
proprietary content contained in 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.
MERCHANDISE REVENUE
Merchandise revenue is derived from the sale of limited edition
memorabilia, licensed apparel and other sports-related products. Merchandise
revenue is recognized once the product has been shipped and payment is assured.
F-8
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
--------- ------------- -------------
<S> <C> <C> <C>
Advertising--cash .................... $ -- $1,048,118 $ 4,942,046
Advertising--barter .................. -- 502,473 471,700
Membership--basic .................... 28,720 526,026 1,553,300
Membership--premium services ......... 23,377 356,724 1,139,153
Content licensing--cash .............. -- -- 104,997
Content licensing--barter ............ -- -- 1,810,002
Merchandise .......................... -- 3,349 285,814
Other ................................ -- -- 19,900
------- ---------- -----------
$52,097 $2,436,690 $10,326,912
======= ========== ===========
</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.
SALES AND MARKETING
Sales and marketing expense consists of salaries and related expenses,
advertising, marketing, promotional, business development, 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 and Internet search engines and the cost of obtaining qualified
prospects from direct marketing programs and from third parties. No indirect
costs are included in member acquisition costs. In accordance with American
Institute of Certified Public Accountants ("AICPA") Statement of Position 93-7,
REPORTING ON ADVERTISING COSTS, the Company may in the future capitalize such
direct-response advertising costs if historical evidence is available to
indicate that the advertising results in a future benefit. The Company will
determine an appropriate amortization period for such costs if capitalization
begins. Until that time, all such costs are expensed as incurred. All other
advertising and marketing costs are charged to expense at the time the
advertising takes place.
F-9
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
PER SHARE AMOUNTS
Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. 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).
In February 1997, Statement of Financial Accounting Standards ("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. As the
convertible preferred stock was converted into common stock upon completion of
the Company's initial public offering ("IPO"), it has been reflected as common
stock for all periods prior to the IPO. SFAS No. 128 was adopted as of December
31, 1997.
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, marketable securities, accounts receivable, restricted
certificates of deposit, accounts payable and borrowings, approximate fair
value due to their short-term nature and/or market rates of interest.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities, 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 $22,000 and $69,000 at December 31, 1996 and 1997,
respectively. As of December 31, 1996 and 1997, management believes that the
Company had no significant concentrations of credit risk.
IMPAIRMENT OF LONG-LIVED ASSETS
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
F-10
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
STOCK-BASED COMPENSATION
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.
REVERSE STOCK SPLIT
On October 10, 1997, the Board of Directors authorized a 1-for-2.5 reverse
stock split of the Company's common stock to become effective upon completion
of the IPO of its common stock. Such reverse stock split has been retroactively
reflected in all share and per share disclosures in the accompanying financial
statements and notes.
(3) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -------------------------------
(YEARS) 1996 1997
------------- ------------- ---------------
<S> <C> <C> <C>
Computer equipment ...................................... 2-3 $2,561,692 $ 5,064,751
Furniture, fixtures and leasehold improvements .......... 3-7 538,717 637,985
-------
3,100,409 5,702,736
Less--accumulated depreciation and amortization ......... (858,779) (2,269,451)
---------- ------------
$2,241,630 $ 3,433,285
========== ============
</TABLE>
Included in property and equipment is equipment acquired under capital
leases amounting to approximately $545,000 and $1,141,000 as of December 31,
1996 and 1997 less accumulated amortization amounting to approximately $261,000
and $449,000, respectively. Depreciation and amortization expense on property
and equipment amounted to approximately $174,000, $680,000 and $1,423,000 for
the years ended December 31, 1995, 1996 and 1997, 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, 1997) 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
F-11
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) BORROWINGS:--(CONTINUED)
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 in 1998.
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 are payable over a period of 36
months. As of December 31, 1997, $600,284 was outstanding.
(5) SHAREHOLDERS' EQUITY:
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 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 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.
Upon completion of the Company's IPO on November 13, 1997, the convertible
preferred stock converted into common stock at the ratio of 0.4 shares of
common stock for each share of preferred stock. All then existing classes of
preferred stock ceased to be authorized and were replaced by the preferred
stock discussed below.
On April 14, 1997, the Board of Directors authorized the filing of an
Amended and Restated Certificate of Incorporation which became effective upon
the completion of the IPO. Pursuant to the terms of the Amended and Restated
Certificate of Incorporation, the Board of Directors authorized the issuance of
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
F-12
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(CONTINUED)
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.
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
factor 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, capitalized such
costs and is charging them 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 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 1997 totaled
$7,835,000, consisting of amortization relating to advertising of $7,000,000,
content of $431,000 and expense related to warrants of $404,000, and are
included in depreciation and amortization in the accompanying statement of
operations for the year ended December 31, 1997. Total annual amounts to be
amortized to expense in accordance with the CBS agreement are as follows:
<TABLE>
<S> <C>
1998 ................ $12,001,000
1999 ................ 12,001,000
2000 ................ 15,001,000
2001 ................ 15,001,000
-----------
$54,004,000
===========
</TABLE>
F-13
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(CONTINUED)
In November 1997, the Company sold 3,500,000 shares of common stock in the
IPO. Of the 3,500,000 shares sold in the IPO, 2,693,549 shares were sold to the
public at a price of $8.00 per share and 672,043 shares and 134,408 shares were
sold to Intel Corporation and Mitsubishi Corporation, respectively, at a price
of $7.44 per share. In December 1997, the underwriters exercised their over-
allotment option to purchase an additional 525,000 shares of common stock. The
total net proceeds to the Company from the IPO were approximately $30 million.
In January 1998, CBS exercised its 1997 warrants resulting in net proceeds
of $3.8 million to the Company.
The Company has reserved sufficient shares of its common stock to cover
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 Note 6.
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:
Common stock warrants issued in 1995, 1996 and 1997 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, exercised, canceled and outstanding and the
assumptions utilized involving the grants in 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ---------- ------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding,
beginning of year ......... 430,000 $ 5.00 810,000 $ 5.13 1,047,000 $ 5.23
Granted .................... 380,000 5.30 250,000 5.45 1,933,000 8.71
Exercised .................. -- -- -- -- (960,000) 8.25
Canceled ................... -- -- (13,000) 5.00 (5,000) 5.00
------- ------- ---------
Warrants outstanding,
end of year ............... 810,000 5.13 1,047,000 5.23 2,015,000 7.16
======= ========= =========
</TABLE>
The range of exercise prices of warrants outstanding at December 31, 1997
was $2.50-$12.50. The weighted average fair value of warrants granted during
1995, 1996 and 1997 was $0.23, $2.25 and $2.83, respectively. There were
1,538,000 warrants exercisable at December 31, 1997.
Assumptions utilized to value warrants are as follows:
<TABLE>
<CAPTION>
VOLATILITY DIVIDEND RISK-FREE ESTIMATED
FACTOR YIELD INTEREST RATES LIVES
------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C>
1995 grants ......... 40% 0% 5.6% - 7.0% 4-6
1996 grants ......... 40% 0% 5.3% - 6.6% 4-7
1997 grants ......... 40% 0% 5.7% - 6.7% 1-9
</TABLE>
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
F-14
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:--(CONTINUED)
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. 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.
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 became 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.
A summary of the activity relating to the Company's stock option plans as
of December 31, 1995, 1996 and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ---------- ----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year ........................... -- $ -- 339,200 $ 0.63 660,300 $ 1.38
Granted ............................ 339,200 0.63 348,300 2.08 860,600 7.44
Exercised .......................... -- -- (1,875) 0.63 (38,912) 0.63
Forfeited .......................... -- -- (25,325) 0.63 (77,782) 2.36
------- ------- -------
Outstanding at end of year ......... 339,200 0.63 660,300 1.38 1,404,206 5.06
======= ======= =========
Options exercisable at end
of year ........................... 33,200 0.63 115,179 0.63 320,554 1.56
======= ======= =========
</TABLE>
The weighted average fair value of options granted during 1995, 1996 and
1997 was $0.25, $1.10 and $3.18, respectively.
F-15
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 LIFE (IN YEARS) EXERCISE PRICE 1997 EXERCISE PRICE
- -------------------- ---------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.63 454,937 7.66 $ 0.63 265,878 $ 0.63
5.00 262,469 8.96 5.00 34,676 5.00
8.00 683,100 9.74 8.00 20,000 8.00
8.06 to 10.00 500 9.90 8.13 -- --
10.13 to 11.31 3,200 9.92 11.02 -- --
------- -------
0.63 to 11.31 1,404,206 9.01 5.06 320,554 1.56
========= =======
</TABLE>
Pro forma information is required by SFAS No. 123 and has been determined
as if the Company had accounted for its stock-based compensation plans under
the fair value method. The fair value of each option grant was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 1995, 1996 and 1997,
respectively: risk-free interest rates of 5.4% to 6.5%, 6.0% to 6.6% and 5.7%
to 6.7%, dividend yield of 0% for all years, expected volatility factor of 40%
for all years and expected life of 4.39 years for all years. The Company's pro
forma information follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss--As reported ............... $ (5,329,903) $ (12,855,374) $ (26,534,621)
Pro forma ...................... . (5,340,470) (13,017,564) (27,021,111)
Net loss per share--basic and diluted
As reported .................... . $ (1.42) $ (1.92) $ (2.54)
Pro forma ...................... . (1.43) (1.97) (2.58)
</TABLE>
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 became 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. At December 31, 1997, employees' contributions to the
Plan was approximately $757,000 which will purchase shares of common stock on
June 30, 1998.
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.
F-16
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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, 1997. At
December 31, 1997, the Company had approximately $44,000,000 of net operating
loss carryforwards for Federal income tax reporting purposes available to
offset future taxable income; such carryforwards expire from 2009 to 2012.
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.
Deferred tax assets at December 31, 1996 and 1997 consist primarily of the
tax effect of net operating loss carryforwards which amounted to approximately
$6,335,000 and $17,160,000, 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, 1996 and 1997 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 facilities and computer and communications
equipment under noncancellable leases that expire on various dates through
2001. The office leases require the Company to pay operating costs, including
property taxes and maintenance and include rent adjustment clauses.
Under the terms of one office lease, the Company has provided a letter of
credit to the landlord. The letter of credit is secured by a restricted
certificate of deposit of approximately $139,000 as of December 31, 1997.
Rent expense amounted to approximately $81,000, $97,000 and $392,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum lease payments for all leases are as follows as of December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
----------- ----------
<S> <C> <C>
1998 ............................................ $ 386,842 $324,000
1999 ............................................ 254,700 241,000
2000 ............................................ 164,184 182,000
2001 ............................................ -- 97,000
--------- --------
Total minimum lease payments .................... 805,726 $844,000
========
Less: amount representing interest .............. (77,360)
---------
Lease obligations reflected as current ($339,553)
and noncurrent ($388,813) ...................... $ 728,366
=========
</TABLE>
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
F-17
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
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 as of December 31, 1997:
<TABLE>
<S> <C>
1998 ............... $ 4,648,000
1999 ............... 2,595,000
2000 ............... 1,568,000
2001 ............... 720,000
2002 ............... 620,000
Thereafter ......... 5,000,000
-----------
$15,151,000
===========
</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.
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 a trial is currently scheduled for September 1998. 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
F-18
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
"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.
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 EVENT:
On January 29, 1998, the Company completed the acquisition (the "Merger")
of GolfWeb, a privately-held Internet company that provides golf-related
content, interactive entertainment, membership services and merchandise through
its GolfWeb Web site, golfweb.com, and international Web sites targeted to golf
enthusiasts in Japan, the United Kingdom, Canada and Australia. In
consideration for all of the capital stock of GolfWeb outstanding, SportsLine
issued an aggregate of 860,345 shares of SportsLine common stock (including
12,541 shares subject to GolfWeb stock options that were vested and 3,314
shares subject to GolfWeb warrants that were exercisable). In addition,
SportsLine assumed all of the outstanding stock options and warrants to
purchase capital stock of GolfWeb, which were converted into options and
warrants to purchase an aggregate of 53,292 shares (consisting of 12,541 shares
subject to vested stock options and 40,751 shares subject to unvested stock
options) and 3,314 shares of SportsLine common stock, respectively. Pro forma
weighted average common and common equivalent shares outstanding for the
periods presented were determined by applying the exchange ratio, adjusted for
certain preferred stock conversions which occurred immediately prior to the
Merger, to the weighted average GolfWeb common and preferred shares outstanding
for each period. The Company is accounting for this transaction using the
pooling-of-interests method of accounting. The accompanying financial
statements of the Company will be restated to include the accounts of GolfWeb
after post combination results have been published.
F-19
<PAGE>
SPORTSLINE USA, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) SUBSEQUENT EVENT:--(CONTINUED)
The following supplemental pro forma information details the results of
operations of the Company and GolfWeb for the periods before the
pooling-of-interests combination was consummated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue:
The Company ......................... $ 52,097 $ 2,436,690 $ 10,326,912
GolfWeb ............................. 47,738 621,726 1,686,790
------------ ------------- -------------
$ 99,835 $ 3,058,416 $ 12,013,702
============ ============= =============
Net loss:
The Company ......................... $ (5,329,903) $ (12,855,374) $ (26,534,621)
GolfWeb ............................. (778,523) (3,247,280) (7,642,727)
------------ ------------- -------------
$ (6,108,426) $ (16,102,654) $ (34,177,348)
============ ============= =============
Net loss per share--basic and diluted:
The Company ......................... $ (1.42) $ (1.92) $ (2.54)
GolfWeb ............................. (0.17) (0.39) (0.54)
------------ ------------- -------------
$ (1.59) $ (2.31) $ (3.08)
============ ============= =============
</TABLE>
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTAL
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Shareholders of
SportsLine USA, Inc.:
We have audited the accompanying supplemental consolidated balance sheets
of SportsLine USA, Inc., (a Delaware corporation) and subsidiary as of December
31, 1996 and 1997, and the related supplemental consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. The supplemental
consolidated statements give retroactive effect to the merger with GolfWeb on
January 29, 1998, which has been accounted for as a pooling of interests as
described in Notes 2 and 5. These supplemental financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental 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 supplemental consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of SportsLine USA, Inc. and subsidiary as of December 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, after giving retroactive
effect to the merger with GolfWeb as described in Notes 2 and 5, all in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 29, 1998.
F-21
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 15,249,545 $ 32,482,039
Marketable securities .............................................. -- 1,505,909
Deferred advertising and content costs ............................. -- 517,084
Accounts receivable ................................................ 672,343 2,214,150
Prepaid expenses and other current assets .......................... 469,753 2,847,561
------------- -------------
Total current assets .............................................. 16,391,641 39,566,743
RESTRICTED CERTIFICATES OF DEPOSIT .................................. 138,601 138,601
PROPERTY AND EQUIPMENT, net ......................................... 2,883,937 4,169,688
OTHER ASSETS ........................................................ 570,078 1,850,605
------------- -------------
$ 19,984,257 $ 45,725,637
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 829,125 $ 2,001,900
Accrued liabilities ................................................ 1,625,411 3,257,708
Current portion of long-term borrowings ............................ 226,530 682,159
Current portion of capital lease obligations ....................... 360,909 501,193
Deferred revenue ................................................... 830,478 1,839,962
------------- -------------
Total current liabilities ......................................... 3,872,453 8,282,922
LONG-TERM BORROWINGS, net of current portion ........................ 326,825 --
CAPITAL LEASE OBLIGATIONS, net of current portion ................... 358,608 457,700
------------- -------------
Total liabilities ................................................. 4,557,886 8,740,622
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 0 and 1,000,000 shares authorized,
none issued and outstanding as of December 31, 1996 and 1997,
respectively ..................................................... -- --
Series A, B and C convertible preferred stock, $0.01 par value,
14,496,109 and 0 shares authorized, issued and outstanding as of
December 31, 1996 and 1997, respectively ......................... 144,961 --
Common stock, $0.01 par value, 50,000,000 shares authorized,
3,014,288 and 15,019,220 issued and outstanding as of December 31,
1996 and 1997, respectively ...................................... 30,143 150,192
Additional paid-in capital ......................................... 37,866,158 93,627,062
Accumulated deficit ................................................ (22,614,891) (56,792,239)
------------- -------------
Total shareholders' equity ........................................ 15,426,371 36,985,015
------------- -------------
$ 19,984,257 $ 45,725,637
============= =============
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these supplemental consolidated balance
sheets.
F-22
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997
--------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUE ....................................... $ 99,835 $ 3,058,416 $ 12,013,702
COST OF REVENUE ............................... 818,016 4,232,862 10,430,592
------------ ------------- -------------
GROSS MARGIN (DEFICIT) ........................ (718,181) (1,174,446) 1,583,110
OPERATING EXPENSES:
Product development .......................... 720,645 1,444,476 2,540,734
Sales and marketing .......................... 1,455,589 7,115,206 14,018,860
General and administrative ................... 3,080,956 5,644,036 8,305,517
Depreciation and amortization ................ 206,279 993,380 11,688,795
------------ ------------- -------------
Total operating expenses .................... 5,463,469 15,197,098 36,553,906
------------ ------------- -------------
LOSS FROM OPERATIONS .......................... (6,181,650) (16,371,544) (34,970,796)
INTEREST EXPENSE .............................. (51,310) (161,270) (146,283)
INTEREST AND OTHER INCOME, net ................ 124,534 430,160 939,731
------------ ------------- -------------
NET LOSS ...................................... $ (6,108,426) $ (16,102,654) $ (34,177,348)
============ ============= =============
NET LOSS PER SHARE--BASIC AND DILUTED ......... $ (1.59) $ (2.31) $ (3.08)
============ ============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING--BASIC
AND DILUTED ................................. 3,835,977 6,971,369 11,107,534
============ ============= =============
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these supplemental consolidated statements.
F-23
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .................. -- $ -- 2,600,000 $ 26,000
Net proceeds from issuance of
Series A convertible preferred stock ....... 3,000,000 30,000 -- --
Net proceeds from issuance of
common stock ............................... -- -- 162,213 1,622
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 2,762,213 27,622
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 -- --
Net proceeds from issuance of
common stock ............................... -- -- 249,920 2,499
Proceeds from exercise of common
stock options .............................. -- -- 2,155 22
Non-cash issuance of common stock
warrants pursuant to
consulting agreements ...................... -- -- -- --
Net loss .................................... -- -- -- --
--------- ----------- --------- --------
Balance, December 31, 1996 .................. 14,496,109 144,961 3,014,288 30,143
Proceeds from issuance of common stock ...... -- -- 4,398,494 43,985
Proceeds from exercise of common
stock options .............................. -- -- 42,521 425
Proceeds from exercise of common
stock warrants ............................. -- -- 960,000 9,600
Conversion of preferred stock into common
stock ...................................... (14,496,109) (144,961) 5,798,434 57,984
Non-cash issuance of common stock and
common stock warrants pursuant to CBS
agreement .................................. -- -- 752,273 7,523
Non-cash issuance of common stock and
common stock warrants pursuant to
consulting and advertising agreements ...... -- -- 53,210 532
Net loss .................................... -- -- -- --
----------- ----------- --------- --------
Balance, December 31, 1997 .................. -- $ -- 15,019,220 $150,192
=========== =========== ========== ========
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1994 .................. $ 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 ............................... 1,633,847 -- 1,635,469
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 .................................... -- (6,108,426) (6,108,426)
----------- ------------- --------------
Balance, December 31, 1995 .................. 6,859,608 (6,512,237) 404,993
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
Net proceeds from issuance of
common stock ............................... 3,519,101 -- 3,521,600
Proceeds from exercise of common
stock options .............................. 2,750 -- 2,772
Non-cash issuance of common stock
warrants pursuant to
consulting agreements ...................... 579,963 -- 579,963
Net loss .................................... -- (16,102,654) (16,102,654)
----------- ------------- --------------
Balance, December 31, 1996 .................. 37,866,158 (22,614,891) 15,426,371
Proceeds from issuance of common stock ...... 35,521,195 -- 35,565,180
Proceeds from exercise of common
stock options .............................. 33,771 -- 34,196
Proceeds from exercise of common
stock warrants ............................. 7,910,400 -- 7,920,000
Conversion of preferred stock into common
stock ...................................... 86,977 -- --
Non-cash issuance of common stock and
common stock warrants pursuant to CBS
agreement .................................. 8,293,598 -- 8,301,121
Non-cash issuance of common stock and
common stock warrants pursuant to
consulting and advertising agreements ...... 3,914,963 -- 3,915,495
Net loss .................................... -- (34,177,348) (34,177,348)
----------- ------------- --------------
Balance, December 31, 1997 .................. $93,627,062 $ (56,792,239) $ 36,985,015
=========== ============= ==============
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these supplemental consolidated statements.
F-24
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995
----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $ (6,108,426)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ..................................................... 206,279
Provision for doubtful accounts ................................................... --
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (37,937)
Prepaid expenses and other assets ................................................ (264,152)
Accounts payable ................................................................. 733,103
Accrued liabilities .............................................................. 351,333
Deferred revenue ................................................................. 133,312
------------
Net cash used in operating activities ............................................. (4,986,488)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ................................................... --
Purchases of property and equipment ................................................. (1,044,287)
Net redemption (purchase) of restricted certificates of deposit ..................... (578,067)
------------
Net cash used in investing activities ............................................. (1,622,354)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and common stock warrants and options 1,672,969
Net proceeds from issuance of convertible preferred stock ........................... 2,913,361
Proceeds (repayment) of term loan ................................................... 973,000
Proceeds from long-term borrowings .................................................. 610,266
Repayment of long-term borrowings ................................................... --
Repayment of capital lease obligations .............................................. (52,579)
------------
Net cash provided by financing activities ........................................ 6,117,017
------------
Net increase (decrease) in cash and cash equivalents .............................. (491,825)
CASH AND CASH EQUIVALENTS, beginning of year ......................................... 1,666,470
------------
CASH AND CASH EQUIVALENTS, end of year ............................................... $ 1,174,645
============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Non-cash issuance of common stock and common stock warrants pursuant to
consulting agreements ............................................................. $ --
============
Non-cash issuance of common stock warrants pursuant to consulting and
advertising agreements ............................................................ $ 17,000
============
Equipment acquired under capital leases ............................................. $ 695,145
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................................. $ 51,310
============
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $ (16,102,654) $ (34,177,348)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ..................................................... 993,380 11,688,795
Provision for doubtful accounts ................................................... 27,045 72,513
Changes in operating assets and liabilities:
Accounts receivable .............................................................. (661,452) (1,614,320)
Prepaid expenses and other assets ................................................ (105,535) (1,832,323)
Accounts payable ................................................................. 137,216 1,172,775
Accrued liabilities .............................................................. 1,160,834 1,632,297
Deferred revenue ................................................................. 567,166 1,009,484
------------- -------------
Net cash used in operating activities ............................................. (13,984,000) (22,048,127)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ................................................... -- (1,505,909)
Purchases of property and equipment ................................................. (1,995,550) (2,430,849)
Net redemption (purchase) of restricted certificates of deposit ..................... 439,466 -
------------- -------------
Net cash used in investing activities ............................................. (1,556,084) (3,936,758)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and common stock warrants and options 3,524,372 43,519,376
Net proceeds from issuance of convertible preferred stock ........................... 27,019,697 -
Proceeds (repayment) of term loan ................................................... (973,000) -
Proceeds from long-term borrowings .................................................. 424,154 353,326
Repayment of long-term borrowings ................................................... (112,262) (384,486)
Repayment of capital lease obligations .............................................. (267,977) (270,837)
------------- -------------
Net cash provided by financing activities ........................................ 29,614,984 43,217,379
------------- -------------
Net increase (decrease) in cash and cash equivalents .............................. 14,074,900 17,232,494
CASH AND CASH EQUIVALENTS, beginning of year ......................................... 1,174,645 15,249,545
------------- -------------
CASH AND CASH EQUIVALENTS, end of year ............................................... $ 15,249,545 $ 32,482,039
============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Non-cash issuance of common stock and common stock warrants pursuant to
consulting agreements ............................................................. $ -- $ 8,301,121
============= =============
Non-cash issuance of common stock warrants pursuant to consulting and
advertising agreements ............................................................ $ 579,963 $ 3,915,495
============= =============
Equipment acquired under capital leases ............................................. $ 126,125 $ 670,178
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................................. $ 145,988 $ 175,507
============= =============
</TABLE>
The accompanying notes to supplemental consolidated financial statements are
an integral part of these supplemental consolidated
statements.
F-25
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
SportsLine USA, Inc. ("SportsLine") was incorporated on February 23, 1994
and began recognizing revenue from its operations in September 1995. The
Company 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's flagship site on the World Wide Web (the
"Web"), cbs.sportsline.com, 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, specific sports such as golf, cricket and soccer,
international sports coverage and electronic odds and analysis on major sports
events.
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 CBS and other 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 broadcasted over the Internet, and syndicated to traditional
radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION
The accompanying supplemental consolidated financial statements include
the accounts of SportsLine USA, Inc. and its subsidiary (the "Company"). The
supplemental consolidated financial statements include the financial position
and results of operations of GolfWeb which the Company acquired on January 29,
1998 (the "Merger"). GolfWeb was a privately-held Internet company that
provides golf-related content, interactive entertainment, membership services
and merchandise through its golfweb.com site, and its international Web sites
targeted to golf enthusiasts in Japan, the United Kingdom, Canada and
Australia. The Company is accounting for this transaction using the pooling-of-
interests method of accounting, therefore the accounts of GolfWeb have been
included retroactively in the supplemental consolidated financial statements as
if the companies had operated as one entity since inception. The Merger is
further discussed in Note 5.
F-26
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
The following information details the results of operations of SportsLine
and GolfWeb for the periods before the pooling-of-interests combination was
consummated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue:
SportsLine .......................... $ 52,097 $ 2,436,690 $ 10,326,912
GolfWeb ............................. 47,738 621,726 1,686,790
------------ ------------- -------------
$ 99,835 $ 3,058,416 $ 12,013,702
============ ============= =============
Net loss:
SportsLine .......................... $ (5,329,903) $ (12,855,374) $ (26,534,621)
GolfWeb ............................. (778,523) (3,247,280) (7,642,727)
------------ ------------- -------------
$ (6,108,426) $ (16,102,654) $ (34,177,348)
============ ============= =============
Net loss per share--basic and diluted:
SportsLine .......................... $ (1.42) $ (1.92) $ (2.54)
GolfWeb ............................. (0.17) (0.39) (0.54)
------------ ------------- -------------
$ (1.59) $ (2.31) $ (3.08)
============ ============= =============
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with
original maturities of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities includes highly liquid investments with original
maturities in excess of three months. Such marketable securities are carried at
cost which approximates market value.
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 first became commercially available. Such costs totaled
approximately $222,000, $782,000 and $4,090,000 for the years ended December
31, 1995, 1996 and 1997, respectively. Accumulated amortization on such amounts
was approximately $40,000, $200,000 and $1,516,000 at December 31, 1995, 1996
and 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 supplemental consolidated balance sheets.
Amortization expense under these agreements amounted to approximately $40,000,
$160,000 and $1,316,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, and is included in depreciation and amortization expense in the
accompanying supplemental consolidated statements of operations.
F-27
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is carried at historical cost and is being
depreciated and amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the lease period.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and
accumulated depreciation are removed from the account and any gain or loss is
recognized.
ACCRUED LIABILITIES
Accrued liabilities include accrued advertising costs of $307,000 and
$458,000 as of December 31, 1996 and 1997, respectively.
REVENUE RECOGNITION
Revenue recognition policies for advertising, membership, content
licensing and merchandise 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 an advertisement is viewed by users of the Company's Web sites.
MEMBERSHIP REVENUE
The Company offers monthly and yearly memberships to certain of the
proprietary content contained in 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 supplemental consolidated 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.
MERCHANDISE REVENUE
Merchandise revenue is derived from the sale of limited edition
memorabilia, licensed apparel and other sports-related products. Merchandise
revenue is recognized once the product has been shipped and payment is assured.
F-28
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
---------- ------------- -------------
<S> <C> <C> <C>
Advertising--cash .................... $26,288 $1,509,546 $ 5,848,499
Advertising--barter .................. 3,500 503,973 480,700
Membership--basic .................... 28,720 526,026 1,561,193
Membership--premium services ......... 23,377 356,724 1,139,153
Content licensing--cash .............. -- -- 104,997
Content licensing--barter ............ -- -- 1,810,002
Merchandise .......................... -- 151,497 1,049,008
Other ................................ 17,950 10,650 20,150
------- ---------- -----------
$99,835 $3,058,416 $12,013,702
======= ========== ===========
</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.
SALES AND MARKETING
Sales and marketing expense consists of salaries and related expenses,
advertising, marketing, promotional, business development, 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 and Internet search engines and the cost of obtaining qualified
prospects from direct marketing programs and from third parties. No indirect
costs are included in member acquisition costs. In accordance with American
Institute of Certified Public Accountants ("AICPA") Statement of Position 93-7,
REPORTING ON ADVERTISING COSTS, the Company may in the future capitalize such
direct-response advertising costs if historical evidence is available to
indicate that the advertising results in a future benefit. The Company will
determine an appropriate amortization period for such costs if capitalization
begins. Until that time, all such costs are expensed as incurred. All other
advertising and marketing costs are charged to expense at the time the
advertising takes place.
F-29
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
PER SHARE AMOUNTS
Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. 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).
In February 1997, Statement of Financial Accounting Standards ("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. As the
convertible preferred stock was converted upon completion of the Company's
initial public offering ("IPO"), such shares have been reflected as common
stock for all periods prior to the IPO. SFAS No. 128 was adopted as of December
31, 1997.
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, marketable securities, accounts receivable, restricted
certificates of deposit, accounts payable and borrowings, approximate fair
value due to their short-term nature and/or market rates of interest.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities, 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 $27,000 and $87,000 at December 31, 1996 and 1997,
respectively. As of December 31, 1996 and 1997, management believes that the
Company had no significant concentrations of credit risk.
IMPAIRMENT OF LONG-LIVED ASSETS
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
F-30
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
STOCK-BASED COMPENSATION
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.
REVERSE STOCK SPLIT
On October 10, 1997, the Board of Directors authorized a 1-for-2.5 reverse
stock split of the Company's common stock to become effective upon completion
of the IPO of its common stock. Such reverse stock split has been retroactively
reflected in all share and per share disclosures in the accompanying
supplemental consolidated financial statements and notes.
(3) PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ---------------------------------
(YEARS) 1996 1997
------------- --------------- ---------------
<S> <C> <C> <C>
Computer equipment ...................................... 2-3 $ 3,241,555 $ 6,183,819
Furniture, fixtures and leasehold improvements .......... 3-7 684,298 830,381
---------
3,925,853 7,014,200
Less--accumulated depreciation and amortization ......... (1,041,916) (2,844,512)
------------ ------------
$ 2,883,937 $ 4,169,688
============ ============
</TABLE>
Included in property and equipment is equipment acquired under capital
leases amounting to approximately $903,000 and $1,636,000 as of December 31,
1996 and 1997 less accumulated amortization amounting to approximately $360,000
and $713,000, respectively. Depreciation and amortization expense on property
and equipment amounted to approximately $187,000, $850,000 and $1,815,000 for
the years ended December 31, 1995, 1996 and 1997, 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, 1997) and is payable monthly,
interest only through June 1996, and thereafter in 33 equal
F-31
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) BORROWINGS:--(CONTINUED)
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 in
1998.
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 are payable over a period of 36
months. As of December 31, 1997, $600,284 was outstanding.
(5) SHAREHOLDERS' EQUITY:
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 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 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.
Upon completion of the Company's IPO on November 13, 1997, the convertible
preferred stock converted into common stock at the ratio of 0.4 shares of
common stock for each share of preferred stock. All then existing classes of
preferred stock ceased to be authorized and were replaced by the preferred
stock discussed below.
On April 14, 1997, the Board of Directors authorized the filing of an
Amended and Restated Certificate of Incorporation which became effective upon
the completion of the IPO. Pursuant to the terms of the Amended and Restated
Certificate of Incorporation, the Board of Directors authorized the issuance of
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
F-32
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(CONTINUED)
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.
Stock issued by GolfWeb in 1995, 1996 and 1997 resulted in net proceeds of
$1,635,469 (162,213 common shares), $3,523,200 (250,200 common shares), and
$6,911,151 (377,103 common shares), respectively. In addition, GolfWeb issued
53,210 shares in 1997 in exchange for $1,000,000 of advertising.
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
factor 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, capitalized such
costs and is charging them 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 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 1997 totaled
$7,835,000, consisting of amortization relating to advertising of $7,000,000,
content of $431,000 and expense related to warrants of $404,000, and are
F-33
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(CONTINUED)
included in depreciation and amortization in the accompanying statement of
operations for the year ended December 31, 1997. Total annual amounts to be
amortized to expense in accordance with the CBS agreement are as follows:
<TABLE>
<S> <C>
1998 ................ $12,001,000
1999 ................ 12,001,000
2000 ................ 15,001,000
2001 ................ 15,001,000
-----------
$54,004,000
===========
</TABLE>
In November 1997, the Company sold 3,500,000 shares of common stock in the
IPO. Of the 3,500,000 shares sold in the IPO, 2,693,549 shares were sold to the
public at a price of $8.00 per share and 672,043 shares and 134,408 shares were
sold to Intel Corporation and Mitsubishi Corporation, respectively, at a price
of $7.44 per share. In December 1997, the underwriters exercised their over-
allotment option to purchase an additional 525,000 shares of common stock. The
total net proceeds to the Company from the IPO were approximately $30 million.
In January 1998, CBS exercised its 1997 warrants resulting in net proceeds
of $3.8 million to the Company.
The Company has reserved sufficient shares of its common stock to cover
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 Note 6.
On January 29, 1998, in consideration for all of the capital stock of
GolfWeb outstanding, SportsLine issued an aggregate of 860,345 shares of
SportsLine common stock (including 12,541 shares subject to GolfWeb stock
options that were vested and 3,314 shares subject to GolfWeb warrants that were
exercisable). In addition, SportsLine assumed all of the outstanding stock
options and warrants to purchase capital stock of GolfWeb, which were converted
into options and warrants to purchase an aggregate of 53,292 shares (consisting
of 12,541 shares subject to vested stock options and 40,751 shares subject to
unvested stock options) and 3,314 shares of SportsLine common stock,
respectively. Pro forma weighted average common and common equivalent shares
outstanding for the periods presented were determined by applying the exchange
ratio, adjusted for certain preferred stock conversions which occurred
immediately prior to the Merger, to the weighted average GolfWeb common and
preferred shares outstanding for each period. All per share data and numbers of
shares of the Company's common stock, par value $0.01 per share for all periods
included in the supplemental consolidated financial statements and notes
thereto give retroactive effect to the Merger as if the companies had operated
as one entity since inception.
F-34
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:
Common stock warrants issued in 1995, 1996 and 1997 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, exercised, canceled and outstanding and the
assumptions utilized involving the grants in 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ---------- ------------ ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding,
beginning of year ......... 430,000 $ 5.00 812,000 $ 5.13 1,050,000 $ 5.23
Granted .................... 382,000 5.30 251,000 5.45 1,933,000 8.71
Exercised .................. -- -- -- -- (960,000) 8.25
Canceled ................... -- -- (13,000) 5.00 (5,000) 5.00
------- ------- ---------
Warrants outstanding,
end of year ............... 812,000 5.13 1,050,000 5.23 2,018,000 7.16
======= ========= =========
</TABLE>
The range of exercise prices of warrants outstanding at December 31, 1997
was $2.50--$12.50. The weighted average fair value of warrants granted during
1995, 1996 and 1997 was $0.23, $2.25 and $2.83, respectively. There were
1,541,000 warrants exercisable at December 31, 1997.
Assumptions utilized to value warrants are as follows:
<TABLE>
<CAPTION>
VOLATILITY DIVIDEND RISK-FREE ESTIMATED
FACTOR YIELD INTEREST RATES LIVES
------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C>
1995 grants ......... 40% 0% 5.6% - 7.0% 4-6
1996 grants ......... 40% 0% 5.3% - 6.6% 4-7
1997 grants ......... 40% 0% 5.7% - 6.7% 1-9
</TABLE>
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. 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.
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 became effective upon completion
of the IPO. The Incentive Plan provides for grants of stock options, stock
appreciation
F-35
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:--(CONTINUED)
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.
A summary of the activity relating to the Company's stock option plans as
of December 31, 1995, 1996 and 1997, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ---------- ----------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year ........................... -- $ -- 349,489 $ 0.67 683,665 $ 1.42
Granted ............................ 357,387 0.70 365,738 2.10 904,387 7.50
Exercised .......................... (7,898) 1.96 (2,156) 0.83 (42,521) 0.80
Forfeited .......................... -- -- (29,407) 0.81 (88,531) 2.60
------- ------- -------
Outstanding at end of year ......... 349,489 0.67 683,664 1.42 1,457,000 5.13
======= ======= =========
Options exercisable at end
of year ........................... 33,200 0.63 118,215 0.66 331,778 1.67
======= ======= =========
</TABLE>
The weighted average fair value of options granted during 1995, 1996 and
1997 was $0.25, $1.10 and $3.18, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE
OUTSTANDING AT REMAINING WEIGHTED EXERCISABLE AT WEIGHTED
RANGE OF DECEMBER 31, CONTRACTUAL AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1997 LIFE (IN YEARS) EXERCISE PRICE 1997 EXERCISE PRICE
- -------------------- ---------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.63 454,937 7.66 $ 0.63 265,878 $ 0.63
1.96 9,033 7.99 1.96 5,172 1.96
3.92 3,800 8.71 3.92 1,382 3.92
5.00 262,468 8.96 5.00 34,676 5.00
7.84 24,496 9.11 7.84 4,442 7.84
8.00 683,100 9.74 8.00 20,000 8.00
8.06 to 10.00 15,966 9.50 9.75 228 9.80
10.13 to 11.31 3,200 9.92 11.02 -- --
------- -------
0.63 to 11.31 1,457,000 8.92 5.13 331,778 1.67
========= =======
</TABLE>
F-36
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:--(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, 1996 and 1997,
respectively: risk-free interest rates of 5.4% to 6.5%, 6.0% to 6.6% and 5.7%
to 6.7%, dividend yield of 0% for all years, expected volatility of 40% for all
years and expected life of 4.39 years for all years. The Company's pro forma
information follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss--As reported ............... $ (6,108,426) $ (16,102,654) $ (34,177,348)
Pro forma ...................... (6,118,993) (16,264,844) (34,663,838)
Net loss per share--basic and diluted
As reported .................... $ (1.59) $ (2.31) $ (3.08)
Pro forma ...................... (1.60) (2.33) (3.12)
</TABLE>
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 became 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. At December 31, 1997, employees' contributions to the
Plan was approximately $757,000 which will purchase Common Stock on June 30,
1998.
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, 1997. At
December 31, 1997, the Company had approximately $56,000,000 of net operating
loss carryforwards for Federal income tax reporting purposes available to
offset future taxable income; such carryforwards expire from 2009 to 2012.
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, and separate company limitations relating to the net operating
loss carryfowards of GolfWeb.
Deferred tax assets at December 31, 1996 and 1997 consist primarily of the
tax effect of net operating loss carryforwards which amounted to approximately
$8,140,000 and $20,720,000, 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, 1996 and 1997 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.
F-37
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities and computer and communications
equipment under noncancellable leases that expire on various dates through
2001. The office leases require the Company to pay operating costs, including
property taxes and maintenance and include rent adjustment clauses.
Under the terms of one office lease, the Company has provided a letter of
credit to the landlord. The letter of credit is secured by a restricted
certificate of deposit of approximately $139,000 as of December 31, 1997.
Rent expense amounted to approximately $102,000, $198,000 and $570,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum lease payments for all leases are as follows as of December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------------- ----------
<S> <C> <C>
1998 ........................................................... $ 559,567 $470,000
1999 ........................................................... 325,330 241,000
2000 ........................................................... 164,184 182,000
2001 ........................................................... -- 97,000
---------- --------
Total minimum lease payments ................................... 1,049,081 $990,000
========
Less: amount representing interest ............................. (90,188)
----------
Lease obligations reflected as current ($501,193) and noncurrent
($457,700) .................................................... $ 958,893
==========
</TABLE>
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 as of December 31, 1997:
<TABLE>
<S> <C>
1998 ............... $ 4,648,000
1999 ............... 2,595,000
2000 ............... 1,568,000
2001 ............... 720,000
2002 ............... 620,000
Thereafter ......... 5,000,000
-----------
$15,151,000
===========
</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.
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.
F-38
<PAGE>
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
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 a trial is currently scheduled for September 1998. 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.
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 consolidated financial position or
results of operations.
F-39
<PAGE>
[INSIDE BACK COVER PAGE]
[Appearing on the inside back cover of the Prospectus will be the heading
"Advertisers" under which will appear the following color logos: Toyota, Visa,
Pepsi, Budweiser, AT&T, Intel, USRobotics, Buick, Ford, Sprint, Sun
Microsystems, Oldsmobile, Delta Airlines, IBM, Chase, Sony, Honda and
Coca-Cola; and the heading "Strategic Relationships" under which will appear
the following color logos: C|Net, Netchannel, BellSouth.net, Netscape,
RealNetworks, CBS, @Home, NHL on Ice, Microsoft, Microsoft Internet Explorer,
FedEx Orange Bowl, IMG, MediaOne, America Online, MCI Internet, Excite and the
US Ski Team.]
<PAGE>
[SPORTLINE 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 ......... $ 34,942
NASD filing fee ............................................. 12,345
Nasdaq National Market listing fee .......................... 17,500
Printing expenses ........................................... 100,000
Accounting fees and expenses ................................ 75,000
Legal fees and expenses ..................................... 150,000
Road show expenses .......................................... 75,000
Transfer Agent's fees and expenses .......................... 5,000
Miscellaneous ............................................... 30,213
--------
Total ...................................................... $500,000
========
</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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The registrant has issued and sold the following securities during the
past three years without registration under the Securities Act:
(1) 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.
(2) 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,
II-1
<PAGE>
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.
(3) 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.
(4) In March 1997, the registrant issued to CBS Inc. 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. Such warrants were exercised in January
1998.
(5) In January 1998, the registrant issued to CBS Inc. 735,802 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.
(6) Between March 1995 and March 1998 (excluding the securities mentioned
above), the registrant issued warrants to purchase a total of 785,837 shares of
Common Stock to Richard Horrow (October 1, 1997--10,000 and January 17,
1997--10,000), Jack Kemp (December 9, 1994--7,000), Michael Jack, Inc. (June 1,
1995--10,000), Thomas Loeffler (June 30, 1995--2,500), Harlan Werner (June 30,
1995--5,500), Lee Kolligian (June 30, 1995--4,000), 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, September 30,
1997--9,527 and November 13, 1997--3,649), National Football League Players
Association (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 the guarantee of debt incurred by the registrant, respectively.
(7) Between March 1995 and March 1998, the registrant issued options to
purchase a total of 1,205,700 shares of Common Stock to employees pursuant to
the registrant's 1995 Stock Option Plan.
No underwriter was involved in any of the above sales of securities. All
of the above securities were issued in reliance upon the exemption set forth in
Section 4(2) of the Securities Act on the basis that they were issued under
circumstances not involving a public offering, or, in the case of certain
options and warrants to purchase Common Stock, Rule 701 of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement (1)
3.1 Form of Amended and Restated Certificate of Incorporation (3.1) (2)
3.2 Form of Amended and Restated Bylaws (3.2) (2)
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., counsel for the
Company, as to the legality of the securities being registered (1)
10.1 1995 Stock Option Plan (10.1) (2)
10.2 Form of Indemnification Agreement between the Registrant and each of its directors and
executive officers (10.2) (2)
10.3 1997 Incentive Compensation Plan (10.3) (2)
10.4 Employee Stock Purchase Plan (10.4) (2)
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 (10.5) (2)
10.6 Agreement dated March 5, 1997 between the Registrant and CBS Inc. (10.6) (2)
10.7 Licensing Agreement dated September 27, 1996 between the Registrant and US WEST
Interactive Services, Inc. (10.7) (2)
10.8 Marketing Agreement dated March 12, 1996 between the Company and Reuters NewMedia,
Inc. (10.8) (2)
10.9 Guaranty dated December 1995 executed by Kleiner Perkins Caufield & Byers (10.9) (2)
10.10 Consulting Agreement dated September 1, 1994, between the Registrant and Horrow Sports
Ventures (10.10) (2)
10.11 Agreement dated June 1996 between the Registrant and Michael P. Schulhof (10.11) (2)
10.12 Agreement dated August 1994 between the Registrant and Planned Licensing, Inc. (10.12) (2)
10.13 Employment Agreement dated as of September 1, 1997, between the Registrant and Kenneth
W. Sanders (10.13) (2)
10.14+ Advisory Agreement dated June 20, 1997 among the Registrant, Michael Jordan and Falk
Associates Management Enterprises (10.14) (2)
10.15+ Advisory Agreement dated July 1, 1997 between the Registrant and ETW Corp. (10.15) (2)
10.16+ Interactive Services Agreement dated July 1, 1997 between the Registrant and America
Online, Inc. (10.16) (2)
10.17+ Amendment to Advisory Agreement and Warrants dated November 7, 1997 between the
Registrant, Michael Jordan and FAME, Inc. (10.17) (2)
10.18 Stock Option between the Registrant and Gerry Hogan (10.19) (3)
10.19 Agreement and Plan of Merger dated as of January 15, 1998, among the Registrant and
GolfWeb (excluding Exhibits thereto), and Amendment No. 1 to the Merger Agreement dated
of January 29, 1998, among the Registrant, GolfWeb.Com, Inc. and GolfWeb (2.1; 2.2) (4)
21.1 Subsidiaries of Registrant (5)
23.1 Consent of Arthur Andersen LLP (1)
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A. (included in its opinion
filed as Exhibit 5.1) (1)
24.1 Power of Attorney (included on signature page) (5)
27.1 Financial Data Schedule (1)
</TABLE>
II-3
<PAGE>
- ----------------
(1) Filed herewith.
(2) Incorporated by reference to an exhibit shown in the preceding parentheses
and filed with the Registrant's Registration Statement on Form S-1
(Registration No. 333-25259).
(3) Incorporated by reference to an exhibit shown in the preceding parentheses
and filed with the Registrant's Registration Statement on Form S-8
(Registration No. 333-46029).
(4) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Company's Report on Form 8-K (Event of January 29,
1998).
(5) Previously filed.
+ 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) 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.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 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 March 26, 1998.
SPORTSLINE USA, INC.
By: /s/ Michael Levy
Michael Levy, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael Levy President, Chief Executive Officer March 26, 1998
- ----------------------------- and Director
Michael Levy (principal executive officer)
/s/ Kenneth W. Sanders Chief Financial Officer March 26, 1998
- ----------------------------- (principal financial and
Kenneth W. Sanders accounting officer)
* Director March 26, 1998
- -----------------------------
Thomas Cullen
* Director March 26, 1998
- -----------------------------
Gerry Hogan
* Director March 26, 1998
- -----------------------------
Richard B. Horrow
* Director March 26, 1998
- -----------------------------
Joseph Lacob
* Director March 26, 1998
- -----------------------------
Sean McManus
* Director March 26, 1998
- -----------------------------
Andrew Nibley
Director March , 1998
- -----------------------------
Derek Reisfield
* Director March 26, 1998
- -----------------------------
Michael P. Schulhof
* Director March 26, 1998
- -----------------------------
James C. Walsh
* By: /s/ Michael Levy
-----------------------
Michael Levy
as Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
1.1 Underwriting Agreement
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
EXHIBIT 1.1
4,000,000 SHARES1
SPORTSLINE USA, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
_________, 1998
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
SPORTSLINE USA, INC. a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter called
the "Selling Shareholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreement with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 2,285,430
shares of its authorized and unissued Common Stock, $0.01 par value per share,
to the several Underwriters. The Selling Shareholders, acting severally and not
jointly, propose to sell an aggregate of 1,714,570 shares of the Company's
authorized and outstanding Common Stock, $0.01 par value per share, to the
several Underwriters. The 2,285,430 shares of Common Stock, $0.01 par value per
share, of the Company to be sold by the Company are hereinafter called the
"Company Shares" and the 1,714,570 shares of Common Stock, $0.01 par value per
share, to be sold by the Selling Shareholders are hereinafter called the
"Selling Shareholder Shares." The Company Shares and the Selling Shareholder
Shares are hereinafter collectively referred to as the "Firm Shares." The
Company also proposes to grant to the Underwriters an option to purchase up to
600,000 additional shares of the Company's Common Stock, $0.01 par value per
share (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock, $0.01 par value per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
- ----------
1 Plus an option to purchase up to 600,000 additional shares from the Company to
cover over-allotments, if any.
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING SHAREHOLDERS.
I. The Company represents and warrants to and agrees
with each Underwriter that:
(a) A registration statement on Form S-1 (File No.
333-48263) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
pursuant to Rule 462(b) of the Rules and Regulations as may have been required
prior to the date hereof have been similarly prepared and filed with the
Commission; and the Company will file such additional amendments to such
registration statement, such amended prospectuses subject to completion and such
abbreviated registration statements as may hereafter be required. Copies of such
registration statement and amendments, of each related prospectus subject to
completion (the "Preliminary Prospectuses"), including all documents
incorporated by reference therein, and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares
has been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancAmerica Robertson
Stephens, on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) or (c), as applicable,
of the Rules and Regulations pursuant to subparagraph (1), (4) or (7) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
the registration statement (including a final form of prospectus). If the
registration statement relating to the Shares has not been declared effective
under the Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of prospectus,
or, if BancAmerica Robertson Stephens, on behalf of the several Underwriters,
shall agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) or files a term sheet pursuant to Rule 434 of the Rules and Regulations,
the information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and
Regulations) and, in the event of any amendment thereto or the filing of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations relating thereto after the effective date of such registration
statement, shall also mean (from and after the effectiveness of such amendment
or the filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the Rules
and Regulations and with the consent of BancAmerica Robertson Stephens, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission
-2-
<PAGE>
pursuant to Rule 424(b) of the Rules and Regulations), the term "Prospectus"
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. If in reliance on Rule 434 of the
Rules and Regulations and with the consent of BancAmerica Robertson Stephens, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the Prospectus and the term sheet, together, will not be
materially different from the prospectus in the Registration Statement.
(b) To the knowledge of the Company, the
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or instituted proceedings for that purpose. Each such
Preliminary Prospectus has conformed in all material respects to the
requirements of the Act and the Rules and Regulations and, as of its date, has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by any
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and the Subsidiary (as
defined below) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation with full corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Prospectus; the
Company owns all of the outstanding capital stock of the Subsidiary, free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest; each of the Company and the Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiary considered as one enterprise (a
"Material Adverse Effect"); to the knowledge of the Company no proceeding has
been instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or qualification;
each of the Company and the Subsidiary is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders and
permits from state, federal and other regulatory authorities which are material
to the conduct of its respective business, all of which are valid and in full
force and effect; neither the Company nor the Subsidiary is not in violation of
its respective charter or bylaws or in default in the performance or observance
of any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or the
Subsidiary is a party or by which its or their respective properties may be
bound; and neither the Company nor the Subsidiary is in material violation of
any law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or the Subsidiary or over their respective
properties of which it has knowledge. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
[GOLFWEB] (the "Subsidiary").
-3-
<PAGE>
(d) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
material breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any bond, debenture, note or other evidence of
indebtedness, or under any lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument to which the
Company or the Subsidiary is a party or by which its or their respective
properties may be bound, (ii) the charter or bylaws of the Company or the
Subsidiary, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or the Subsidiary or
over their respective properties. No consent, approval, authorization or order
of or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or the Subsidiary or
over their respective properties is required for the execution and delivery of
this Agreement and the consummation by the Company of the transactions herein
contemplated, except such as may be required under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied in
all material respects.
(e) There is not any pending or, to the best of
the Company's knowledge, threatened action, suit, claim or proceeding against
the Company, the Subsidiary or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or the Subsidiary or over their respective officers or properties or
otherwise which (i) would or would be reasonably likely to result in a Material
Adverse Effect, (ii) would or would be reasonably likely to prevent consummation
of the transactions contemplated hereby or (iii) is required to be disclosed in
the Registration Statement or the Prospectus and is not so disclosed; and there
are no agreements, contracts, leases or documents of the Company or the
Subsidiary of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of
the Company (including the Selling Shareholder Shares) have been duly authorized
and validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Company Shares and the Option Shares have been duly authorized
for issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar right
of shareholders exists with respect to any of the Company Shares or Option
Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon and will not apply to the consummation of the transactions
contemplated hereunder on the Closing Date. No further approval or authorization
of any shareholder, the Board of Directors of the Company or others is required
for the issuance and sale or transfer of the Shares except as may be required
under the Act, the Exchange Act or under state or other securities or Blue Sky
laws. All issued and outstanding shares of capital stock of the Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable,
and were not issued in violation of or subject to any preemptive right, or other
right to subscribe
-4-
<PAGE>
for or purchase shares and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor the Subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
fairly presents in all material respects the information required to be shown
with respect to such plans, arrangements, options and rights.
(g) Arthur Anderson LLP, which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of December 31, 1996 and 1997 and for each of the three
(3) years ended December 31, 1997 and the supplemental financial statements of
the Company, together with the related schedules and notes, as of December 31,
1996 and 1997 and each of the three (3) years ended December 31, 1997 filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and the Prospectus, fairly present in all material respects the financial
position and the results of operations of the Company and the Subsidiary at the
respective dates and for the respective periods to which they apply; and all
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, filed with the Commission as part of the Registration Statement,
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data included
in the Registration Statement present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement pursuant to
the Act and the Rules and Regulations.
(h) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been (i) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and the Subsidiary, considered as one enterprise, (ii) any transaction
that is material to the Company and the Subsidiary, considered as one
enterprise, except transactions entered into in the ordinary course of business,
(iii) any obligation, direct or contingent, that is material to the Company and
the Subsidiary, considered as one enterprise, incurred by the Company or the
Subsidiary except obligations incurred in the ordinary course of business, (iv)
any change in the capital stock or outstanding indebtedness of the Company or
the Subsidiary that is material to the Company and the Subsidiary, considered as
one enterprise,(v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company or the Subsidiary, or (vi) any loss or
damage (whether or not insured) to the property of the Company or the Subsidiary
which has had or is reasonably likely to have a Material Adverse Effect.
(i) Except as set forth in the Registration
Statement and the Prospectus, (i) each of the Company and the Subsidiary has
good and marketable title to all properties and assets described in the
Registration Statement and the Prospectus as owned by it, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest, other
than such as would not have a Material Adverse Effect, (ii) the agreements to
which the Company or the Subsidiary is a party described in the Registration
Statement and the Prospectus are valid agreements, enforceable by the Company
and the Subsidiary, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles and, to the best of the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements, and (iii) each of the Company and the
Subsidiary has valid and enforceable leases for all properties described in the
Registration Statement and the Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy,
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insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. Except
as set forth in the Registration Statement and the Prospectus, the Company owns
or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.
(j) Each of the Company and the Subsidiary has
timely filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes shown thereon as due, except where the failure
to file or failure to pay would not have a Material Adverse Effect, and there is
no tax deficiency that has been or, to the best of the Company's knowledge, is
reasonably likely to be asserted against the Company or the Subsidiary that
would have or would be reasonably likely to have a Material Adverse Effect, and
all known tax liabilities are adequately provided for on the books of the
Company and the Subsidiary.
(k) The Company and the Subsidiary maintain
insurance with insurers of recognized financial responsibility of the types and
in the amounts generally deemed adequate for its business and consistent with
insurance coverage maintained by similar companies in similar businesses,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company and the Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; neither the Company nor the
Subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor the Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.
(l) To the best of the Company's knowledge, no
labor disturbance by the employees of the Company or the Subsidiary exists or is
imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, that might be
expected to result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) Each of the Company and the Subsidiary owns
or possesses adequate rights to use all patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the Registration
Statement and the Prospectus; the expiration of any patents, patent rights,
trade secrets, trademarks, service marks, trade names or copyrights would not
have a Material Adverse Effect; and, except as described in the Prospectus,
neither the Company nor the Subsidiary has received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
(n) The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is listed on The Nasdaq National Market,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company is familiar with the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any
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Preliminary Prospectuses, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Act and the Rules and Regulations.
(q) To the Company's knowledge, neither the
Company nor the Subsidiary has at any time since the Company's inception (i)
made any unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(s) Each executive officer and director of the
Company and each Selling Shareholder has agreed in writing that such person will
not, for a period ending 90 days from the date of the Prospectus (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned or hereafter acquired directly by
such person or with respect to which such person has or hereafter acquires the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or shareholders of such person, provided that
the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of BancAmerica Robertson
Stephens. The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-up Period, even if such Securities would be disposed
of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. The Company has provided to counsel for the Underwriters a complete
and accurate list of all securityholders of the Company and the number and type
of securities held by each securityholder. The Company has provided to counsel
for the Underwriters true, accurate and complete copies of all of the agreements
pursuant to which its officers, directors and shareholders have agreed to such
or similar restrictions (the "Lock-up Agreements") presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other shareholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration
Statement and Prospectus, (i) the Company is in compliance, in all material
respects, with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws") which are applicable to its business, (ii)
the Company has received no notice from any governmental authority or third
party of an asserted claim under Environmental Laws, which claim is required to
be disclosed in the Registration Statement and the Prospectus, (iii) to the
Company's knowledge, the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) to the Company's
knowledge, no property which is leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. /section/ 9601,
ET SEQ.), or otherwise designated as a contaminated site under applicable state
or local law.
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(u) The Company and the Subsidiary maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the executive officers or directors of the Company or any of the members
of the families of any of them, except as disclosed in the Registration
Statement and the Prospectus.
(w) The Company has complied with all provisions
of Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Shareholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter that:
(a) Such Selling Shareholder now has, and on the
Closing Date will have, valid title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest other than pursuant to this Agreement; and upon
delivery of such Shares hereunder and payment of the purchase price as herein
contemplated, each of the Underwriters will obtain valid title to the Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Shareholder or such Selling
Shareholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized
(if applicable), executed and delivered, in the form heretofore furnished to the
Representatives, an irrevocable Power of Attorney appointing one or more of
Michael Levy and Kenneth Sanders as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Custody Agreement with
Continental Stock Transfer & Trust Company, as custodian (the "Custodian")
(collectively, the "Custody Agreement and Power of Attorney"); the Custody
Agreement and Power of Attorney constitutes a valid and binding agreement on the
part of such Selling Shareholder, enforceable in accordance with its terms,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles; and
each of such Selling Shareholder's Attorneys, acting alone, is authorized to
execute and deliver this Agreement and the certificate referred to in Section
6(i) hereof on behalf of such Selling Shareholder, to determine the purchase
price to be paid by the several Underwriters to such Selling Shareholder as
provided in Section 3 hereof, to authorize the delivery of the Selling
Shareholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a stock
power or powers with respect thereto, to accept payment therefor, and otherwise
to act on behalf of such Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and
orders required for the execution and delivery by such Selling Shareholder of
the Custody Agreement and Power of Attorney, the execution and delivery by or on
behalf of such Selling Shareholder of this Agreement and the sale and delivery
of the Selling Shareholder Shares and the Option Shares to be sold by such
Selling Shareholder under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), (i) the issuance of the order of the Commission
declaring the Registration Statement effective, (ii) such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws and (iii) such consents, approvals, authorizations or orders of
The Nasdaq National Market and the NASD have been obtained and are in full
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<PAGE>
force and effect; such Selling Shareholder, if other than a natural person, has
been duly organized and is validly existing in good standing under the laws of
the jurisdiction of its organization as the type of entity that it purports to
be; and such Selling Shareholder has full legal right, power and authority to
enter into and perform its obligations under this Agreement and such Power of
Attorney and Custody Agreement, and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Shareholder under this Agreement.
(d) Certificates in negotiable form for all
Shares to be sold by such Selling Shareholder under this Agreement, together
with a stock power or powers duly endorsed in blank by such Selling Shareholder,
have been placed in custody with the Custodian for the purpose of effecting
delivery hereunder.
(e) This Agreement has been duly authorized by
each Selling Shareholder that is not a natural person and has been duly executed
and delivered by or on behalf of such Selling Shareholder and is a valid and
binding agreement of such Selling Shareholder, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law or public policy and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; and the performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of or constitute a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder, or any Selling Shareholder Shares may be bound or, to
the best of such Selling Shareholders' knowledge, result in any violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Shareholder or over the properties of such
Selling Shareholder, or, if such Selling Shareholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Shareholder.
(f) Such Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(g) Such Selling Shareholder has not distributed
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares in violation of applicable law.
(h) All information furnished by or on behalf of
such Selling Shareholder relating to such Selling Shareholder and the Selling
Shareholder Shares that is set forth in the Registration Statement or the
Prospectus is, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date (hereinafter defined), was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date, will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make such
information not misleading.
(i) Such Selling Shareholder does not have, or
has waived prior to the date hereof, or hereby waives, any preemptive right,
co-sale right or right of first refusal or other similar right to purchase any
of the Shares that are to be sold by the Company or any of the other Selling
Shareholders to the Underwriters pursuant to this Agreement; such Selling
Shareholder does not have, or has waived prior to the date hereof, any
registration right or other similar right to participate in the offering made by
the Prospectus, other than such rights of participation as have been satisfied
by the participation of such Selling Shareholder in the transactions to which
this Agreement relates in accordance with the terms of this Agreement; and such
Selling Shareholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, rights, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
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<PAGE>
(j) Except as disclosed to the Underwriters in
writing, such Selling Shareholder is not directly or indirectly an affiliate of
or associated with any member of the NASD.
III. Michael Levy, in his capacity as a Selling
Shareholder, further represents and warrants to and agrees with each Underwriter
that:
(a) Such Selling Shareholder has reviewed the
Prospectus and will comply with all agreements and satisfy all conditions on his
part to be complied with or satisfied pursuant to this Agreement on or prior to
the Closing Date, as the case may be, and will advise BancAmerica Robertson
Stephens prior to the Closing Date, as the case may be, if any statement to be
made on behalf of such Selling Shareholder in the certificate contemplated by
Section 6(i) would be inaccurate if made as of the Closing Date.
(b) Such Selling Shareholder is not aware that
the Registration Statement, the Prospectus and any amendment or supplement
thereto (other than the financial statements and related notes including
supporting schedules and other financial, accounting, and statistical
information derived therefrom, as to which such Selling Shareholder need express
no comment) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) Such Selling Shareholder is not aware that
any of the representations and warranties of the Company set forth in Section
2.I. above is untrue or inaccurate in any material respect.
IV. Each of US West Interactive Services, Inc. and James
C. Walsh, severally and not jointly, further represents and warrants to and
agrees with each Underwriter that:
(a) Such Selling Shareholder has reviewed the
Prospectus and will comply with all agreements and satisfy all conditions on its
part to be complied with or satisfied pursuant to this Agreement on or prior to
the Closing Date, as the case may be, and will advise one of its Attorneys and
BancAmerica Robertson Stephens prior to the Closing Date, if any statement to be
made on behalf of such Selling Shareholder in the certificate contemplated by
Section 6(i) would be inaccurate if made as of the Closing Date.
(b) Although such Selling Shareholder has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, no facts have come to the attention of
such Selling Shareholder which lead it to believe that the Registration
Statement, the Prospectus and any amendment or supplement thereto (other than
the financial statements and related notes including supporting schedules and
other financial, accounting, and statistical information derived therefrom, as
to which such Selling Shareholder need express no comment) contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(c) Although such Selling Shareholder has not
independently verified and is not passing upon and assumes no responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, or the representations and warranties
of the Company set forth in Section 2.I. above, no facts have come to the
attention of such Selling Shareholder which lead it to believe that any of such
representations and warranties is untrue or inaccurate in any material respect.
V. Each Selling Shareholder, other than Michael Levy, US
WEST Interactive Services, Inc. and James C. Walsh, severally and not jointly,
further represents and warrants to and agrees with each Underwriter that such
Selling Shareholder has reviewed the section captioned "Principal and Selling
Shareholders" in the Prospectus and will comply with all agreements and satisfy
all conditions on its part to be complied with or satisfied pursuant to this
Agreement on or prior to the Closing Date, and will advise one of its Attorneys
and BancAmerica
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<PAGE>
Robertson Stephens prior to the Closing Date, if any statement to be made on
behalf of such Selling Shareholder in the certificate contemplated by Section
6(i) would be inaccurate if made as of the Closing Date.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree to sell to the Underwriters, and each Underwriter agrees, severally and
not jointly, to purchase from the Company and the Selling Shareholders,
respectively, at a purchase price of $[ ] per share, the respective number of
Company Shares and Selling Shareholder Shares set forth opposite the names of
the Company and the Selling Shareholders in Schedule B herein. The obligation of
each Underwriter to the Company and to each such Selling Shareholder shall be to
purchase from the Company or such Selling Shareholder that number of Company
Shares or Selling Shareholder Shares, as the case may be, which (as nearly as
practicable, as determined by you) is in the same proportion to the work of
Company Stock or Selling Shareholder Shares, as the case may be, set forth
opposite the name of the Company or such Selling Shareholder in Schedule B
hereto as the number of Firm Shares which is set forth opposite the name of such
Underwriter in Schedule A hereto (subject to adjustment as provided in Section
10) is to the total number of Firm Shares to be purchased by all of the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling
Shareholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement and Power of Attorney. Each Selling
Shareholder agrees that the certificates for the Selling Shareholder Shares of
such Selling Shareholder so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling Shareholder
for such custody, including the Power of Attorney, is to that extent irrevocable
and that the obligations of such Selling Shareholder hereunder shall not be
terminated by the act of such Selling Shareholder or by operation of law,
whether by the death or incapacity of such Selling Shareholder or the occurrence
of any other event, except as specifically provided herein or in the Custody
Agreement and Power of Attorney. If any Selling Shareholder should die or be
incapacitated, or if any other such event should occur, before the delivery of
the certificates for the Selling Shareholder Shares hereunder, the Selling
Shareholder Shares to be sold by such Selling Shareholder shall, except as
specifically provided herein or in the Custody Agreement and Power of Attorney,
be delivered by the Custodian in accordance with the terms and conditions of
this Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death or
other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer of Federal funds to an account specified by the Company with respect to
the Shares being purchased from the Company and to an account or accounts
specified by the Custodian for the respective accounts of the Selling
Shareholders with respect to the Shares being purchased from such Selling
Shareholder, at the offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A., 1221 Brickell Avenue, Miami, Florida 33131 (or at such other place as may
be agreed upon among the Representatives and the Company, at 7:00 A.M., San
Francisco time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
1:30 P.M., San Francisco time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" provided, HOWEVER, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
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It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $[ ] per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over-allotment by the
Underwriters, and under the section captioned "Underwriting" in any Preliminary
Prospectus and in the Prospectus constitutes the only information furnished by
the Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement, and you, on behalf of the respective
Underwriters, represent and warrant to the Company and the Selling Shareholders
that the statements made therein do not include any untrue statement of a
material fact or omit to state 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.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("UNDERWRITERS' COUNSEL"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case
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any Underwriter is required to deliver a prospectus nine (9) months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense of
such Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no amendment
or supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations, the Exchange
Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements to
such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if BancAmerica Robertson
Stephens, on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the Company shall provide to you
copies of a Preliminary Prospectus updated in all respects through the date
specified by you in such quantities as you may from time to time reasonably
request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and covering
a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, as long as the Company is subject to the information requirements of the
Exchange Act, the Company will furnish to its shareholders as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders, (iv) as soon as they are
available, copies of all reports
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and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD, (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Shareholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the Underwriters'
obligations hereunder, or if the Company shall terminate this Agreement pursuant
to Section 11(a) hereof, or if the Underwriters shall terminate this Agreement
pursuant to Section 11(b)(i), the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including reasonable fees and
disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is reasonably
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to the Company and you, responding to or commenting on such rumor,
publication or event.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of BancAmerica Robertson Stephens, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares and the Option Shares hereunder, the Company's issuance of
options or Common Stock under the Company's presently authorized 1995 Stock
Option Plan, the 1997 Incentive Compensation Plan and the 1997 Employee Stock
Purchase Plan (collectively, the "Equity Plans"), the Company's issuance of
Common Stock upon exercise of currently outstanding warrants issued to
consultants and advisors, and the Company's issuance of warrants to purchase
shares of Common Stock to consultants and advisors on the terms and in amounts
consistent with prior practice, provided, however, that such warrants not be
exercisable during the Lock-up Period.
(l) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Equity Plans or other
employee benefit plan.
5. EXPENSES.
(a) The Company and the Selling Shareholders agree with
each Underwriter that:
(i) The Company and the Selling Shareholders
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
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thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental
Blue Sky Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company and the
Selling Shareholders; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several Underwriters
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 Underwriters' Counsel in connection
with such NASD filings and Blue Sky qualifications); and all other expenses
directly incurred by the Company and the Selling Shareholders in connection with
the performance of their obligations hereunder. Any additional expenses incurred
as a result of the sale of the Shares by the Selling Shareholders will be borne
collectively by the Company and the Selling Shareholders. The provisions of this
Section 5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Shareholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Shareholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Shareholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under
Section 8(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 8(a) hereof, it will reimburse the Underwriters 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
Underwriters 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 Underwriters 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 Underwriters within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Shareholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof relating to such Selling
Shareholder, it will reimburse the Underwriters 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 such Selling Shareholder's obligation to reimburse the
Underwriters 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 Underwriters shall promptly return such payment to the Selling
Shareholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made to
the Underwriters within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section
8(c) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 8(c) hereof, they will reimburse the
Company and each Selling Shareholder 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 Underwriters' obligation to reimburse the Company and each Selling
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Shareholder 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 and each such Selling Shareholder shall promptly return
such payment to the Underwriters 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 and each such Selling Shareholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) 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
5(a)(ii), 5(a)(iii) and 5(b) 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 8(a), 8(b) and 8(c) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(d)
hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date and
any later date on which Option Shares are to be purchased, as the case may be,
of the representations and warranties of the Company and the Selling
Shareholders herein, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, any Selling Shareholder or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel, and
such counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or the Subsidiary from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus; and
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
the following opinion of counsel for the Company dated the Closing Date
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<PAGE>
or such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters, to the effect that:
(i) Each of the Company and the Subsidiary has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation;
(ii) Each of the Company and the Subsidiary has
the corporate power and authority to own, lease and operate their
respective properties and to conduct its business as described in the
Prospectus;
(iii) Each of the Company and the Subsidiary is
duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the
Company. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity, other than the Subsidiary;
(iv) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein; the issued
and outstanding shares of capital stock of the Company (including the
Selling Shareholder Shares) have been duly and validly issued and are
fully paid and nonassessable; and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares of capital
stock of the Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable
interest;
(vi) The Company Shares or the Option Shares, as
the case may be, to be issued by the Company pursuant to the terms of
this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms hereof,
will be duly and validly issued and fully paid and nonassessable, and,
to such counsel's knowledge, will not have been issued in violation of
or subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and deliver
to the Underwriters the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification provisions may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
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<PAGE>
(x) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the
financial statements (including supporting schedules) and financial
data derived therefrom, as to which such counsel need express no
opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by
such counsel and is a fair summary of such matters and conclusions; and
the form of certificate evidencing the Common Stock and filed as an
exhibit to the Registration Statement complies with Delaware law;
(xii) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the Company
is accurate and fairly presents the information required to be
presented by the Act and the applicable Rules and Regulations and the
description in the Registration Statement and the Prospectus of
statutes fairly presents in all material respects the information
required to be presented by the Act and the applicable Rules and
Regulations;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement pursuant to the Act or the Rules and
Regulations which are not described or referred to therein or filed as
required;
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in
any violation of the Company's charter or bylaws, (b) result in any
violation of the Subsidiary's charter or bylaws or (c) to such
counsel's knowledge, result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which
the Company or the Subsidiary is a party or by which their respective
properties are bound, or any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ
or decree of any court, government or governmental agency or body
having jurisdiction over the Company or the Subsidiary, or over any of
their respective properties or operations where such breach or
violation would have or be reasonably likely to have a Material Adverse
Effect;
(xv) No consent, approval, authorization or order
of or qualification with any court, government or governmental agency
or body having jurisdiction over the Company, or over any of their
properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except such as have been obtained under the Act or such as may be
required under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Shares by the
Underwriters (as to which such counsel need express an opinion);
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or the Subsidiary of a character required to be disclosed in
the Registration Statement or the Prospectus by the Act or the Rules
and Regulations, other than those described therein;
(xvii) To such counsel's knowledge, neither the
Company nor the Subsidiary is presently (a) in violation of its
respective charter or bylaws, or (b) in breach of any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company or the Subsidiary,
or over any of their
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respective properties or operations, except where such breach or
violation would not have or not be reasonably likely to have a Material
Adverse Effect; and
(xviii)To such counsel's knowledge, except as set
forth in the Registration Statement and the Prospectus, no holders of
Common Stock or other securities of the Company have registration
rights with respect to securities of the Company and, except as set
forth in the Registration Statement and the Prospectus, all holders of
securities of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement
or have included securities in the Registration Statement pursuant to
the exercise of and in full satisfaction of such rights.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Selling Shareholders, the Representatives, Underwriters' Counsel
and the independent certified public accountants of the Company, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although they have not verified the accuracy
or completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads them
to believe that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on any later date
on which Option Shares are to be purchased, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
Florida or the General Corporation Law of the State of Delaware upon opinions of
local counsel, and as to questions of fact upon representations or certificates
of officers of the Company, the Selling Shareholders or officers of the Selling
Shareholders (when the Selling Shareholder is not a natural person), and of
government officials. Copies of any opinion, representation or certificate so
relied upon shall be delivered to you, as Representatives of the Underwriters,
and to Underwriters' Counsel.
(e) You shall have received on the Closing Date, the
following opinion dated the Closing Date, of counsel for each of the Selling
Shareholders, listed on SCHEDULE B hereto, addressed to the Underwriters and
with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) Each Selling Shareholder that is not a
natural person has full right, power and authority to enter into and to
perform its obligations under the Custody Agreement and Power of
Attorney to be executed and delivered by it in connection with the
transactions contemplated herein; the Custody Agreement and Power of
Attorney of each Selling Shareholder that is not a natural person has
been duly authorized by such Selling Shareholder; the Custody Agreement
and Power of Attorney of each Selling Shareholder has been duly
executed and delivered by or on behalf of such Selling Shareholder; and
the Custody Agreement and Power of Attorney of each Selling Shareholder
constitutes the valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles,
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including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought at law or in
equity);
(ii) Neither the execution, delivery or
performance of this Agreement, nor the consummation of the transactions
contemplated hereby will result in a material breach or violation by
the Selling Shareholder of any of the terms or provisions of any
shareholders' agreement or voting trust agreement to which the Selling
Shareholder is a party, or by which it is bound, with respect to the
Shares, known to such counsel;
(iii) Each of the Selling Shareholders has full
right, power and authority to enter into and to perform its obligations
under this Agreement and to sell, transfer, assign and deliver the
Shares to be sold by such Selling Shareholder hereunder;
(iv) This Agreement has been duly authorized by
each Selling Shareholder that is not a natural person and has been duly
executed and delivered by or on behalf of each Selling Shareholder;
(v) To such counsel's knowledge, no consent,
approval, authorization or order of or qualification with any court,
government or governmental agency or body having jurisdiction over the
Selling Shareholder, or any of its subsidiaries (if applicable), or
over any of their properties or operations is necessary in connection
with the consummation by such Selling Shareholder of the transactions
herein contemplated except such consents, approvals, authorizations,
orders or qualifications as have been obtained under the Act or such as
may be required under state or other securities or Blue Sky laws, as to
which such counsel expresses no opinion;
(vi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectus by the Act or
the Rules and Regulations, other than those described therein; and
(vii) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the Underwriters will
receive good and marketable title to the Shares purchased by it from
such Selling Shareholder, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. In rendering such
opinion, such counsel may assume that the Underwriters are without
notice of any defect in the title of the Shares being purchased from
the Selling Shareholders.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Brobeck, Phleger & Harrison LLP, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
letter from Arthur Andersen LLP addressed to the Underwriters, dated the Closing
Date or such later date on which Option Shares are to be purchased, as the case
may be, confirming that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five (5) business days prior to the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, (i) confirming, to the
extent true, that the statements and conclusions set forth in the Original
Letter are accurate as of the Closing Date or such later date on which Option
Shares are to be purchased, as
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the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from Arthur Andersen LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the balance sheet and the supplemental balance
sheet of the Company as of December 31, 1997 and related statements of
operations, stockholders' equity, and cash flows and supplemental statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1997, (iii) state that Arthur Andersen LLP has performed the
procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information and providing the report of Arthur
Andersen as described in SAS 71 on the financial statements for each of the nine
quarters ended March 31, 1998 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Arthur Andersen LLP and
you. In addition, you shall have received from Arthur Andersen LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial statements as of December
31, 1997, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(h) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on which
Option Shares are to be purchased, as the case may be, signed by the Chief
Executive Officer and Chief Financial Officer of the Company, to the effect
that, and you shall be satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct in all material
respects, as if made on and as of the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be, and the
Company has complied in all material respects with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) To the best of their knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or
are pending or threatened under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery of
such certificate, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, contained all material
information required to be included therein by the Act and the Rules
and Regulations and in all material respects conformed to the
requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, the Prospectus, and any amendment or
supplement thereto, did not and does not include any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, and, since the effective date of the
Registration Statement, there has
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occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been (a) any material adverse change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company, (b) any transaction that is material
to the Company, except transactions entered into in the ordinary course
of business, (c) any obligation, direct or contingent, that is material
to the Company, incurred by the Company, except obligations incurred in
the ordinary course of business, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the
Company, (e) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
(i) You shall be satisfied that, and you shall have
received a certificate, dated the Closing Date, from the Attorneys for each
Selling Shareholder to the effect that, as of the Closing Date, they have not
been informed that:
(i) The representations and warranties made by
such Selling Shareholder herein are not true or correct in any material
respect on the Closing Date; or
(ii) Such Selling Shareholder has not complied with
any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at or
prior to the Closing.
(j) The Company shall have obtained and delivered to you
the Lock-up Agreements.
(k) The Company and the Selling Shareholders shall have
furnished to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person)) as to the accuracy of the representations
and warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling Shareholders
will furnish you with such number of conformed copies of such opinions,
certificates, letters and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
600,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public, by giving written notice to the
Company. The number of Option Shares to be purchased by each Underwriter upon
the exercise of such option shall be the same proportion of
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the total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Firm Shares purchased
by such Underwriter (set forth in Schedule A hereto) bears to the total number
of Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares to
be purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of Federal funds to the
account specified by the Company. Such delivery and payment shall take place at
the offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., 1221
Brickell Avenue, Miami, Florida 33131 or at such other place as may be agreed
upon among the Representatives and the Company (i) on the Closing Date, if
written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date, or (ii) on a date
which shall not be later than the third (3rd) full business day following the
date the Company receives written notice of the exercise of such option, if such
notice is received by the Company less than two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for checking
at least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such Option
Shares will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the satisfaction of any of the
conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter 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, (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
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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
Underwriter 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 Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter 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) hereof.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter 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 Selling Shareholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter 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 such Selling Shareholder
herein contained, (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 8(b) 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 or such Underwriter
by such Selling Shareholder, directly or through such Selling Shareholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter 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 indemnity agreement
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a 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) hereof.
The indemnity agreement in this Section 8(b) shall
extend upon the same terms and conditions to, and shall inure to the benefit of,
each person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Shareholder may otherwise have.
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(c) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company and each Selling Shareholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Selling Shareholder 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
Underwriter herein contained, (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 8(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
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Shareholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Shareholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c) 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, each Selling Shareholder and each person, if any, who controls
the Company or any Selling Shareholder within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section 8 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 8, 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 8. 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 8 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 Section 8(a), 8(b) and 8(c) 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
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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.
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made pursuant
to this Section 8 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 8 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, except as set forth in Section 8(g) hereof, the Underwriters severally and
not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public offering
price, and the Company and the Selling Shareholders are responsible for the
remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall be required
to contribute any amount in excess of the amount by which the underwriting
discount applicable to the Shares purchased by such Underwriter exceeds the
amount of damages which such Underwriter 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 8(e) shall extend upon the same terms and conditions to, and
shall inure to the benefit of, each person, if any, who controls any
Underwriter, the Company or any Selling Shareholder 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.
(f) 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 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
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.
(g) The liability of each Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Shareholder Shares sold by such Selling Shareholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Shareholder. The Company and such Selling Shareholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements of
the Company, the Selling Shareholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Shareholder, or any of their officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and shall survive the delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining
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Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such defaulting
Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, satisfactory to you,
to purchase the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If it shall be arranged for the remaining
Underwriters or substituted underwriter or underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this Section
10, (i) the Company shall have the right to postpone the time of delivery for a
period of not more than seven (7) full business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees promptly to file any amendments to the Registration Statement,
supplements to the Prospectus or other such documents which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to be
purchased by the defaulting Underwriter or Underwriters or substitute another
underwriter or underwriters as aforesaid and the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholder and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(j), 5 and 8 hereof.
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(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be, (i)
if the Company or any Selling Shareholder shall have failed, refused or been
unable to perform any agreement on its part to be performed, or because any
other condition of the Underwriters' obligations hereunder required to be
fulfilled is not fulfilled, including, without limitation, any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been suspended
on either such exchange or in the over the counter market by the NASD, or if a
banking moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o BancAmerica Robertson 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.; if sent to one or more of the Selling Shareholders, such notice shall be
sent mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Michael Levy and Kenneth Sanders, as Attorneys-in-Fact
for the Selling Shareholders, in care of SportsLine USA, Inc., at 6340 N.W. 5th
Way, Fort Lauderdale, Florida 33309, telecopier number (954) 351-9175.
13. WAIVER OF PREVIOUS LOCK-UP AGREEMENTS. In connection with the
public offering of Common Stock contemplated by this Agreement, BancAmerica
Robertson Stephens understands that certain of the Selling Shareholders are
parties to a "lock-up agreement" (the "Existing Lock-Up Agreement") executed in
connection with the Company's initial public offering of Common Stock
consummated in November 1997 which would otherwise prevent such Selling
Shareholders from selling to the Underwriters the respective number of Selling
Shareholder Shares set forth opposite the names of such Selling Shareholder in
Schedule B herein. BancAmerica Robertson Stephens agrees to waive the
restrictions set forth in the Existing Lock-Up Agreement with respect to such
Selling
-28-
<PAGE>
Shareholders solely for the purpose of selling their respective Selling
Shareholder Shares to the Underwriters pursuant to this Agreement.
14. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Shareholders
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 8 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. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Shareholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
BancAmerica Robertson Stephens on behalf of you.
15. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York.
16. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
-29-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the several Underwriters.
Very truly yours,
SPORTSLINE USA, INC.
By______________________________________________
SELLING SHAREHOLDERS
By______________________________________________
Attorney-in-Fact for the Selling Shareholders
named in Schedule B hereto
Accepted as of the date first above written:
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
By BANCAMERICA ROBERTSON STEPHENS
By_____________________________________
Authorized Signatory
-30-
<PAGE>
SCHEDULE A
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
BancAmerica Robertson Stephens................................
NationsBanc Montgomery Securities, LLC. ......................
PaineWebber Incorporated......................................
Smith Barney Inc..............................................
---------
Total................................................ 4,000,000
=========
<PAGE>
SCHEDULE B
NUMBERS OF COMPANY
COMPANY TO BE SOLD
- ------- ----------
SportsLine USA, Inc. 2,285,430
---------
Total............................... 2,285,430
=========
NUMBER OF
SELLING SHAREHOLDER
SHARES
NAME OF SELLING SHAREHOLDER TO BE PURCHASED
- --------------------------- ---------------
[TO BE COMPLETED]
---------
Total............................... 1,714,570
=========
-2-
EXHIBIT 5.1
March 26, 1998
SportsLine USA, Inc.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
Re: SportsLine USA, Inc.
Registration Statement on Form S-1 (File No. 333-48263)
Ladies and Gentlemen:
On March 19, 1998, SportsLine USA, Inc., a Delaware corporation (the
"Company"), filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, Registration No. 333-48263 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the sale by the Company and certain selling
shareholders (the "Selling Shareholders") of up to 2,885,430 (including 600,000
shares subject to an over-allotment option), and 1,714,570 shares, respectively,
of the Company's Common Stock, par value $.01 per share (the "Shares"). We have
acted as special counsel to the Company in connection with the preparation and
filing of the Registration Statement. Defined terms used herein shall have the
meanings attributed thereto in the Registration Statement.
In connection therewith, we have examined and relied upon the original
or a copy, certified to our satisfaction, of (i) the Amended and Restated
Certificate of Incorporation and the Amended and Restated Bylaws of the Company;
(ii) actions of the Board of Directors of the Company authorizing the offering
and the issuance of the Shares and related matters; (iii) the Registration
Statement and exhibits thereto; and (iv) such other documents and instruments as
we have deemed necessary for the expression of opinions herein contained. In
making the foregoing examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies. As to various questions of fact material to
this opinion, we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments.
Based upon the foregoing examination, we are of the opinion that (i)
the Shares to be sold by the Company pursuant to the Registration Statement have
been duly and validly authorized and, when issued and delivered in accordance
with the form of Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement will be validly issued, fully paid and nonassessable, and (ii) the
Shares to be sold
<PAGE>
March 26, 1997
Page 2
by the Selling Shareholders pursuant to the Registration Statement have been
duly and validly authorized and issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Commission thereunder.
Sincerely,
/s/ Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A.
-------------------------------------
GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL, P.A.
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports dated January 29, 1998 on each of the historical and
supplemental consolidated financial statements of SportsLine USA, Inc. and to
all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 30,652,011
<SECURITIES> 1,505,909
<RECEIVABLES> 2,131,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,559,641
<PP&E> 5,702,736
<DEPRECIATION> 2,269,451
<TOTAL-ASSETS> 42,945,278
<CURRENT-LIABILITIES> 6,992,840
<BONDS> 0
0
0
<COMMON> 141,765
<OTHER-SE> 35,421,860
<TOTAL-LIABILITY-AND-EQUITY> 42,945,278
<SALES> 10,326,912
<TOTAL-REVENUES> 10,326,912
<CGS> 7,649,962
<TOTAL-COSTS> 29,972,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,480
<INCOME-PRETAX> (26,534,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,534,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,534,621)
<EPS-PRIMARY> (2.54)
<EPS-DILUTED> (2.54)
</TABLE>
