<PAGE> 1
As filed with the Securities and Exchange Commission on October 19, 1998
Registration No. 333-62685
===============================================================================
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>
<CAPTION>
Delaware 7375 65-0470894
<S> <C> <C>
(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:
Kenneth C. Hoffman, Esq.
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Phone: (305) 579-0500
Fax: (305) 579-0717
--------------
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: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
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. / /
-----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF ADDITIONAL AMOUNT OFFERING PRICE PER AGGREGATE OFFERING PRICE REGISTRATION FEE
SECURITIES TO BE REGISTERED TO BE REGISTERED (1) SHARE (2) (1) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 900,000 $8.875 $7,987,500 $2,356.32
===================================================================================================================================
</TABLE>
(1) The Registrant previously registered 1,776,458 shares of Common Stock at
$20.375, the average of the high and low sales prices for the Common Stock
on August 28, 1998 as reported on the Nasdaq National Market in the
Registrant's initial filing of this Registration Statement on September 1,
1998.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 and based upon
the average of the high and low sales prices for the Common Stock on
October 14, 1998 as reported on the Nasdaq National Market.
(3) Represents the incremental registration fee for the 900,000 additional
shares of Common Stock being registered hereby. The Registrant previously
paid a registration fee of $10,677.63 for the remaining 1,776,458 shares
registered hereby on September 1, 1998.
---------------
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE> 2
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.
<PAGE> 3
SUBJECT TO COMPLETION, DATED OCTOBER 19, 1998
[SPORTSLINE USA LOGO]
2,676,458 Shares
Common Stock
-------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of up to 2,676,458 shares of Common Stock (the "Shares") of
SportsLine USA, Inc. ("SportsLine USA" or the "Company"), which may be offered
from time to time for the account of certain shareholders and warrantholders of
the Company or by donees, transferees or other successors in interest that
receive such Shares as a gift, partnership distribution or other non-sale
related transfer (the "Selling Shareholders"). The Company will receive no part
of the proceeds of such sales. Of the Shares being offered, (i) 674,558 Shares
were originally issued to the former stockholders of GolfWeb, a California
corporation ("GolfWeb"), in connection with the Company's January 29, 1998
acquisition of GolfWeb, (ii) 46,924 shares were originally issued to the former
stockholders of International Golf Outlet, Inc., a Texas corporation ("IGO"), in
connection with the Company's June 29, 1998 acquisition of IGO, (iii) 1,054,976
Shares were originally issued, or are issuable upon the exercise of warrants
(the "Warrants") granted by the Company, to various athletes, consultants,
advisors and other content providers, of which 426,986 Shares are subject to
Warrants which are not currently exercisable and (iv) 900,000 Shares are
issuable upon the exercise of Warrants granted by the Company to America Online,
Inc. ("AOL"), of which 450,000 Shares are subject to Warrants which are not
currently exercisable. See "Selling Shareholders."
The Shares may be offered and sold by the Selling Shareholders from time
to time in one or more transactions effected in the over-the-counter market, on
the Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated market
prices. The Selling Shareholders may effect such transactions directly, or
indirectly through broker-dealers or agents acting on their behalf, and such
broker-dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom they act as agent or to whom they sell Shares as
principal or both (which compensation to a particular broker-dealer might be in
excess of customary commissions). The price at which any of the Shares may be
sold, and the commissions, if any, paid in connection with any such sale, are
unknown and may vary from transaction to transaction. To the extent required,
this Prospectus may be amended and supplemented from time to time to describe a
specific plan of distribution. See "Plan of Distribution." Under certain
circumstances, the Selling Shareholders and any broker-dealers or agents that
participate in the distribution of the Shares may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933, as amended
(the "Securities Act"), and any profit on the sale of the Shares by them and any
commissions, discounts or concessions received by any such broker-dealers or
agents may be deemed to be underwriting commissions or discounts under the
Securities Act.
The Company will not receive any of the proceeds from the sale of Shares
by the Selling Shareholders. The Company has agreed to bear certain expenses in
connection with the registration of the Shares being offered by the Selling
Shareholders. In addition, the Company has agreed to indemnify certain of the
Selling Shareholders against certain liabilities, including liabilities arising
under the Securities Act.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "SPLN." On October 16, 1998, the last sale price of the Common Stock
as reported on the Nasdaq National Market was $9.00 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 6.
-------------------------
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.
The date of this Prospectus is , 1998
<PAGE> 4
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. 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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary...........................................................................................................3
Risk Factors......................................................................................................6
Use of Proceeds..................................................................................................18
Price Range of Common Stock......................................................................................18
Dividend Policy..................................................................................................18
Capitalization...................................................................................................19
Selected Consolidated Financial Data.............................................................................20
Management's Discussion and Analysis of Financial Condition and Results of Operations............................21
Business.........................................................................................................29
Management.......................................................................................................42
Certain Transactions.............................................................................................50
Principal Shareholders...........................................................................................52
Selling Shareholders.............................................................................................53
Plan of Distribution.............................................................................................55
Description of Capital Stock.....................................................................................57
Legal Matters....................................................................................................60
Experts..........................................................................................................60
Available Information............................................................................................60
Additional Information...........................................................................................60
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.
Information contained on the Company's Web Sites shall not be deemed to
constitute a part of this prospectus.
2
<PAGE> 5
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 this Prospectus. Except as otherwise
noted, all information in this Prospectus assumes no exercise of 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.
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 association with the SportsFan Radio Network.
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 Broadcasting, 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. In October 1998, the Company and
AOL entered into a new three-year agreement (the "AOL Agreement") and
significantly expanded their online relationship to provide Company-produced
sports news and statistics, special features, major event coverage and
merchandise on several key AOL brands around the world. Under the AOL Agreement,
the Company became the premier provider of special features and major event
coverage to the Sports Channel on the AOL service, as well as an anchor tenant
in the Sports Web Center on aol.com, AOL's Web site. cbs.sportsline.com will
also be the premier national sports partner with a presence on all Digital City
local services, currently serving 50 cities, and an anchor tenant in the Sports
Channel on CompuServe. In addition, SportsLine WorldWide will become the premier
global provider of country-specific sports content to all of AOL's international
services, and the Company will become the premier provider of licensed sports
equipment and apparel as well as golf products within the Sports Channel on the
AOL service.
3
<PAGE> 6
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 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,"
"golfweb.com" and "igogolf.com" refer to the Company's Web sites, located at
http://cbs.sportsline.com, http://www.vegasinsider.com, http://www.golfweb.com
and http://www.igogolf.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.
4
<PAGE> 7
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the
Selling Shareholders...................... 2,676,458 shares (1)
Common Stock outstanding
as of September 30, 1998.................. 19,121,282 shares (2)
Use of proceeds............................. The Company will not receive any proceeds from the sale
of the shares by the Selling Shareholders.
See "Use of Proceeds."
Nasdaq National Market symbol............... "SPLN"
</TABLE>
Summary Financial Information (3)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------- ----------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue........................ $ 100 $ 3,058 $ 12,014 $ 3,507 $ 13,802
Gross margin (deficit)......... (718) (1,175) 1,583 (645) 5,418
Loss from operations........... (6,182) (16,372) (34,971) (14,824) (18,102)
Net loss....................... $ (6,108) $ (16,103) $ (34,177) $ (14,465) $ (16,511)
Net loss per share--basic and
diluted..................... $ (1.59) $ (2.31) $ (3.08) $ (1.43) $ ( 0.96)
Weighted average common and
common equivalent shares
outstanding--basic and
diluted..................... 3,836 6,971 11,108 10,129 17,170
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
-------------
(unaudited)
<S> <C>
Balance Sheet Data:
Cash and marketable securities............................................................ $106,646
Working capital........................................................................... 113,385
Total assets.............................................................................. 128,668
Long-term obligations..................................................................... 346
Total shareholders' equity................................................................ 120,975
</TABLE>
- -------------------
(1) Includes 876,986 Shares which are subject to Warrants that are not
currently exercisable.
(2) Excludes 2,398,403 shares of Common Stock issuable pursuant to stock
options outstanding as of September 30, 1998 (of which options to purchase
approximately 412,512 shares were exercisable) with a weighted average
exercise price of $13.20 per share and 1,859,968 shares of Common Stock
issuable upon the exercise of warrants outstanding as of September 30, 1998
(of which warrants to purchase approximately 1,394,482 shares were
exercisable) with a weighted average exercise price of $8.87 per share. See
"Management--Stock Plans" and Note 6 of Notes to Consolidated Financial
Statements. Also excludes (i) 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), and (ii)
550,000 shares of Common Stock and warrants to purchase 450,000 shares of
Common Stock issued to AOL in October 1998 pursuant to the AOL Agreement.
See "Certain Transactions--CBS Agreement" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Recent
Developments."
(3) 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 consolidated financial
data gives effect to the acquisition, which was accounted for under the
"pooling-of-interests" accounting method. See Note 2 of Notes to
Consolidated Financial Statements.
5
<PAGE> 8
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
and $6,000,000 for the six months ended June 30, 1998 related to the CBS
agreement and will record an additional $48,004,000 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 June
30, 1998, the Company had an accumulated deficit of $73,303,499.
The Company has achieved only limited revenue to date and its ability to
generate significant revenue is subject to substantial uncertainty. There can be
no assurance that the Company will ever generate sufficient revenue to meet its
expenses or achieve or maintain profitability and the failure to do so would
have a material adverse effect on the Company's business, results of operations
and financial condition. Further, in view of the rapidly evolving nature of the
Company's business and its limited operating history, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 5 and 8 of Notes to
Consolidated Financial Statements.
6
<PAGE> 9
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 Financial Condition and Results of Operations."
Dependence on CBS Relationship
In March 1997, the Company entered into a five-year agreement with CBS,
pursuant to which the Company's flagship Web site was renamed
"cbs.sportsline.com." Over the term of the agreement, the 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 and
$6,000,000 for the six months ended June 30, 1998 related to the CBS agreement
and will record an additional $48,004,000 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
7
<PAGE> 10
provides that the Company shall (i) maintain and operate the Company's flagship
Web site, 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 Financial
Condition and Results of Operations," "Certain Transactions CBS Agreement" and
Note 5 of Notes to 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 (such as AOL),
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 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.
8
<PAGE> 11
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.
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 Financial Condition and Results of
Operations."
Risks Associated with Acquisitions
During the six months ended June 30, 1998, the Company completed two
acquisitions. 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
9
<PAGE> 12
and the potential loss of key employees of acquired companies. There can be no
assurance that any businesses acquired by the Company 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.
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
10
<PAGE> 13
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, 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 United States Patent and Trademark Office ("USPTO") to
determine priority of rights to the trademark, which could result in substantial
costs to the Company, even if the eventual outcome is favorable to the Company.
An adverse outcome could require the Company to license disputed rights from
third parties or to cease using such trademark. Any such litigation would be
costly and divert management's attention, either of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Adverse determinations in such litigation could result in the loss of
certain of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties, and
prevent the Company from selling its services, any one of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, inasmuch as the Company licenses a substantial
portion of its content from third parties, its exposure to copyright
infringement actions may increase because the Company must rely upon such third
parties for information as to the origin and ownership of such licensed content.
The Company generally obtains representations as to the origins and ownership of
such licensed content and generally obtains indemnification to cover any breach
of any such representations; however, there can be no assurance that such
representations will be accurate or that such indemnification will provide
adequate compensation for any breach of such representations.
In 1996, the Company was issued a United States trademark registration for
its former SportsLine USA logo. The Company has applied to register in the
United States its current SportsLine USA logo and a number of other marks,
several of which include the term "SportsLine 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
11
<PAGE> 14
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 254 employees at June 30,
1998, 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 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.
12
<PAGE> 15
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, and in June 1998 entered into
an employment agreement with Mr. Levy which continues in effect through December
31, 2003. 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 and
Executive Officers" and "Management--Employment Agreements."
The Company's future success also depends on its continuing ability to
attract and retain highly qualified technical, editorial and managerial
personnel. Competition for such personnel is intense, and the Company has, at
times, experienced difficulties in attracting the desired number of such
individuals. There can be no assurance that the Company will be able to attract
or retain a sufficient number of highly qualified employees in the future. If
the Company is unable to hire and retain personnel in key positions, the
Company's business, results of operations and financial condition could be
materially adversely affected.
Risks Related to the Internet Industry
Emerging Market for the Company's Services
The Company operates in a market that is at a very early stage of
development, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced or developed competing products and
services. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty and risk. Because the market for the
Company's Web sites is new and evolving, it is difficult to predict, with any
assurance, the size of this market and its growth rate, if any. In addition, it
is not known whether individuals will utilize the Internet to any significant
degree as a means of purchasing goods and services. The adoption of the Internet
for commerce, particularly by those individuals and companies which historically
have relied upon traditional means of commerce, will require a broad acceptance
of new methods of conducting business and exchanging information. There can be
no assurance that the market for the Company's Web sites will develop or that
demand for the Company's service will emerge or be sustainable. If the market
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's Web sites do not achieve or sustain market
acceptance, the Company's business, results of operations and financial
condition would be materially adversely affected.
Dependence on Adoption of the Internet as an Advertising Medium; Reliance on
Short-Term Advertising Contracts; Competition for Advertisers
The Company 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
13
<PAGE> 16
commercial use of the Internet does not develop, or if the Internet does not
develop as an effective and measurable medium for advertising, the Company's
business, results of operations and financial condition would be materially
adversely affected.
The Company's advertising revenue to date has been derived under
short-term contracts. Consequently, the Company's advertising customers can move
their advertising to competing Web sites or to other media quickly and without
penalty, thereby increasing the Company's exposure to competitive pressures.
There can be no assurance that the Company's current advertisers will continue
to purchase advertisements, or that the Company will be able to secure new
advertising contracts from existing or future customers at attractive rates or
at all. Any failure of the Company to achieve sufficient advertising revenue
would have a material adverse effect on the Company's business, results of
operations and financial condition.
There is intense competition for the sale of advertising on high-traffic
Web sites, which has resulted in a wide range of rates quoted by different
vendors for a variety of advertising services, making it difficult to project
levels of Internet advertising that will be realized generally or by any
specific company. Competition for advertisers among present and future Web
sites, as well as competition with other traditional media for advertising
placements, could result in significant price competition. Most of the Company's
advertisements to date have been sold on the basis of the number of
"impressions," or times that an advertisement appears in page views downloaded
by users, rather than on the number of "click-throughs," or user requests for
additional information made by clicking on the advertisement. There can be no
assurance that the Company's future advertising customers will continue to pay
on a per-impression basis rather than on a "click-through" basis. In addition,
there can be no assurance that the Company's advertising customers will accept
the internal and third-party measurements of impressions received by
advertisements on the Company's Web sites, or that such measurements will not
contain errors. The foregoing factors and uncertainties could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business--Advertising and Sales."
Dependence on Continued Growth in Use of the Internet
The Company's success is highly dependent upon continued growth in the
use of the Internet generally and, in particular, as a medium for advertising,
information services and commerce. Use of the Internet by consumers is at a very
early stage of development, and market acceptance of the Internet as a medium
for advertising, information services and commerce is subject to a high level of
uncertainty. The rapid growth of global commerce and the exchange of information
on the Internet and 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
14
<PAGE> 17
technologies that address the increasingly sophisticated and varied needs of Web
users and advertisers and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. The
development of Web sites and other proprietary technologies entails significant
technical and business risks. There can be no assurance that the Company will be
successful in using new technologies effectively or adapting its Web sites and
proprietary technologies to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to technological developments,
evolving industry standards, changing market conditions or customer
requirements, or if the Company's Web sites do not achieve market acceptance,
the Company's business, results of operations and financial condition would be
materially adversely affected.
Internet Commerce Security Risks
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. The
Company relies on encryption and authentication technology licensed from third
parties to provide the security and authentication necessary to effect secure
transmission of confidential information. There can be no assurance that
advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments will not result in a compromise or breach of the
algorithms used by the Company to protect customer transaction data. If any such
compromise of the Company's security were to occur it could have a material
adverse effect on the Company's business, results of operations and financial
condition. A party who is able to circumvent the Company's security measures
could misappropriate proprietary information or cause interruptions in the
Company's operations. The Company may be required to expend significant capital
and other resources to protect against the threat of such security breaches or
to alleviate problems caused by such breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, and the Web in particular, especially as a means of
conducting commercial transactions. To the extent that activities of the Company
or third party contractors involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could expose the
Company to a risk of loss or litigation and possible liability. There can be no
assurance that the Company's security measures will prevent security breaches or
that failure to prevent such security breaches would not have a material adverse
effect on the Company's business, results of operations and financial condition.
Government Regulation and Legal Uncertainties
The Company is subject to various laws and governmental regulations
applicable to businesses generally. The Company believes it is currently in
compliance with such laws and that such laws do not 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
15
<PAGE> 18
and restricts participation to individuals over 18 years of age who reside in
jurisdictions within the United States and Canada in which the contests and
sweepstakes are lawful. There can be no assurance that the Company's contests
and sweepstakes will be exempt from such laws or that the applicability of such
laws to the Company would not have a material adverse effect on the Company's
business, results of operations and financial condition.
Tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in Internet commerce. New state
tax regulations may subject the Company to additional state sales and income
taxes. As the Company's service is available over the Internet in multiple
states and foreign countries, such jurisdictions may claim that the Company is
required to qualify to do business as a foreign corporation in each such state
and foreign country. The failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify. It is possible that
the governments of other states and foreign countries also might attempt to
regulate the Company's transmissions of content on its Web sites or prosecute
the Company for violations of their laws. There can be no assurance that
violations of local laws will not be alleged or charged by state or foreign
governments, that the Company might not unintentionally violate such law or that
such laws will not be modified, or new laws enacted, in the future.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
For example, America's Carriers Telecommunications Association has filed a
petition with the FCC for this purpose. In addition, because the growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service, local telephone carriers, such as Pacific Bell,
have petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions are granted, or the relief sought therein is otherwise
granted, the costs of communicating on the Internet could increase
substantially, potentially slowing the growth in use of the Internet. Any such
new legislation or regulation or application or interpretation of existing laws
could have a material adverse effect on the Company's business, results of
operations and financial condition.
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 November 1997 initial public offering (the "IPO"). The trading price
of the Common Stock has fluctuated significantly 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
16
<PAGE> 19
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
The Company's present directors and executive officers, greater than 5%
shareholders and their respective affiliates beneficially own approximately
41.9% of the outstanding Common Stock as of September 30, 1998. 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 Shareholders" and "Description of Capital Stock."
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
authorizes 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 (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. Sales of substantial amounts of Common Stock in the public
market, 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 "Description of Capital
Stock--Shares Eligible for Future Sale."
17
<PAGE> 20
USE OF PROCEEDS
The proceeds from the sale of the Shares are solely for the account of the
Selling Shareholders. Accordingly, the Company will not receive any of the
proceeds from the sale of the Shares. See "Selling Shareholders" and "Plan of
Distribution." The Company could receive up to approximately $45.9 million upon
exercise of all of the Warrants (of which their is no assurance), which will be
used for working capital and other general corporate purposes.
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............................................ 32.38 11.75
Second Quarter .......................................... 38.38 22.75
Third Quarter ........................................... 37.50 13.00
Fourth Quarter (through October 16, 1998) ............... 16.38 7.69
</TABLE>
On October 16, 1998, the last sale price of the Common Stock, as reported
by the Nasdaq National Market, was $9.00 per share. As of September 30, 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.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998. This table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
June 30, 1998(1)
----------------
(in thousands)
<S> <C>
Long-term obligations, net of current maturities......................................... $ 346
Shareholders' equity(2):
Preferred stock, $0.01 par value; 1,000,000 shares authorized, none
issued and outstanding.............................................................. --
Common stock, $0.01 par value; 50,000,000 shares authorized,
18,932,326 shares issued and outstanding............................................ 189
Additional paid-in capital............................................................ 194,089
Accumulated deficit................................................................... (73,303)
-----------
Total shareholders' equity........................................................ 120,975
-----------
Total capitalization......................................................... $ 121,321
===========
</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 acquisition was accounted
for under the "pooling-of-interests" accounting method. See Note 2 of Notes
to Consolidated Financial Statements.
(2) Excludes 2,095,444 shares of Common Stock issuable pursuant to stock
options outstanding as of June 30, 1998 (of which options to purchase
approximately 319,905 shares were exercisable) with a weighted average
exercise price of $14.50 per share and 1,900,471 shares of Common Stock
issuable upon the exercise of warrants outstanding as of June 30, 1998 (of
which warrants to purchase approximately 1,431,638 shares were exercisable)
with a weighted average exercise price of $8.23 per share. See
"Management--Stock Plans." Also excludes (i) 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), and (ii) 550,000 shares of Common Stock and warrants to purchase
450,000 shares of Common Stock issued to AOL in October 1998 pursuant to
the AOL Agreement. See "Certain Transactions--CBS Agreement" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
19
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below as of
December 31, 1996 and 1997, and the selected consolidated statement of
operations data for the years ended December 31, 1995, 1996 and 1997 have been
derived from the Company's audited consolidated financial statements, which
statements have been audited by Arthur Andersen LLP, independent certified
public accountants, and appear elsewhere in this Prospectus. The selected
consolidated balance sheet data as of June 30, 1998 and the selected
consolidated statement of operations data for the six months ended June 30, 1997
and 1998 have been derived from the unaudited consolidated financial statements
of the Company included elsewhere in this Prospectus which, in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results for the full year. The following data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
February 23,
1994
(Inception)
Through Year Ended December 31, (1) Six Months Ended June 30,
December 31, ------------------------------------ -------------------------
1994 1995 1996 1997 1997 1998
---------- ---------- ---------- -------- ---------- ----------
(Unaudited)
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue............................ $ -- $ 100 $ 3,058 $ 12,014 $ 3,507 $ 13,802
Cost of revenue.................... -- 818 4,233 10,431 4,152 8,384
----------- ---------- ---------- ---------- ---------- ----------
Gross margin (deficit)............. -- (718) (1,175) 1,583 (645) 5,418
Operating expenses:
Product development............ 58 721 1,445 2,541 1,357 713
Sales and marketing.............. 59 1,456 7,115 14,019 4,970 8,994
General and administrative....... 309 3,081 5,644 8,305 3,398 6,139
Depreciation and amortization.... 16 206 993 11,689 4,454 7,674
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses...... 442 5,464 15,197 36,554 14,179 23,520
---------- ---------- ---------- ---------- ---------- ----------
Loss from operations............... (442) (6,182) (16,372) (34,971) (14,824) (18,102)
Interest expense................... -- (51) (161) (146) (74) (54)
Interest and other income, net..... 38 125 430 940 433 1,645
---------- ---------- ---------- ---------- ---------- ----------
Net loss........................... $ (404) $ (6,108) $ (16,103) $ (34,177) $ (14,465) $ (16,511)
=========== =========== ========== ========== ========== ==========
Net loss per share--basic and
diluted.......................... $ (0.19) $ (1.59) $ (2.31) $ (3.08) $ (1.43) $ (0.96)
=========== =========== ========== ========== =========== ==========
Weighted average common and common
equivalent shares
outstanding--basic and diluted... 2,071,869 3,835,977 6,971,369 11,107,534 10,128,636 17,170,329
========= ========= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1995 1996 1997 June 30, 1998
---------- ---------- ---------- ----------- -------------
(in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 1,666 $ 1,175 $ 15,250 $ 33,988 $ 106,646
Working capital (deficit) 1,656 (1,349) 12,519 31,284 113,385
Total assets............. 1,962 3,901 19,984 45,726 128,668
Long-term obligations,
net of current -- 770 685 458 346
maturities............
Total shareholders' 1,910 405 15,426 36,985 120,975
equity................
</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 consolidated
financial data gives effect to the acquisition, which was accounted for
under the "pooling-of-interests" accounting method. See Note 2 of Notes to
Consolidated Financial Statements.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain risk factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus. The following discussion also should be read in
conjunction with the Company's 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.
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. In
November 1997, the Company entered into an agreement to syndicate certain of its
radio programming. As of June 30, 1998, one of the Company's sports and talk
radio shows was broadcast on traditional radio stations in approximately 50
markets in association with the SportsFan Radio Network. The Company also
expects to syndicate its content in other media and to develop web sites for
third parties. Through June 30, 1998, the Company's syndication and site
development revenue has not been significant.
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 reasonably 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 was accounted for
under the "pooling-of-interests" accounting method. Accordingly, the Company's
consolidated financial statements include the accounts of GolfWeb. See Notes 2
and 5 of Notes to Consolidated Financial Statements.
On June 29, 1998, the Company acquired International Golf Outlet, Inc.
("IGO"), a privately-held Internet retailer of fine golf equipment and
accessories, for $2 million, consisting of $350,000 in cash and $1.65 million of
Common Stock (46,924 shares). The Company also agreed to issue to the IGO
shareholders additional Common Stock, valued at $1.5 million at the time of the
acquisition, if IGO meets certain revenue and earnings targets over the
three-year period following the acquisition.
21
<PAGE> 24
RECENT DEVELOPMENTS
Effective as of October 1, 1998, the Company and AOL entered into the AOL
Agreement, which has an initial term of three years, subject to extension for up
to two additional three-year terms at the option of AOL under certain
circumstances. Under the AOL Agreement, the Company became the premier provider
of special features and major event coverage to the Sports Channel on the AOL
service, as well as an anchor tenant in the Sports Web Center on aol.com, AOL's
Web site. cbs.sportsline.com will also be the premier national sports partner
with a presence on all Digital City local services, currently serving 50 cities,
and an anchor tenant in the Sports Channel on CompuServe. In addition,
SportsLine WorldWide will become the premier global provider of country-specific
sports content to all of AOL's international services, and the Company will
become the premier provider of licensed sports equipment and apparel as well as
golf products within the Sports Channel on the AOL service. The Company will (i)
pay AOL cash in the amount of $8 million, (ii) issue AOL 550,000 shares of
Common Stock and (iii) grant AOL warrants to purchase an additional 900,000
shares of Common Stock at exercise prices ranging from $20 to $40 per share,
450,000 of which are subject to vesting based on the Company's achievement of
specified revenue thresholds. Furthermore, the Company has agreed to make a
deficiency payment to AOL if AOL is not able to realize at least $15 million
from the sale of the 550,000 shares of Common Stock issued to it, provided, that
AOL holds and does not sell any of such shares for a period of two years. In
addition, AOL will be eligible to share in direct revenues attributable to AOL
promotion of Company offerings on AOL brands once certain thresholds specified
in the agreement have been met. Over the three-year agreement, the Company will
receive a number of guaranteed impressions on AOL's commercial online services
and Web sites.
On October 7, 1998, the Company announced that for the quarter ended
September 30, 1998 it expected to report a net loss of approximately $.41 per
share, and that it anticipated that total revenue for the quarter would be
approximately $7.4 million. Of the total revenue for the quarter, the Company
announced that it expected to report approximately $4.2 million in advertising
revenue and approximately $1.1 million in e-commerce revenue, with the balance
coming from membership and premium services and content licensing. The Company
noted in its announcement that although it continued to experience strong
traffic over the summer, lower advertising rates and a lower than budgeted
inventory sell-through rate affected advertising revenue during this third
quarter of 1998. The Company also noted that because the Web advertising market
outside of the United States has not yet matured, strong traffic generated from
the Company's international sites did not result in a corresponding increase in
advertising revenue. Additionally, the Company reported that average daily page
views during the third quarter increased 225% to approximately 5.2 million,
compared to approximately 1.6 million average daily page views during the same
quarter of 1997. Traffic during the month of September 1998 grew to
approximately 6.3 million average page views per day.
On October 14, 1998, the Company settled a lawsuit alleging various
trademark infringement claims. In connection with the settlement, the Company
will record a non-recurring charge of approximately $1.1 million in the third
quarter of 1998. The Company believes that it will collect insurance proceeds to
offset a portion of the settlement expenses, including certain legal fees;
however, there can be no assurance that the Company will be able to collect such
proceeds. See "Business - Intellectual Property."
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. Total revenue for the six months ended June 30,
1998 and 1997 was $13,802,000 and $3,507,000, respectively. The increase in
revenue in each period was primarily 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 and for the six months ended June 30, 1998 and
1997 accounted for approximately 53%, 66%, 30%, 62% and 56%, 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 and the six months ended June 30, 1998, the Company
increased its sales efforts, including expanding its sales force and opening
sales offices in New York City, San Francisco, Chicago and Los Angeles. In
addition to increased sales efforts, the number of impressions available on the
Company's Web sites increased as more content was produced. Membership and
premium services revenue increased $1,055,000 in the six months ended June 30,
1998 compared to the same period in 1997. Basic 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. The Company had approximately 56,400
paying members as of June 30, 1998. E-commerce 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. E-commerce revenue increased
155% to $1,041,000 for the six months ended June 30, 1998 from $409,000 for the
six months ended June 30, 1997. 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. Both
advertising and E-commerce revenue increased during the six months ended June
30, 1998 in part due to special events in 1998, such as the Winter Olympics and
World Cup Soccer. Content licensing and other revenue increased $2,021,000 in
the six months ended June 30, 1998 compared to the same period in 1997 primarily
due to an agreement entered into in July 1997 between the Company and AOL. In
addition, during June 1998, the Company acquired IGO, an Internet retailer of
fine golf equipment and accessories (igogolf.com). See "Business--Merchandise."
As of June 30, 1998, the Company had deferred revenue of $1,797,000 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%, 4%, 17% and 2% of total revenue for the
years ended December 31, 1997, 1996 and 1995 and for the six months ended June
30, 1998 and 1997, respectively. Barter revenue increased in the first six
months of 1998 primarily due to revenue related to the AOL agreement. In future
periods, management intends to maximize cash advertising and content licensing
revenue, although the Company will continue to enter into barter relationships
when deemed 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. Cost of revenue for the six months ended June 30, 1998 and
1997 was $8,384,000 and $4,152,000, respectively. The increase in cost of
revenue for each period was primarily the result of increased revenue sharing,
content fees and athlete/personality fees incurred, as
22
<PAGE> 25
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 for each period 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 and 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, and
decreased to 61% for the six months ended June 30, 1998 from 118% for the six
months ended June 30, 1997.
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. Product development expense was $713,000 for the six months
ended June 30, 1998 compared to $1,357,000 for the six months ended June 30,
1997. The decrease in product development expense in the first half of 1998 is
primarily the result of the reduction of product development personnel and
consultants at GolfWeb. 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, and to 5% for the six months
ended June 30, 1998 from 39% for the six months ended June 30, 1997.
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 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. Sales and marketing expense was $8,994,000 for the
six months ended June 30, 1998 compared to $4,970,000 for the six months ended
June 30, 1997. The increase in sales and marketing expense in each period was
primarily the result of the growth in the number of personnel and related costs
and increased advertising on other Web sites. Barter transactions accounted for
approximately 16%, 7% and 0% of sales and marketing expense for the years ended
December 31, 1997, 1996 and 1995, respectively and for 27% and 1% of sales and
marketing expense for the six months ended June 30, 1998 and 1997, respectively.
The increase in the proportionate amount of barter expense was due to the use of
barter for content licensing during 1998. 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,
and to 65% for the six months ended June 30, 1998 from 142% for the six months
ended June 30, 1997.
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. General and administrative
expense for the six months ended June 30, 1998 was $6,139,000 compared to
$3,398,000 for the six months ended June 30, 1997. The increase in general and
administrative expense in each period was primarily attributable to salary and
related expenses for additional personnel and an increase in professional fees.
The Company increased general and administrative expense in each year to develop
and maintain
23
<PAGE> 26
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, and to 44% for the six
months ended June 30, 1998 from 97% for the six months ended June 30, 1997.
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. Depreciation and amortization expense
was $7,674,000 for the six months ended June 30, 1998 compared to $4,454,000 for
the six months ended June 30, 1997. 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 and from the second half of 1997 to the second half of 1998
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 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 Consolidated Financial Statements. Total
expense under the CBS agreement was $7,835,000 for the year ended December 31,
1997 and $6,000,000 for the six months ended June 30, 1998, and will be
$6,001,000 for the remainder of 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. Interest expense was $54,000 for
the six months ended June 30, 1998 compared to $74,000 for the six months ended
June 30, 1997. 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 fully paid the balance due under a capital lease of
telecommunications equipment and in February 1998, the Company fully paid the
balance of two of its equipment lines.
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. Interest and other income, net for the six months
ended June 30, 1998 was $1,645,000 compared to $433,000 for the six months ended
June 30, 1997. The increase from period to period was primarily attributable to
the higher average investments in cash and cash equivalents and, in 1997 and
1998, marketable securities of the proceeds from the IPO and the Company's April
1998 secondary public offering. The Company anticipates that interest income may
decrease in future periods as the Company utilizes its cash and cash equivalents
and marketable securities for working capital and other purposes.
Income Taxes. No provision for Federal and state income taxes has been
recorded as the Company incurred net operating losses for each period presented.
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 Consolidated Financial Statements.
24
<PAGE> 27
Selected Unaudited Consolidated Quarterly Results of Operations
The following table sets forth selected unaudited consolidated quarterly
statement of operations data for the year ended December 31, 1997 and the six
months ended June 30, 1998. The selected 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 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,
1997 1997 1997 1997 1998 1998
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Advertising........................... $ 782 $1,185 $ 1,726 $ 2,636 $ 4,419 $ 4,134
Membership and premium services....... 521 538 673 969 1,009 1,103
E-commerce............................ 157 252 262 378 467 574
Licensing and other................... 15 58 930 932 894 1,202
------- ------ ------- -------- ------- --------
Total revenue....................... 1,475 2,003 3,591 4,915 6,789 7,013
Loss from operations..................... (6,370) (8,453) (9,761) (10,387) (9,420) (8,682)
Net loss................................. (6,225) (8,239) (9,608) (10,105) (9,006) (7,505)
Net loss per share - basic and diluted... $ (0.67) $ (0.75) $ (0.87) $ (0.77) $ (0.56) $ (0.41)
</TABLE>
The Company's revenue has increased sequentially in each quarter during
1997 and the six months ended June 30, 1998. 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, 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.
In April 1998, the Company sold 2,288,430 shares of Common Stock in a
secondary public offering at a price to public of $37.625 per share. The total
net proceeds to the Company from this offering were approximately $80,841,000.
As of June 30, 1998, the Company's primary source of liquidity consisted
of $106,646,000 in cash and marketable securities. Prior to the IPO and the
secondary public offering, 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.
25
<PAGE> 28
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
June 30, 1998, the Company owed $800,000 under these facilities.
As of June 30, 1998, deferred advertising and content costs totaled
$6,414,000, 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 $4,080,000 as of June 30, 1998, an increase of
$822,000 from December 31, 1997, primarily due to increases in accruals for
revenue sharing and professional 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,
and $11,907,000 and $9,581,000 for the six months ended June 30, 1998 and 1997,
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,
and $14,396,000 and $1,716,000 for the six months ended June 30, 1998 and 1997,
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) and the net purchase of
marketable securities for $12,951,000 during the first six months of 1998.
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, and $86,011,000 and $12,869,000 for the six months ended June 30,
1998 and 1997, respectively. Financing activities consisted principally of the
issuance of equity securities, including shares of Common Stock sold in the IPO
and the secondary public offering, 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. During June 1998, as a result of the market
price of the Company's Common Stock exceeding a certain level, the Company's
minimum guaranteed payments were reduced by $10 million.
Although the Company has no material commitments for capital expenditures,
it anticipates purchasing approximately $2 million of property and equipment
during the remainder of 1998, primarily computer equipment and furniture and
fixtures. The Company intends to continue to pursue acquisitions of or
investments in businesses, services and technologies that are complementary to
those of the Company.
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 24 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
26
<PAGE> 29
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. The Company is currently
designing and testing its services to be Year 2000 compliant. There can be no
assurances that the Company's current services do not contain undetected errors
or defects with Year 2000 date functions that may result in material costs to
the Company. Although the Company is not aware of any material operational
issues or costs associated with preparing its internal systems for the Year
2000, there can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its internal systems.
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 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.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, was issued
which was adopted by the Company as of January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of statements of financial position.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
Comprehensive income equals the net loss for all periods presented.
27
<PAGE> 30
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for financial statements for periods
beginning after December 31, 1997. The Company does not believe it has any
separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in the statement of operations unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the statement
of operations, and requires that a company formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. A company may
also implement the provision of SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively, and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997. The Company has not yet adopted SFAS No. 133
and presently does not have any derivative instruments.
28
<PAGE> 31
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.
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. In October 1998, the Company and AOL
entered into the AOL Agreement and significantly expanded their online
relationship to provide Company-produced sports news and statistics, special
features, major event coverage and merchandise on several key AOL brands around
the world. Under the AOL Agreement, the Company became the premier provider of
special features and major event coverage to the Sports Channel on the AOL
service, as well as an anchor tenant in the Sports Web Center on aol.com, AOL's
Web site. cbs.sportsline.com will also be the premier national sports partner
with a presence on all Digital City local services, currently serving 50 cities,
and an anchor tenant in the Sports Channel on CompuServe. In addition,
SportsLine WorldWide will become the premier global provider of country-specific
sports content to all of AOL's international services, and the Company will
become the premier provider of licensed sports equipment and apparel as well as
golf products within the Sports Channel on 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.
Sports Information, Programming and Distribution
The Company offers a broad range of sports-related information and
programming, which it delivers through its network of Web sites and other
distribution channels.
Information and Programming
<TABLE>
<CAPTION>
<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 writers and editors and 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.
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
Fantasy Leagues and Contests Fantasy league enthusiasts can participate in SportsLine leagues or form
their own leagues with customized rules, scoring and reporting. The
Company administers player transactions (for example, drafts, trades,
starting lineup selection and disabled list and minor league moves) and
provides summaries of scoring, standings and roster transactions.
Proprietary contests feature cash prizes, limited edition sports
memorabilia and other awards based on the results of weekly, season-long
or special event related games of skill. Regular sweepstakes and
"giveaways" feature cash prizes, sports memorabilia, event tickets and
other merchandise.
Local and Personalized Content The Company packages its information and programming to enable users to follow
local or regional team and event coverage, including weekly stories from college
sports publications and team coverage from Pro Sports 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. As of June 30, 1998, one of the Company's sports and talk
radio shows was broadcast on traditional radio stations in approximately
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>
30
<PAGE> 33
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>
<CAPTION>
<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 has won numerous awards, including the Internet
Services Association's "Outstanding Innovation" award for Baseball LIVE! (1996);
a "Gold Medal" for Outstanding Olympic Coverage from The Wall Street Journal
(1996); a "Members' Choice" designation from AOL (1996-1998); NetGuide's
"Platinum Award" as one of the best sites on the Web (1996); NetGuide's
"Platinum Award" for overall site excellence (1997); "Editor's Choice" from UK
Plus (1997), PC Magazine's top 25 sites on the Web (1997); and the Webby Award
for sports (1998).
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.
igogolf.com, acquired by the Company in June 1998, is a Web site that
offers fine golf equipment and accessories, including golf clubs, golf balls,
bags, footwear, apparel, accessories, training aids, art, software, books, and
videos.
31
<PAGE> 34
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 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 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), Mike
Schmidt 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 includes 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 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), Golf Holidays
(golfholidays.com), the 1998 Major League Baseball All-Star Game
(mlballstargame.com) and the 1998 Major League Baseball official post-season
site (worldseries.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 AOL's services and the integration
of cbs.sportsline.com into Microsoft's IE4 and Netscape's Netcaster Web browsers
make the Company's sports content and programming readily accessible to the
millions of Web users that access the Internet via these platforms. The Company
also distributes its sports content and programming through relationships with
other commercial online services (Prodigy), third party Web sites (Delta
Airlines), 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
32
<PAGE> 35
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. As of June 30, 1998, one of the Company's sports and talk radio
shows was broadcast on traditional radio stations in approximately 50 markets in
association with the SportsFan Radio Network. 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.
No advertiser accounted for more than 8% of the Company's revenue during
1997 or the six months ended June 30, 1998.
Memberships and Premium Offerings
Although the majority of information and programming on the Company's Web
sites is free, the Company offers membership programs and other premium services
on cbs.sportsline.com and vegasinsider.com. The Company also believes that it
will be able to charge fees for access to "pay-per-view" content such as
exclusive interviews, chat sessions or special coverage of major sports events.
In addition, the Company expects to sell online fan clubs in connection with its
superstar athlete Web site.
The following table sets forth certain information, as of June 30, 1998,
concerning the Company's membership and premium service offerings:
33
<PAGE> 36
<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 $4.95 monthly
the Associated Press and exclusive stories from the Company's in-house $39.95 annually
editorial staff.
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 on golf travel and merchandise; weekly newsletter; online golf $29.95 annually
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 $29.95 monthly
reports and detailed write-ups from Computer Sports World. $249.95 annually
Handicapping Experts. Picks, match-up analysis and editorial commentary.
Live Scoreboards. Breaking scores, odds, updates, recaps, box scores
and breaking news.
Premium Services Description Price Range
---------------- ----------- -----------
Fantasy Leagues and Challenge Game. Multi-player leagues featuring overall, conference,
Fantasy Tools league and weekly prizes.
Fantasy Software/tools. Team and league management, including sortable $19.75 - $99.95
stats, Fantasy Scoring Center, Stats Projector and Trends Analysis
Odds and Picks Electronic Odds. Instant odds from premier Las Vegas casinos. $149.95 monthly
$1,249.95 annually
Pick Packs. Expert picks for college and professional games from $14.95 to $24.95
well-known 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, $29.95 annually Nike 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 - $59.99
publications.
Job Listings Sports Careers. Exclusive job listings in multiple sports categories. $14.95 monthly
Also includes articles, audio, tips, success stories and company contacts $149.95 annually
</TABLE>
34
<PAGE> 37
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, 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. During June 1998, the Company acquired IGO, which operates a mail
order golf store that offers fine golf equipment and accessories, including golf
clubs, golf balls, bags, footwear, apparel, accessories, training aids, art,
software, books, and videos through its Web site (igogolf.com) and third-party
Web sites. IGO established its online e-commerce operations in 1995 and
currently sells golf equipment to consumers in more than 100 countries
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. In October 1998, the Company and AOL entered
into the AOL Agreement and significantly expanded their online relationship to
provide Company-produced sports news and statistics, special features, major
event coverage and merchandise on several key AOL brands around the world. Under
the AOL Agreement, the Company became the premier provider of special features
and major event coverage to the Sports Channel on the AOL service, as well as an
anchor tenant in the Sports Web Center on aol.com, AOL's Web site.
cbs.sportsline.com will also be the premier national sports partner with a
presence on all Digital City local services, currently serving 50 cities, and an
anchor tenant in the Sports Channel on CompuServe. In addition, SportsLine
WorldWide will become the premier global provider of country-specific sports
content to all of AOL's international services, and the Company will become the
premier provider of licensed sports equipment and apparel as well as golf
products within the Sports Channel on the AOL service.
35
<PAGE> 38
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 and John Daly, and
advisory agreements with Mark McCormack (Chairman of International Management
Group). 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, as of June 30, 1998, one of the Company's
sports and talk radio shows was broadcast on traditional radio stations in
approximately 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, The Golf Channel and Sports
Byline USA, the Company advertises on other Web sites, in targeted publications
and on sports talk
36
<PAGE> 39
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
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
37
<PAGE> 40
indirect competitors will increase in the future. Management believes that the
Company's most significant competitors are ESPN SportsZone and CNN/SI, Web sites
which offer a variety of sports content.
The Company believes that the principal competitive factors in attracting
and retaining users and members are the depth, breadth and timeliness of
content, the ability to offer compelling and entertaining content and brand
recognition. Other important factors in attracting and retaining users include
ease of use, service quality and cost. The Company believes that the principal
competitive factor in attracting and retaining content providers and
merchandisers is the Company's ability to offer sufficient incremental revenue
from licensing fees, bounties and online sales of product or services. The
Company believes that the principal competitive factors in attracting
advertisers include the number of users and members of the Company's Web sites,
the demographics of the Company's user and membership bases, price and the
creative implementation of advertisement placements. There can be no assurance
that the Company will be able to compete favorably with respect to these
factors.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, significantly greater name recognition and substantially larger user
or membership bases than the Company and, therefore, have a significantly
greater ability to attract advertisers and users. In addition, many of these
competitors may be able to respond more quickly than the Company to new or
emerging technologies and changes in Internet user requirements and to devote
greater resources than the Company to the development, promotion and sale of
their services. There can be no assurance that the Company's current or
potential competitors will not develop products and services comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing Internet user
preferences. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which would materially and adversely
affect the Company's business, results of operations and financial condition. In
addition, as the Company expands internationally, it may face new competition.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company would not have a material adverse effect on its business, results of
operations and financial condition.
Government Regulation and Legal Uncertainties
The Company is subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. There are currently few laws
or regulations directly applicable to access to or commerce on commercial online
services or the Internet. However, due to the increasing popularity and use of
commercial online services and the Internet, it is possible that a number of
laws and regulations may be adopted with respect to commercial online services
and the Internet. Such laws and regulations may cover issues such as user
privacy, pricing and characteristics and quality of products and services. On
June 26, 1997, the United States Supreme Court held unconstitutional certain
provisions of the Communications Decency Act of 1996, which, among other things,
imposed criminal penalties for transmission of or allowing access to certain
obscene communications over the Internet and other computer services, intended
to protect minors. The adoption of similar laws or regulations in the future may
decrease the growth of commercial online services and the Internet, which could
in turn decrease the demand for the Company's services and products and increase
the Company's costs of doing business or otherwise have an adverse effect on the
Company's business, operating results and financial condition. Moreover, the
applicability to commercial online services and the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain and could expose the Company to substantial liability, for which the
Company might not be indemnified by content providers.
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.
38
<PAGE> 41
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, 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 owned 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 claimed to have used the
mark for this purpose since 1968. The complaint alleged that the Company's use
of the mark "SportsLine USA" and other marks utilizing the term "SportsLine"
infringed upon and otherwise violated Weatherline's rights under its registered
trademark and damaged Weatherline's reputation. In October 1998, the Company and
Weatherline settled this action. In connection with the settlement, Weatherline
will assign to the Company its United States trademark registration for the mark
"Sportsline." The Company will record a non-recurring charge of approximately
$1.1 million associated with such settlement in the third quarter of 1998. The
Company believes that it will collect insurance proceeds to offset a portion of
the settlement expenses, including certain legal fees; however, there can be no
assurance that the Company will be able to collect such proceeds.
There can be no assurance that third parties will not bring copyright or
trademark infringement claims against the Company in addition to the claim
brought 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 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
39
<PAGE> 42
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 254 full-time employees as of June 30, 1998, of which
67 were in editorial and operations, 63 were in technical and product
development, 65 were in sales and marketing and 17 were in finance and
administration. The Company's future success depends in large part upon its
ability to attract and retain highly qualified employees. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to retain its senior management or other key employees or that it will be
able to attract and retain additional qualified personnel in the future. The
Company's employees are not represented by any collective bargaining
organization, and the Company considers its relations with its employees to be
good.
Infrastructure, Operations and Technology
The Company makes its Web sites available through multiple servers,
primarily Sun Microsystems models Ultra 2 (18), Ultra 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
40
<PAGE> 43
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 currently 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, San Francisco and Los Angeles. In order to meet
the Company's estimated future space needs, the Company has entered into an
agreement to lease a commercial building in Fort Lauderdale, Florida consisting
of approximately 81,000 square feet. The lease is for a term of ten years for
total rent commitments of up to $13 million, commencing upon occupancy, with
options to extend the lease for two additional five-year terms. The Company
anticipates moving its corporate headquarters into this new building in late
1999. In addition, the Company has entered into an agreement to lease an
additional approximately 26,800 square feet of office space near its current
corporate headquarters on a short-term basis until the Company moves into its
new facility. IGO leases office space in Austin, Texas.
Legal Proceedings
In October 1998, the Company settled a lawsuit alleging various trademark
infringement claims. 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.
41
<PAGE> 44
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael Levy........................ 51 Chairman of the Board, President and Chief Executive Officer
Kenneth W. Sanders.................. 41 Senior Vice President and Chief Financial Officer
Mark J. Mariani..................... 41 Executive Vice President, Sales
Andrew S. Sturner................... 33 Senior Vice President, Business Development
Thomas Jessiman..................... 38 Senior Vice President of Operations
Thomas Cullen....................... 39 Director
Gerry Hogan......................... 52 Director
Richard B. Horrow................... 43 Director
Joseph Lacob........................ 42 Director
Sean McManus........................ 43 Director
Andrew Nibley....................... 47 Director
Derek Reisfield..................... 35 Director
Michael P. Schulhof................. 55 Director
James C. Walsh...................... 58 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 Vice President and Chief Financial
Officer of the Company since September 1997 and was appointed Senior Vice
President in October 1998. 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, 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 and was appointed Senior Vice President, Business
Development in October 1998. 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 of
Operations since February 1998. From March 1997 to February 1998, Mr. Jessiman
served as the Company's Vice President, International. From November 1995 to
March 1997, Mr. Jessiman served as the Director of Business Development for
U S WEST Media Group's Interactive Services Division and from September 1994 to
November 1995, Mr. Jessiman served as Director of Business Development in the
U S WEST Multimedia Group. From January 1992 to September 1994, Mr. Jessiman
served as Manager in IBM's Multimedia Group.
42
<PAGE> 45
Thomas Cullen, appointed a director of the Company in April 1997, has
served as President of MediaOne Interactive Services, Inc. (formerly U S WEST,
Inc. 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 U S WEST Media Group's Interactive
Services Division 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
magazine publishing company, since May 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, London Fog Industries, Inc. and Ethnic American
Broadcasting Company 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 Corixa, Inc., a cancer and
infectious disease vaccine company. Mr. Lacob is also a director of
publicly-held Pharmacyclics, Inc. and Hearport, Inc., as well as six
privately-held ventures in the medical and sports media businesses.
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 President, CBS New Media Group since April 1988 and was Vice President
of Business Development at CBS from May 1997 to April 1998. From April 1996 to
April 1997, Mr. Reisfield was Director of Strategic Management of Westinghouse
Electric Corporation. 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.
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
43
<PAGE> 46
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. Levy, Lacob, Nibley and Walsh serve as Class
I directors until the annual meeting of shareholders held in 2001, or until
their respective successors have been elected and qualified. Messrs. Cullen,
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, 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 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."
44
<PAGE> 47
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Gerry Hogan, Michael Levy and
Sean McManus. Mr. Levy is an executive officer of the Company. Mr. Levy does not
participate in discussions regarding his own compensation or performance
appraisals.
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 years
ended December 31, 1996 and 1997 by the Company's Chief Executive Officer and
its other executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation(1) ------------------
----------------------------------- Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation
- --------------------------- ---- ------ ----- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Levy,
Chairman, President and Chief Executive
Officer................................. 1997 $ 206,787 $ 75,000 150,000 $ 23,027(2)
1996 167,887 50,000 -- 22,922(2)
Mark J. Mariani,
Executive Vice President, Sales......... 1997 165,066 25,000 20,000 --
1996 112,243 10,000 80,000 8,205(3)
Kenneth W. Sanders,
Senior Vice President and Chief
Financial Officer(4).................... 1997 72,717 15,000 100,000 47,579(3)
Andrew S. Sturner,
Senior Vice President, Business
Development............................. 1997 127,500 20,000 30,000 --
1996 101,934 10,000 -- --
Thomas Jessiman,
Senior Vice President of Operations(5).. 1997 118,750 10,000 50,000 5,318(3)
</TABLE>
- -----------------
(1) The column for "Other Annual Compensation" has been omitted because there
is no compensation required to be reported in such column. The aggregate
amount of perquisites and other personal benefits provided to each Named
Executive Officer is less than 10% of the total annual salary and bonus of
such officer.
(2) Represents premiums paid for life and disability insurance policies for the
benefit of Mr. Levy.
(3) Represents reimbursement of relocation and moving expenses.
(4) Mr. Sanders joined the Company in September 1997.
(5) Mr. Jessiman joined the Company in March 1997.
The following table sets forth certain information concerning grants of
stock options made during 1997 to each Named Executive Officer.
Option Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term(2)
Options Employees in Price Per Expiration ---------------------------
Name Granted(1) Fiscal Year Share ($) Date 5%($) 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
Thomas Jessiman........ 50,000 5.5 5.00-8.00 3/1/07-12/5/07 176,091 446,248
</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."
45
<PAGE> 48
(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>
Value of Unexercised
Number of Securities Underlying 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 55,000 611,600
Kenneth W. Sanders...................... 20,000 80,000 55,000 220,000
Andrew S. Sturner....................... 25,000 45,000 253,000 258,300
Thomas Jessiman......................... 0 50,000 0 257,500
</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 an employment agreement with Michael Levy,
pursuant to which he will serve as Chairman of the Board, President and Chief
Executive Officer through December 31, 2003, subject to extension or renewal.
Mr. Levy will receive an annual base salary of at least $300,000 and such
bonuses as may be awarded from time to time by the Board or any compensation
committee thereof. Pursuant to the agreement, the Company shall grant Mr. Levy
options to purchase at least 150,000 shares of Common Stock during each calendar
year of his employ at exercise prices to be determined at the time of grant. If
the agreement is terminated by the Company other than by reason of death,
Disability (as defined in the agreement) or Cause (as defined in the agreement),
or by Mr. Levy for Good Reason (generally defined as a material breach by the
Company of the agreement), the Company will pay to Mr. Levy within five days of
such termination an amount equal to the sum of Mr. Levy's accrued base salary
and vacation pay through the date of termination, a pro rata portion of his most
recent bonus pay and an amount equal to the greater of two times his current
annual base salary or the amount of base salary that would have been payable to
him for the remainder of the term of the agreement. The agreement prohibits Mr.
Levy from competing with the Company during his employment and for a period of
two years after termination of his employment.
The Company has entered into a three-year employment agreement with
Kenneth W. Sanders, pursuant to which he will serve as Vice President and 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 (one year, if such termination is within one year following
a change in control) 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. In addition, all unvested stock options held by Mr.
Sanders at the time his employment is terminated will immediately vest and
become exercisable for a period of one year following the date of termination.
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.
46
<PAGE> 49
The Company has also entered into an agreement with Mark J. Mariani
whereby the Company has agreed to provide Mr. Mariani with certain compensation
in the event his employment is terminated by the Company without Cause. If his
employment is terminated without Cause, the Company will continue to pay Mr.
Mariani an amount equal to the installments of his base salary (at the rate in
effect immediately prior to the date of termination) that would have been paid
to him had his employment not been so terminated for a period of (i) six months
if such termination is either prior to a change of control or more than one year
after a change of control or (ii) one year if such termination is within one
year following a change of control. In addition, all unvested stock options held
by Mr. Mariani at the time his employment is terminated will immediately vest
and become exercisable for a period of one year following the date of
termination.
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
September 30, 1998, options to purchase a total of 815,021 shares of Common
Stock at a weighted average exercise price of $4.56 were outstanding under the
1995 Plan (of which options to purchase approximately 377,090 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) 3,000,000 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 September 30,
1998, options to purchase a total of 1,583,382 shares of Common Stock at a
weighted average exercise price of $17.65 were outstanding under the Incentive
Plan (of which options to purchase approximately 35,422 shares were then
exercisable). As a result of a significant decline in the market price of the
Company's Common Stock during the third quarter of 1998, certain options granted
pursuant to the Incentive Plan had exercise prices substantially in excess of
the market price of the Company's Common Stock. In order to ensure that such
options continued to provide sufficient incentives to key employees to continue
their meaningful efforts on behalf of the Company, in September 1998 the Company
amended an aggregate of 230,000 outstanding options held by certain officers and
directors to reduce their exercise prices to current market value, and in
October 1998 the Company amended an aggregate of 625,382 outstanding options
held by certain other employees of the Company to reduce their exercise prices
to current market value. None of the other terms of the options so amended were
affected and none of such options are currently 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
47
<PAGE> 50
price of a SAR are determined by the Committee, but must not be less than
the fair market value of a share of Common Stock on the date of grant.
Each option is exercisable after the period or periods specified in the
related option agreement, but no option may be exercised after the
expiration of ten years from the date of grant. Options granted to an
individual who owns (or is deemed to own) at least 10% of the total
combined voting power of all classes of stock of the Company must have an
exercise price of at least 110% of the fair market value of the Common
Stock on the date of grant and a term of no more than five years. Options
may be exercised by payment of the exercise price in cash, shares of
Common Stock, outstanding Awards or other property having a fair market
value equal to the exercise price, as the Committee may determine from
time to time.
Restricted and Deferred Stock. The Committee is authorized to grant
restricted stock and deferred stock. Restricted stock is a grant of shares
of Common Stock which may not be sold or disposed of, and which may be
forfeited in the event of certain terminations of employment, prior to the
end of a restricted period specified by the Committee. A Participant
granted restricted stock generally has all the rights of a shareholder of
the Company, unless otherwise determined by the Committee. An Award of
deferred stock confers upon the Participant the right to receive shares of
Common Stock at the end of a specified deferral period, subject to
possible forfeiture of the Award in the event of certain terminations of
employment prior to the end of a specified restricted period. Prior to
settlement, an Award of deferred stock carries no voting or dividend
rights. The restricted 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) an option to purchase 12,000 shares
of Common Stock on the date of his or her election or appointment and (ii) on
the date of the Company's annual meeting of shareholders, an option to purchase
3,000 shares of Common Stock. Such options have a term of 10 years and become
exercisable at the rate of 25% per year commencing on the first anniversary of
the date of grant; provided, however, that the options shall be fully
exercisable in the event that, while serving as a director, the non-employee
director dies, suffers a "disability," or "retires" (within the meaning of such
terms as defined in the
48
<PAGE> 51
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. On June 30, 1998, employees' contributions to the
Purchase Plan aggregating approximately $1,354,000 were applied to the purchase
of 199,060 shares of Common Stock.
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.
49
<PAGE> 52
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, PGA Tour events, U.S. Open tennis 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, MediaOne Interactive Services, Inc., formerly U S WEST
Interactive Services, Inc. ("MediaOne") and the Company entered into a two-year
agreement that provides for the Company and MediaOne to (i) establish hypertext
links and certain cross promotional pages between the Company's Web sites and
MediaOne'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 MediaOne 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 MediaOne royalties based on the number of customers referred from
MediaOne's Web sites who purchase memberships on the Company's Web sites. The
Company also issued MediaOne 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 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
50
<PAGE> 53
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 in 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, and, during each renewal term, $0.15 per month for each new member, or
$0.05 per month if the total royalties during the last calendar year prior to
the renewal term were less more 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.
51
<PAGE> 54
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
30, 1998, 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, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned (2)
-----------------------------
Name of Beneficial Owner(1) Number Percent
- --------------------------- -----------------------------
<S> <C> <C>
CBS Broadcasting, Inc. (3)............................................. 2,248,075 11.5%
Thomas Cullen (4)...................................................... 1,596,652 8.4
MediaOne Interactive Services, Inc..................................... 1,595,852 8.4
Joseph Lacob (5)....................................................... 1,503,492 7.7%
Kleiner Perkins Caufield & Byers (6)................................... 1,464,166 7.5%
Michael Levy (7)....................................................... 1,370,000 7.2
Estate of Burk Zanft (8)............................................... 1,000,000 5.2
Andrew Nibley (7) (9).................................................. 425,672 2.2
James C. Walsh (7)..................................................... 160,000 *
Kenneth W. Sanders (7)................................................. 48,999 *
Mark J. Mariani (7).................................................... 47,821 *
Andrew S. Sturner (7).................................................. 43,644 *
Thomas Jessiman (7).................................................... 21,569 *
Richard B. Horrow (7).................................................. 22,250 *
Gerry Hogan (7)........................................................ 10,000 *
Sean McManus........................................................... -- *
Derek Reisfield........................................................ -- *
Michael P. Schulhof (7)................................................ 3,000 *
All directors and executive officers as a group (14 persons) (7)....... 5,253,099 26.7
</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 includes (i)
19,121,282 shares of Common Stock outstanding as of September 30, 1998, and
(ii) 1,161,829 shares issuable pursuant to options and warrants held by the
respective person or group which may be exercised within 60 days after
September 30, 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 additional
shares of Common Stock and warrants to purchase Common Stock to be issued
to CBS after September 30, 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 (i) 800 shares held of record by Mr. Cullen and (ii) 1,595,852
shares held of record by MediaOne of which Mr. Cullen is President for
which Mr. Cullen disclaims beneficial ownership except to the extent of his
pecuniary interest therein. The address of MediaOne and Mr. Cullen is 9000
East Nichols, Englewood, Colorado 80112.
(5) Reflects (i) 37, 240 shares held of record by Mr. Lacob, (ii) 2,086 shares
held of record by a trust for the benefit of Mr. Lacob's children for which
Mr. Lacob disclaims beneficial ownership and (iii) 1,134,166 shares held of
record and 330,000 shares subject to presently exercisable warrants held by
various funds associated with Kleiner Perkins Caufield & Byers of which Mr.
Lacob is a general partner for which Mr. Lacob disclaims beneficial
ownership except to the extent of his pecuniary interest therein. See note
(6) below. The address of Mr. Lacob is 2750 Sand Hill Road, Menlo Park,
California 94025.
(6) Reflects (i) 1,093,611 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.
(7) Excludes shares issuable (i) upon exercise of stock options not exercisable
within 60 days in the following amounts: Michael Levy (325,000), Andrew
Nibley (3,000), James C. Walsh (3,000), Kenneth W. Sanders (125,001), Mark
Mariani (115,668), Andrew S. Sturner (129,668), Thomas Jessiman (108,334),
Richard B. Horrow (3,000), Gerry Hogan (3,000), Michael P. Schulhof
(20,000) and all executive officers and directors as a group (835,671) and
(ii) upon the exercise of warrants not exercisable within 60 days in the
following amounts: Richard B. Horrow (7,500) and Gerry Hogan (30,000).
(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.
52
<PAGE> 55
SELLING SHAREHOLDERS
The following table sets forth, as of September 30, 1998 (except as
otherwise indicated), the name of each Selling Shareholder, the number of shares
of Common Stock that each Selling Shareholder beneficially owned as of such
date, the number of Shares beneficially owned by each Selling Shareholder that
may be offered for sale from time to time by this Prospectus, and the number of
shares of Common Stock to be held by each such Selling Shareholder assuming the
sale of all of the Shares offered hereby. Included in the table below are
876,986 Shares subject to Warrants that are not currently exercisable. Except as
indicated below, none of the Selling Shareholders has held any position or
office (other than a non-officer employment relationship) or had a material
relationship with the Company or any of its affiliates (other than as a result
of the ownership of Common Stock) within the past three years. The Company may
amend or supplement this Prospectus from time to time to update the disclosure
set forth herein.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Shares Beneficially
Prior to the Shares Which Owned
Offering(1) May be Sold After the Offering(2)
------------------- Pursuant to --------------------
Name of Selling Shareholder Number Percent this Prospectus Number Percent
- --------------------------- ------ ------- --------------- ------ --------
<S> <C> <C> <C> <C> <C>
Gary Allen (3)..................................... 366 * 366 -- --
America Online, Inc. (4)........................... 1,000,000 5.0% 900,000 550,000 2.7%
Leonard Armato (5)................................. 88,000 * 88,000 -- --
Arnold Palmer Enterprises.......................... 10,000 * 10,000 -- --
Brian P. Axe (3)................................... 52 * 52 -- --
Michael G. Barnett................................. 750 * 750 -- --
Steven Bennet (3).................................. 5 * 5 -- --
Big Sky, Inc....................................... 20,000 * 20,000 -- --
Bruce Binkow (5)................................... 22,000 * 22,000 -- --
BNI................................................ 5,000 * 5,000 -- --
Fred Boyce (3)..................................... 5 * 5 -- --
John Daly.......................................... 20,000 * 20,000 -- --
Ed DeBartolo....................................... 40,000 * 40,000 -- --
Chieko Eguchi (3).................................. 5 * 5 -- --
ETW Corp. (5)...................................... 60,000 * 60,000 -- --
Emerson Fittipaldi ................................ 10,000 * 10,000 -- --
Wayne Gretzky...................................... 8,500 * 8,500 -- --
Yuji Hashiba (3)................................... 25 * 25 -- --
Jens Hoeffinger (3)................................ 24 * 24 -- --
Joshua M. Homik (3)................................ 25 * 25 -- --
Yves Huin (3)...................................... 54 * 54 -- --
Javier Ramon Martin Infante (3).................... 25 * 25 -- --
Institutional Venture Management (3)............... 4,100 * 4,100 -- --
Institutional Venture Management Founders Fund I, -- --
L.P. (3)......................................... 5,700 * 5,700
Institutional Venture Partners VI (3).............. 196,800 1.0 196,800 -- --
International Management Group (5)................. 62,657 * 62,657 -- --
Michael Jordan (5)................................. 160,000 * 160,000 -- --
Keyshawn Johnson................................... 4,000 * 4,000 -- --
Ken and Kris Keller (3)............................ 5 * 5 -- --
Jack Kemp.......................................... 7,000 * 7,000 -- --
Kevin Klier (3).................................... 6,508 * 6,508 -- --
Lee Kolligian...................................... 5,500 * 5,500 -- --
Knight-Ridder Investment Company (3)............... 283,000 1.5 283,000 -- --
Jay S. and Gabrielle Kunin (3)..................... 711 * 711 -- --
Jim Lampley........................................ 10,000 * 10,000 -- --
Lighthouse Capital Partners, L.P (3)............... 2,044 * 2,044 -- --
Carl Linde (3)..................................... 690 * 690 -- --
Lisa L. Enterprises, Inc. (5)...................... 17,000 * 17,000 -- --
Thomas Loeffler.................................... 2,500 * 2,500 -- --
Management Plus Enterprises (5).................... 3,000 * 3,000 -- --
Courtney A. Mares (3).............................. 5 * 5 -- --
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
Shares Beneficially
Owned Shares Beneficially
Prior to the Shares Which Owned
Offering(1) May be Sold After the Offering(2)
------------------- Pursuant to --------------------
Name of Selling Shareholder Number Percent this Prospectus Number Percent
- --------------------------- ------ ------- --------------- ------ --------
<S> <C> <C> <C> <C> <C>
Michael Jack, Inc.................................. 10,000 * 10,000 -- --
Greg McLemore..................................... 10,050 * 10,050 -- --
David J. Momhinweg II (3).......................... 25 * 25 -- --
Virginia Moschetta (3)............................. 255 * 255 -- --
Joe Namath......................................... 200,000 * 100,000 100,000 *
National Football League Players Incorporated (5).. 20,000 * 20,000 -- --
Shaquille O'Neal (5)............................... 88,000 * 88,000 -- --
Edward Pattermann (3).............................. 23,751 * 23,751 -- --
Elaine and Gerald Pattermann (3)................... 109 * 109 -- --
Steve and Connie Pattermann (3).................... 109 * 109 -- --
PGA Interactive LLC (5)............................ 53,202 * 53,202 -- --
Pistol Pete, Inc................................... 8,500 * 8,500 -- --
Carmen Policy (5).................................. 40,000 * 40,000 -- --
Gabrielle Reece.................................... 10,000 * 10,000 -- --
Jerry Rice......................................... 16,000 * 16,000 -- --
David Schofman (6)................................. 23,462 * 23,462 -- --
Jack Shanklin (6).................................. 23,462 * 23,462 -- --
Silicon Valley Bank (3)............................ 1,273 * 1,273 -- --
Sports Byline USA.................................. 4,000 * 4,000 -- --
Sports Directories, Inc. (3)....................... 510 * 510 -- --
Sports Management Group............................ 4,000 * 4,000 -- --
Stanford University (3)............................ 7,979 * 7,979 -- --
Alice Stipak (3)................................... 5 * 5 -- --
Kaori Takamura (3)................................. 5 * 5 -- --
James Da Cheng Tang (3)............................ 214 * 214 -- --
Trinity Side-By-Side Fund, L.P. (3)................ 6,858 * 6,858 -- --
Trinity Ventures V, L.P. (3)....................... 117,237 * 117,237 -- --
Tufton Group....................................... 10,000 * 10,000 -- --
Cynthia Typaldos (3)............................... 19,337 * 19,337 -- --
Gary Uberstine (5)................................. 22,000 * 22,000 -- --
James Walsh (7).................................... 160,000 * 80,000 80,000 *
Bill Walton........................................ 6,000 * 6,000 -- --
Joyce Weaver (3)................................... 54 * 54 -- --
Herlen Werner...................................... 4,000 * 4,000 -- --
William Morris Agency.............................. 10,000 * 10,000 -- --
Craig Yates (3).................................... 5 * 5 -- --
</TABLE>
- -------------------
* Less than 1% of the outstanding Common Stock.
(1) 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) Assumes that each Selling Shareholder will sell all of the Shares set forth
above under "Shares Which May Be Sold Pursuant to This Prospectus." There
can be no assurance that the Selling Shareholders will sell all or any of
the Shares offered hereunder.
(3) Reflects shares issued by the Company in connection with the acquisition of
GolfWeb.
(4) Reflects 550,000 shares held of record by AOL and 450,000 shares subject to
presently exercisable warrants held by AOL. Excludes 450,000 shares
issuable upon exercise of warrants not exercisable within 60 days. Pursuant
to the AOL Agreement, only the shares issuable upon exercise of the 900,000
warrants granted to AOL are being registered hereunder. AOL has agreed not
to sell or otherwise dispose of the shares issuable upon exercise of such
warrants until the second anniversary of the original issue date of the
warrants, or, if earlier, the termination of the AOL Agreement, the
consummation of a Change in Control (as defined in the AOL Agreement) of
the Company or the liquidation, dissolution, reorganization or bankruptcy
of the Company.
(5) Includes shares subject to Warrants that are not yet exercisable.
(6) Reflects shares issued by the Company in connection with the acquisition of
IGO.
(7) Mr. Walsh is a Director of the Company. See "Management--Directors and
Executive Officers" and "Certain Transactions--Planned Licensing
Agreement."
54
<PAGE> 57
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be offered and sold from time to
time by the Selling Shareholders. The Selling Shareholders will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. The Selling Shareholders may sell the Shares
offered hereby in the over-the-counter market, on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated market prices. The Shares may be sold
by one or more of the following means of distribution: (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this Prospectus; (c) an
over-the-counter distribution in accordance with the rules of the Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions. To
the extent required, this Prospectus may be amended and supplemented from time
to time to describe a specific plan of distribution.
In connection with distributions of the Shares or otherwise, the Selling
Shareholders may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with such transactions, broker-dealers or
other financial institutions may engage in short sales of the Shares in the
course of hedging the positions they assume with Selling Shareholders. The
Selling Shareholders may also sell the Shares short and redeliver the Shares to
close out such short positions. The Selling Shareholders may also enter into
option or other transactions with broker-dealers or other financial institutions
which require the delivery to such broker-dealer or other financial institution
of Shares offered hereby, which Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus. The Selling Shareholders may
also pledge Shares to a broker-dealer or other financial institution, and, upon
a default, such broker-dealer or other financial institution may effect sales of
the pledged Shares pursuant to this Prospectus. In addition, any Shares that
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this Prospectus.
In effecting sales, brokers, dealers or agents engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Such
broker-dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom they act as agent or to whom they sell Shares as
principal or both (which compensation to a particular broker-dealer might be in
excess of customary commissions). Under certain circumstances, the Selling
Shareholders and any broker-dealers or agents that participate in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities, and any profit on the sale of the Shares by
them and any commissions, discounts or concessions received by any such
broker-dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company will not receive any of the proceeds from the sale of Shares
by the Selling Shareholders. However, the Company could receive up to
approximately $45.9 million upon exercise of all of the Warrants (of which their
is no assurance). See "Use of Proceeds." The Company has agreed to bear certain
expenses in connection with the registration of the Shares being offered by the
Selling Shareholders. In addition, the Company has agreed to indemnify certain
of the Selling Shareholders against certain liabilities, including liabilities
arising under the Securities Act, or to contribute to payments they may be
required to make in respect thereof.
To comply with the securities laws of certain jurisdictions, if
applicable, the Shares must be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Shares may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from the
registration or qualification requirement is available and is complied with.
The Company has advised the Selling Shareholders that the
anti-manipulation rules under the Exchange Act may apply to their sales of
Shares in the market and to the activities of the Selling Shareholders and their
affiliates. The Company has also informed the Selling Shareholders of the need
for delivery of a copy of this Prospectus to purchasers at or prior to the time
of any sale of the Shares offered hereby, and the Company will make copies of
this Prospectus available to the Selling Shareholders for such purpose. The
Selling Shareholders may indemnify any broker-dealer that participates in
transactions involving the sale of the Shares against certain liabilities,
including liabilities arising under the Securities Act.
55
<PAGE> 58
There can be no assurance that the Selling Shareholders will sell all or
any of the Shares offered hereunder. The Company has agreed with certain of the
Selling Shareholders to use its best efforts to maintain the effectiveness of
the Registration Statement of which this Prospectus is a part until the earlier
of (i) the date on which all Shares held by such Selling Shareholders have been
sold, transferred or otherwise disposed of by such Selling Shareholders; (ii)
the date on which no such Selling Shareholder holds Shares representing more
than 1% of the outstanding Common Stock; and (iii) January 29, 2000. The Company
intends to de-register any of the Shares not sold by the Selling Shareholders
prior to such date; however, the Company anticipates that at such time any
unsold Shares may be freely tradable under Rule 144 of the Securities Act. No
sales may be made pursuant to this Prospectus after such date unless the Company
amends or supplements this Prospectus to indicate that it has agreed to extend
such period of effectiveness. The Company has agreed with AOL to maintain an
effective registration statement with respect to the shares of Common Stock
underlying the warrants granted to AOL until the earlier of (i) one year
following the earliest of the date on which all of such warrants have been
exercised or have expired, or (ii) the date on which AOL no longer holds any
shares issuable upon exercise of such warrants.
56
<PAGE> 59
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 September 30, 1998, there were 19,121,282 shares of Common Stock
outstanding and held of record by approximately 100 stockholders.
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 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 June 30, 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.
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 approximately 6,944,578 shares (the
"Registrable Shares") of Common Stock (including 530,000 shares of Common Stock
issuable upon the exercise of warrants) pursuant to the terms of an Amended and
Restated Investors' Rights Agreement (the "Investors' Rights Agreement"). The
Investors' Rights Agreement provides that in the event the Company proposes to
register any of its securities under the Securities Act at any time or times,
the Rightsholders, subject to certain exceptions, shall be entitled to include
Registrable Shares in such registration. However, the managing underwriter of
any such offering may exclude for marketing reasons some of such Registrable
Shares from such registration. In addition, certain Rightsholders have
additional rights, subject to certain conditions and limitations, to require the
Company to prepare and file a registration statement under the Securities Act
with respect to their Registrable Shares. The Company is generally required to
bear the expenses of all such registrations, except underwriting discounts and
commissions. The Company has also granted CBS registration rights for all shares
issuable to CBS pursuant to the CBS agreement (or upon the exercise of warrants
granted pursuant to the CBS agreement) on terms and conditions similar to the
registration rights held by the Rightsholders under the Investors' Rights
Agreement. In addition, the Company granted to the former GolfWeb and IGO
shareholders certain registration rights for the shares of Common Stock issued
pursuant to the acquisition of those companies (all of which Shares are being
registered under the Registration Statement of which this Prospectus forms a
part) on terms and conditions similar to the registration rights held by the
Rightsholders under the Investors' Rights Agreement. The Company has agreed with
AOL to maintain an effective registration statement with respect to the shares
of Common Stock underlying the warrants granted to AOL until the earlier of (i)
one year following the earliest of the date on which all of such warrants have
been exercised or have expired, or (ii) the date on which AOL no longer holds
any shares issuable upon exercise of such warrants.
57
<PAGE> 60
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.
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
58
<PAGE> 61
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.
Shares Eligible For Future Sale
The Company had 19,121,282 shares of Common Stock outstanding as of
September 30, 1998 (assuming no exercise of outstanding options or warrants, and
excluding 550,000 shares issued to AOL subsequent to that date). Of these
shares, the 8,025,000 sold in the Company's IPO and secondary public offering
are 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 9,317,381 of the outstanding shares of Common
Stock (including the Shares being registered hereby) are "restricted securities"
as defined under Rule 144 (the "Restricted Shares"), substantially all of which
are available for sale in the public market, subject to the provisions of Rule
144 under the Securities Act, or pursuant to this Registration Statement. In
addition, certain holders of the Restricted Shares are entitled to certain
registration rights. See "--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
191,213 shares as of September 30, 1998) 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. 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 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 " and "Risk Factors--Possible Volatility of Stock
Price."
Sales of substantial amounts of Restricted Shares, 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.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
59
<PAGE> 62
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg Traurig, P.A., Miami, Florida.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1997, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997 included in this Prospectus and Registration Statement
to the extent indicated in their report, have been audited by Arthur Andersen
LLP, independent certified public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
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 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.
60
<PAGE> 63
SPORTSLINE USA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997.............................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997.......................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1995, 1996 and 1997...................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................................................... F-6
Notes to Consolidated Financial Statements for the years ended
December 31, 1995, 1996 and 1997.......................................................... F-7
INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998 (unaudited)......... F-20
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1998 (unaudited)........................................................ F-21
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 1998 (unaudited)........................................ F-22
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1998 (unaudited).................................................. F-23
Notes to Consolidated Financial Statements for the six months
ended June 30, 1998 (unaudited)........................................................... F-24
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of SportsLine USA, Inc.:
We have audited the accompanying consolidated balance sheets of SportsLine
USA, Inc. (a Delaware corporation) and subsidiary as of December 31, 1996 and
1997, and the related consolidated 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 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 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, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 29, 1998.
F-2
<PAGE> 65
SPORTSLINE USA, INC. AND SUBSIDIARY
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 capital lease obligations............................... 360,909 501,193
Current portion of long-term borrowings.................................... 226,530 682,159
Deferred revenue........................................................... 830,478 1,839,962
--------------- ---------------
Total current liabilities............................................... 3,872,453 8,282,922
CAPITAL LEASE OBLIGATIONS, net of current portion............................. 358,608 457,700
LONG-TERM BORROWINGS, net of current portion.................................. 326,825 --
--------------- ---------------
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 consolidated financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE> 66
SPORTSLINE USA, INC. AND SUBSIDIARY
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 consolidated financial statements are
an integral part of these consolidated statements.
F-4
<PAGE> 67
SPORTSLINE USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A, B and C
Convertible Preferred
Stock Common Stock Additional
-------------------- ----------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994. -- $ -- 2,600,000 $ 26,000 $2,287,900 $ (403,811) $1,910,089
Net proceeds from issuance
of Series A convertible 3,000,000 30,000 -- -- 2,883,361 -- 2,913,361
preferred stock..........
Net proceeds from issuance
of common stock.......... -- -- 162,213 1,622 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 -- -- -- -- 17,000 -- 17,000
agreements...............
Net loss................... -- -- -- -- -- (6,108,426) (6,108,426)
---------- --------- --------- -------- ---------- ------------ ------------
Balance, December 31, 1995. 3,000,000 30,000 2,762,213 27,622 6,859,608 (6,512,237) 404,993
Net proceeds from issuance
of Series B convertible 6,162,776 61,628 -- -- 11,031,369 -- 11,092,997
preferred stock..........
Net proceeds from issuance
of Series C convertible 5,333,333 53,333 -- -- 15,873,367 -- 15,926,700
preferred stock..........
Net proceeds from issuance
of common stock.......... -- -- 249,920 2,499 3,519,101 -- 3,521,600
Proceeds from exercise of
common stock options..... -- -- 2,155 22 2,750 -- 2,772
Non-cash issuance of
common stock warrants
pursuant to consulting -- -- -- -- 579,963 -- 579,963
agreements...............
Net loss................... -- -- -- -- -- (16,102,654) (16,102,654)
---------- --------- --------- -------- ----------- ------------- -------------
Balance, December 31, 1996. 14,496,109 144,961 3,014,288 30,143 37,866,158 (22,614,891) 15,426,371
Proceeds from issuance of
common stock............. -- -- 4,398,494 43,985 35,521,195 -- 35,565,180
Proceeds from exercise of
common stock options..... -- -- 42,521 425 33,771 -- 34,196
Proceeds from exercise of
common stock warrants.... -- -- 960,000 9,600 7,910,400 -- 7,920,000
Conversion of preferred
stock into common stock.. (14,496,109) (144,961) 5,798,434 57,984 86,977 -- --
Non-cash issuance of
common stock and common
stock warrants pursuant -- -- 752,273 7,523 8,293,598 -- 8,301,121
to CBS agreement.........
Non-cash issuance of
common stock and common
stock warrants pursuant
to consulting and -- -- 53,210 532 3,914,963 -- 3,915,495
advertising agreements...
Net loss................... -- -- -- -- -- (34,177,348) (34,177,348)
---------- --------- ---------- -------- ----------- ------------ -------------
Balance, December 31, 1997. -- $ -- 15,019,220 $150,192 $93,627,062 $(56,792,239) $ 36,985,015
========== ========= ========== ======== =========== ============ =============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-5
<PAGE> 68
SPORTSLINE USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1996 1997
----------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................. $(6,108,426) $(16,102,654) $(34,177,348)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.......................................... 206,279 993,380 11,688,795
Provision for doubtful accounts........................................ -- 27,045 72,513
Changes in operating assets and liabilities:
Accounts receivable................................................... (37,937) (661,452) (1,614,320)
Prepaid expenses and other assets..................................... (264,152) (105,535) (1,832,323)
Accounts payable...................................................... 733,103 137,216 1,172,775
Accrued liabilities................................................... 351,333 1,160,834 1,632,297
Deferred revenue...................................................... 133,312 567,166 1,009,484
----------- ------------ ------------
Net cash used in operating activities.................................. (4,986,488) (13,984,000) (22,048,127)
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities........................................ -- -- (1,505,909)
Purchases of property and equipment....................................... (1,044,287) (1,995,550) (2,430,849)
Net redemption (purchase) of restricted certificates of deposit........... (578,067) 439,466 --
------------ ----------- ------------
Net cash used in investing activities................................. (1,622,354) (1,556,084) (3,936,758)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and common stock warrants and 1,672,969 3,524,372 43,519,376
options.................................................................
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........................................ 610,266 424,154 353,326
Repayment of long-term borrowings......................................... -- (112,262) (384,486)
Repayment of capital lease obligations.................................... (52,579) (267,977) (270,837)
------------ ------------ ------------
Net cash provided by financing activities............................. 6,117,017 29,614,984 43,217,379
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................................................... (491,825) 14,074,900 17,232,494
CASH AND CASH EQUIVALENTS, beginning of period.............................. 1,666,470 1,174,645 15,249,545
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................................... $1,174,645 $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
CBS agreement........................................................... $ -- $ -- $ 8,301,121
=========== =========== ============
Non-cash issuance of common stock warrants pursuant to consulting
agreements.............................................................. $ 17,000 $ 579,963 $ 3,915,495
=========== =========== ============
Equipment acquired under capital leases................................. $ 695,145 $ 126,125 $ 670,178
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................................. $ 51,310 $ 145,988 $ 175,507
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-6
<PAGE> 69
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO 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, Inc. ("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 broadcast over the Internet, and syndicated to
traditional radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
SportsLine USA, Inc. and its subsidiary (the "Company"). The consolidated
financial statements include the financial position and results of operations of
GolfWeb which the Company acquired on January 29, 1998 (the "GolfWeb 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 consolidated financial statements as if the companies had operated as one
entity since inception. The GolfWeb Merger is further discussed in Note 5.
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>
Year 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>
F-7
<PAGE> 70
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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 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 consolidated
statements of operations.
Property and Equipment
Property and equipment is carried at historical cost and is being
depreciated and amortized using the straight-line method over the shorter of the
estimated useful lives of the assets or the lease period.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the account and any gain or loss is recognized.
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
F-8
<PAGE> 71
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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 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.
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.
F-9
<PAGE> 72
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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
E-commerce.................................................... -- 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.
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.
F-10
<PAGE> 73
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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 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
consolidated financial statements and notes.
F-11
<PAGE> 74
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, Reporting Comprehensive Income, was issued
which is required to be adopted by the Company in the year ended December 31,
1998. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that an enterprise (a) classify
items of other comprehensive income by their nature in financial statements and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
statements of financial position. Comprehensive income is defined as the change
in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. The Company does not believe the
implementation of SFAS No. 130 will have a material impact on its financial
position or results of operations.
(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 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
F-12
<PAGE> 75
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(Continued)
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 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.
F-13
<PAGE> 76
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SHAREHOLDERS' EQUITY:--(Continued)
In March 1997, the Company entered into a five-year agreement with 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:
1998................................................ $12,001,000
1999................................................ 12,001,000
2000................................................ 15,001,000
2001................................................ 15,001,000
-----------
$54,004,000
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 GolfWeb 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 consolidated financial statements and notes thereto give
retroactive effect to the GolfWeb Merger as if the companies had operated as one
entity since inception.
F-14
<PAGE> 77
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO 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
----------------- -------- -------------- ----------
<C> <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
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.
F-15
<PAGE> 78
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) WARRANTS, STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS:--(Continued)
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 Weighted Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercises December 31, Contractual Life Exercise December 31, Exercise
Prices 1997 (in Years) Price 1997 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-16
<PAGE> 79
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO 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 Purchase 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-17
<PAGE> 80
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO 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:
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
===========
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-18
<PAGE> 81
SPORTSLINE USA, INC. AND SUBSIDIARY
NOTES TO 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-19
<PAGE> 82
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 32,482,039 $ 92,189,837
Marketable securities........................................................ 1,505,909 14,456,543
Deferred advertising and content costs....................................... 517,084 6,413,589
Accounts receivable.......................................................... 2,214,150 5,211,409
Prepaid expenses and other current assets.................................... 2,847,561 2,460,465
-------------- --------------
Total current assets....................................................... 39,566,743 120,731,843
PROPERTY AND EQUIPMENT, net..................................................... 4,169,688 4,180,075
OTHER ASSETS.................................................................... 1,989,206 3,756,000
-------------- --------------
$ 45,725,637 $128,667,918
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 2,001,900 $ 1,015,852
Accrued liabilities.......................................................... 3,257,708 4,079,971
Current portion of capital lease obligations................................. 501,193 453,932
Current portion of long-term borrowings...................................... 682,159 --
Deferred revenue............................................................. 1,839,962 1,796,953
-------------- --------------
Total current liabilities.................................................. 8,282,922 7,346,708
CAPITAL LEASE OBLIGATIONS, net of current portion............................... 457,700 346,228
-------------- --------------
Total liabilities.......................................................... 8,740,622 7,692,936
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued
and outstanding as of December 31, 1997 and June 30, 1998................. -- --
Common stock, $0.01 par value, 50,000,000 shares authorized, 15,019,220 and
18,932,326 issued and outstanding as of December 31, 1997 and June 30,
1998, respectively......................................................... 150,192 189,323
Additional paid-in capital................................................... 93,627,062 194,089,158
Accumulated deficit.......................................................... (56,792,239) (73,303,499)
-------------- --------------
Total shareholders' equity................................................. 36,985,015 120,974,982
-------------- --------------
$ 45,725,637 $128,667,918
============== ============
</TABLE>
The accompanying notes to onsolidated financial statements are
an integral part of these consolidated balance sheets.
F-20
<PAGE> 83
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- ------------------------------------
1997 1998 1997 1998
---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE.................................. $ 2,032,894 $ 7,012,871 $ 3,507,321 $ 13,802,099
COST OF REVENUE........................... 2,265,874 3,970,137 4,151,999 8,384,436
---------------- ---------------- --------------- ---------------
GROSS MARGIN (DEFICIT).................... (232,980) 3,042,734 (644,678) 5,417,663
---------------- ---------------- --------------- ---------------
OPERATING EXPENSES:
Product development..................... 685,149 324,101 1,357,370 713,231
Sales and marketing..................... 2,737,953 4,630,826 4,969,877 8,993,689
General and administrative.............. 1,737,599 2,924,452 3,397,734 6,139,015
Depreciation and amortization........... 3,059,938 3,845,512 4,454,265 7,674,310
---------------- ---------------- --------------- ---------------
Total operating expenses................ 8,220,639 11,724,891 14,179,246 23,520,245
---------------- ---------------- --------------- ---------------
LOSS FROM OPERATIONS...................... (8,453,619) (8,682,157) (14,823,924) (18,102,582)
INTEREST EXPENSE.......................... (39,908) (26,419) (73,850) (53,618)
INTEREST AND OTHER
INCOME, net............................. 254,431 1,203,714 433,402 1,644,940
---------------- ---------------- --------------- ---------------
NET LOSS.................................. $ (8,239,096) $ (7,504,862) $ (14,464,372) $ (16,511,260)
=============== ================ =============== ===============
NET LOSS PER SHARE -
BASIC AND DILUTED...................... $ (0.75) $ (0.41) $ (1.43) $ (0.96)
=============== ================= =============== ===============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING -
BASIC AND DILUTED....................... 10,935,597 18,250,189 10,128,636 17,170,329
=============== ================= =============== ===============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-21
<PAGE> 84
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997..... 15,019,220 $150,192 $ 93,627,062 $(56,792,239) $ 36,985,015
---------- -------- ------------ ------------ ------------
Noncash issuance of common stock
and warrants pursuant to CBS
agreement...................... 735,802 7,358 11,890,096 -- 11,897,454
Net proceeds from exercise of CBS
warrants....................... 380,000 3,800 3,796,200 -- 3,800,000
Net proceeds from exercise of
warrants....................... 47,916 479 297,770 -- 298,249
Issuance of common stock from
exercise of employee options... 47,303 473 89,667 -- 90,140
Net loss.......................... -- -- -- (9,006,398) (9,006,398)
---------- -------- ------------ ------------ ------------
Balances at March 31, 1998........ 16,230,241 162,302 109,700,795 (65,798,637) 44,064,460
---------- -------- ------------ ------------ ------------
Net proceeds from secondary offering 2,288,430 22,884 80,817,801 -- 80,840,685
Net proceeds from exercise of
warrants....................... 50,000 500 299,500 -- 300,000
Issuance of common stock pursuant
to the Employee Stock Purchase
Plan........................... 199,060 1,991 1,351,617 -- 1,353,608
Issuance of common stock pursuant
to the purchase of International
Golf Outlet ................... 46,924 469 1,646,901 -- 1,647,370
Issuance of common stock from
exercise of employee options... 117,671 1,177 272,544 -- 273,721
Net loss.......................... -- -- -- (7,504,862) (7,504,862)
---------- -------- ------------ ------------ ------------
Balances at June 30, 1998......... 18,932,326 $189,323 $194,089,158 $(73,303,499) $120,974,982
========== ======== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-22
<PAGE> 85
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1997 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $(14,464,372) $(16,511,260)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................ 4,454,265 7,674,310
Provision for doubtful accounts ......................................... 29,679 64,605
Changes in operating assets and liabilities:
Accounts receivable...................................................... (406,219) (3,061,866)
Prepaid expenses and other current assets................................ (721,895) 133,734
Accounts payable ........................................................ 420,097 (986,048)
Accrued liabilities ..................................................... 822,047 822,263
Deferred revenue ........................................................ 285,595 (43,009)
------------ ------------
Net cash used in operating activities..................................... (9,580,803) (11,907,271)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, net .................................... -- (12,950,634)
Purchases of property and equipment, net.................................... (1,715,856) (1,139,066)
Acquisition of business .................................................... -- (352,630)
Net redemption of restricted certificates of deposit ....................... -- 46,200
------------ ------------
Net cash used in investing activities..................................... (1,715,856) (14,396,130)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and exercise
of common stock warrants and options....................................... 12,941,591 86,956,403
Proceeds from long-term borrowings ......................................... 125,855 --
Repayment of long-term borrowings .......................................... -- (682,159)
Repayment of capital lease obligations...................................... (198,034) (263,045)
------------ ------------
Net cash provided by financing activities................................. 12,869,412 86,011,199
------------ ------------
Net increase in cash and cash equivalents................................. 1,572,753 59,707,798
CASH AND CASH EQUIVALENTS, beginning of period................................... 15,249,542 32,482,039
------------ ------------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 16,822,295 $ 92,189,837
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Non-cash issuance of common stock and common stock
warrants pursuant to CBS agreement......................................... $ 8,352,001 $ 11,897,454
Non-cash issuance of common stock warrants pursuant to
consulting agreements...................................................... $ 2,551,143 --
============ ============
Non-cash issuance of common stock in purchase of IGO ....................... -- $ 1,650,000
============ ============
Equipment acquired under capital leases .................................... -- $ 104,310
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................................... $ 73,850 $ 53,618
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-23
<PAGE> 86
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO 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 that is
broadcast via the Internet and syndicated to traditional radio stations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of SportsLine USA, Inc. and its subsidiaries (the "Company"). The
consolidated financial statements include the financial position and results of
operations of GolfWeb, which the Company acquired in January 1998 (the "GolfWeb
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 accounted for this transaction using the pooling-of-interests method
of accounting, therefore the accompanying 1997 consolidated financial statements
have been restated to include the accounts of GolfWeb as if the companies had
operated as one entity since inception. The consolidated financial statements
also include the financial position and results of operations of International
Golf Outlet, Inc., acquired in June 1998 (the "IGO Merger"). The Company
accounted for this transaction using the purchase method of accounting. The
purchase resulted in goodwill of $1,960,000 which is included in other assets in
the Company's consolidated balance sheet. Such goodwill is being amortized over
an estimated life of ten years.
In the opinion of management, the unaudited consolidated interim financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of the Company
at June 30, 1998, and the results of operations and cash flows for the three
months and the six months ended June 30, 1997 and 1998. The consolidated balance
sheet at December 31, 1997 has been derived from the audited financial
statements at that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations.
These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission. The results
of operations for the three and the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the entire fiscal year ending December 31, 1998.
F-24
<PAGE> 87
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
Per Share Amounts
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, since inclusion of the Company's common stock equivalents would be
antidilutive. The Company's previously outstanding convertible preferred stock
was converted upon completion of the Company's initial public offering ("IPO")
in November 1997. Accordingly, 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.
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). There were 2,653,136 and 3,995,915 options and warrants
outstanding at June 30, 1997 and 1998, respectively, that could potentially
dilute earnings per share in the future. Such options and warrants were not
included in the computation of diluted earnings per share because to do so would
have been antidilutive for those periods.
Revenue by Type
Revenue by type for the three and the six months ended June 30, 1997 and
1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Advertising.................................. $1,184,651 $4,134,195 $1,966,791 $ 8,553,057
E-commerce................................... 252,076 573,686 408,812 1,041,458
Membership and premium services.............. 537,015 1,103,168 1,057,564 2,112,104
Content licensing and other.................. 59,152 1,201,822 74,154 2,095,480
---------- ---------- ---------- -----------
$2,032,894 $7,012,871 $3,507,321 $13,802,099
========== ========== ========== ===========
</TABLE>
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 1% and 19% of total revenue for the three months
ended June 30, 1997 and 1998, respectively. Barter transactions accounted for 2%
and 17% of total revenue for the six months ended June 30, 1997 and 1998,
respectively.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, Reporting Comprehensive Income, was issued
which was adopted by the Company as of January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of statements of financial position.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
Comprehensive income equals the net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for financial
F-25
<PAGE> 88
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
statements for periods beginning after December 31, 1997. Currently, the Company
does not believe it has any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in the statement of operations unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the statement
of operations, and requires that a company formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. A company may
also implement the provision of SFAS No. 133 as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively, and must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997. The Company has not yet adopted SFAS No. 133
and presently does not have any derivative instruments.
(3) COMMITMENTS AND CONTINGENCIES:
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 owned 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 claimed to have used the
mark for this purpose since 1968. The complaint alleged that the Company's use
of the mark "SportsLine USA" and other marks utilizing the term "SportsLine"
infringed upon and otherwise violated Weatherline's rights under its registered
trademark and damaged Weatherline's reputation. In October 1998, the Company and
Weatherline settled this action. In connection with the settlement, Weatherline
will assign to the Company its United States trademark registration for the mark
"Sportsline." The Company will record a non-recurring charge of approximately
$1.1 million associated with such settlement in the third quarter of 1998. The
Company believes that it will collect insurance proceeds to offset a portion of
the settlement expenses, including certain legal fees; however, there can be no
assurance that the Company will be able to collect such proceeds.
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-26
<PAGE> 89
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>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.................. $13,035
Printing expenses.................................................... 1,500
Accounting fees and expenses......................................... 5,000
Legal fees and expenses.............................................. 20,000
Miscellaneous........................................................ 465
-------
Total........................................................... $40,000
======
</TABLE>
All amounts except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq National Market listing fee are
estimated.
The Company will pay all expenses of registration of the shares being sold
by the Selling Shareholders, excluding fees and expenses of counsel, if any, to
the Selling Shareholders, any commissions, discounts or concessions, and
transfer or other taxes, which shall be borne by the Selling Shareholders.
Item 14. Indemnification of Directors and Officers.
The Company has authority under Section 145 of the Delaware General
Corporation Law to indemnify its directors and officers to the extent provided
in such statute. The Company's Amended and Restated Certificate of
Incorporation, incorporated by reference 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 incorporated by reference in 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.
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 March 1996, the registrant issued to Alliance Technology Venture,
L.P., ATV/MFJ Parallel Fund, L.P., TCI Online Holdings, Inc., Reuters NewMedia
Inc., New York Life Insurance Company, Antares Capital Fund II Limited
Partnership, Transatlantic Venture Partners, C.V., Kleiner Perkins Caufield &
Byers VII, KPCB VII Founders Fund, KPCB Information Sciences Zaibatsu Fund II,
Stanford University, Chase 1991 Revocable Trust and Richard A. Petit a total of
6,162,776 shares of Series B Preferred Stock for aggregate cash consideration of
$11,092,996. The registrant also issued to TCI Online Sports Holdings, Inc.
warrants to purchase an additional 1,011,277 shares of Common Stock, which
warrants expired unexercised in September 1996.
(2) 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 Development II, Natio Nouveaux Marches Europe and US WEST Interactive
Services, Inc. a total of 5,333,333 shares of Series C Preferred Stock for
II-1
<PAGE> 90
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.
(3) 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.
(4) 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.
(5) Between September 1995 and September 1998 (excluding the securities
mentioned elsewhere in this section), the registrant issued warrants to purchase
shares of Common Stock to: 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), Emerson Fittipaldi (January 1,
1997, 10,000), Richard Horrow (January 17, 1997, 10,000), 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
(June 1, 1996, 2,000; June 11, 1997, 29,207; September 30, 1997, 6,000 and
November 13, 1997, 3,200), Michael Jordan (June 20, 1997, 160,000), ETW Corp.
(July 1, 1997, 80,000), Shaquille O'Neal (November 1, 1997, 56,000), Leonard
Armato (November 1, 1997, 56,000), Bruce Binkow (November 1, 1997, 14,000), Gary
Uberstine (November 1, 1997, 14,000), Lisa L. Enterprises, Inc. (August 3, 1998,
17,000) and Management Plus Enterprises (August 3, 1998, 3,000) 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.
(6) In January 1998, the Company 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 Company specified minimum amounts
of advertising and promotion. In addition, upon exercise of warrants that were
granted to CBS Inc. in March 1997, the Company issued to CBS Inc. 380,000 shares
of Common Stock for aggregate cash consideration of $3,800,000.
(7) In January 1998, in partial consideration of the Company's acquisition
of all of the outstanding capital stock of GolfWeb, the Company issued to the
stockholders of GolfWeb 844,490 shares of Common Stock.
(8) In April 1998, the Company issued 14,116 shares of Common Stock to
Comdisco, Inc. pursuant to a cashless exercise of a warrant pursuant to its
terms.
(9) In June 1998, in consideration of the Company's acquisition of all of
the outstanding capital stock of IGO, the Company issued to the stockholders of
IGO 46,924 shares of Common Stock.
(10) In August 1998, in consideration of the right of the Company to host
the official PGA Championship Web site, the Company issued 7,882 shares of
Common Stock and warrants to purchase 45,320 shares of Common Stock to PGA
Interactive LLC.
(11) In August 1998, in consideration of the Company's acquisition of an
Internet domain name and service mark, the Company issued 10,050 shares of
Common Stock to Greg McLemore.
(12) In October 1998, the Company issued to America Online, Inc. ("AOL")
550,000 shares of Common Stock and granted to AOL warrants to purchase 900,000
shares of Common Stock. The consideration for such shares and warrants consisted
of the rights and benefits granted to the Company under the AOL Agreement.
II-2
<PAGE> 91
(13) During the period from January 1, 1998 through September 1, 1998,
upon exercise of warrants, the Company issued a total of 167,073 shares of
Common Stock for aggregate cash consideration of $1,101,069, including (i)
40,000 shares of Common Stock to ETW Corp. for cash consideration of $300,000;
(ii) 10,000 shares of Common Stock to Arnold Palmer Enterprises, Inc. for cash
consideration of $50,000; (iii) 9,250 shares of Common Stock to Wayne Gretzky
for cash consideration of $46,250; (iv) 49,323 shares of Common Stock to
International Management Group for cash consideration of $337,319; (v) 5,000
shares of Common Stock to Gabrielle Reece for cash consideration of $25,000;
(vi) 5,000 shares of Common Stock to Lee Kolligian for cash consideration of
$25,000; (vii) 10,000 shares of Common Stock to William Morris Agency for cash
consideration of $100,000; (viii) 20,000 shares of Common Stock to James Walsh
for cash consideration of $100,000; (ix) 8,500 shares of Common Stock to Pistol
Pete, Inc. for cash consideration of $42,500; and (x) 10,000 shares of Common
Stock to Emerson Fittipaldi for cash consideration of $75,000.
No underwriter was involved in any of the above sales of securities. All
of the above securities were issued in reliance upon the exemption set forth in
Section 4(2) of the Securities Act on the basis that they were issued under
circumstances not involving a public offering, or, in the case of certain
options and warrants to purchase Common Stock, Rule 701 of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Form of Amended and Restated Bylaws (3.2) (2)
5.1 Opinion of Greenberg Traurig, P.A. 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)
II-3
<PAGE> 92
Exhibit Description
------- -----------
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)
10.20 Employment Agreement dated as of June 15, 1998, between the
Registrant and Michael Levy (10.1) (5)
10.21 Form of Letter Agreement entered into between the Registrant and
each of Kenneth W. Sanders and Mark J. Mariani (10.2) (5)
21.1 Subsidiaries of Registrant (1)
23.1 Consent of Arthur Andersen LLP (6)
23.2 Consent of Greenberg Traurig, P.A. (included in its opinion
filed as Exhibit 5.1) (1)
24.1 Power of Attorney (included on signature page) (1)
- -------------
(1) Previously filed.
(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) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the Company's Report on Form 10-Q for the quarterly period
ending June 30, 1998.
(6) Filed herewith.
+ Certain provisions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and Exchange
Commission.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission (the "Commission") are not
required under the related instructions, the required information is contained
in the financial statements and notes thereto or are not applicable, and
therefore have been omitted.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
II-4
<PAGE> 93
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 94
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 October 19, 1998.
SPORTSLINE USA, INC.
By: /s/ Michael Levy
--------------------------------
Michael Levy, President and
Chief Executive Officer
POWER OF ATTORNEY
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 October 19, 1998
- ---------------------------------- and Director (principal executive officer)
Michael Levy
/s/ Kenneth W. Sanders Senior Vice President and Chief October 19, 1998
- ---------------------------------- Financial Officer (principal financial
Kenneth W. Sanders and accounting officer)
* Director October 19, 1998
- ----------------------------------
Thomas Cullen
* Director October 19, 1998
- ----------------------------------
Gerry Hogan
* Director October 19, 1998
- ----------------------------------
Richard B. Horrow
</TABLE>
II-6
<PAGE> 95
<TABLE>
<CAPTION>
<S> <C> <C>
Director
- ----------------------------------
Joseph Lacob
* Director October 19, 1998
- ----------------------------------
Sean McManus
* Director October 19, 1998
- ----------------------------------
Andrew Nibley
Director
- ----------------------------------
Derek Reisfield
* Director October 19, 1998
- ----------------------------------
Michael P. Schulhof
* Director October 19, 1998
- ----------------------------------
James C. Walsh
*By: /s/ Michael Levy
- ---------------------------------
Michael Levy
as Attorney-in-Fact
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
Exhibit Description
------- -----------
23.1 Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report dated January 29, 1998 on the consolidated financial statements of
SportsLine USA, Inc. and to all references to our Firm included in this
Registration Statement on Form S-1.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 14, 1998.
