<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23337
SPORTSLINE USA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 65-0470894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 351-2120
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares of common stock outstanding as of June 30, 1998:
18,932,326
Page 1 of 15 Pages
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 ............ 3
Consolidated Statements of Operations
for the three and six months ended June 30, 1998 and 1997.................... 4
Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 1998....................................... 5
Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997.............................. 6
Notes to Consolidated Financial Statements....................................... 7
</TABLE>
2
<PAGE> 3
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 92,189,837 $ 32,482,039
Marketable securities 14,456,543 1,505,909
Deferred advertising and content costs........................................ 6,413,589 517,084
Accounts receivable........................................................... 5,211,409 2,214,150
Prepaid expenses and other current assets..................................... 2,460,465 2,847,561
------------ -------------
Total current assets..................................................... 120,731,843 39,566,743
PROPERTY AND EQUIPMENT, net...................................................... 4,180,075 4,169,688
OTHER ASSETS..................................................................... 3,756,000 1,989,206
------------ -------------
$128,667,918 $ 45,725,637
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 1,015,852 $ 2,001,900
Accrued liabilities........................................................... 4,079,971 3,257,708
Current portion of capital lease obligations.................................. 453,932 501,193
Current portion of long-term borrowings....................................... -- 682,159
Deferred revenue.............................................................. 1,796,953 1,839,962
------------ -------------
Total current liabilities................................................ 7,346,708 8,282,922
CAPITAL LEASE OBLIGATIONS, net of current portion................................ 346,228 457,700
------------ -------------
Total liabilities........................................................ 7,692,936 8,740,622
------------ -------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none
issued and outstanding as of June 30, 1998 and December 31, 1997 -- --
Common stock, $0.01 par value, 50,000,000 shares authorized,
18,932,326 and 15,019,220 issued and outstanding as of
June 30, 1998 and December 31, 1997, respectively........................ 189,323 150,192
Additional paid-in capital.................................................... 194,089,158 93,627,062
Accumulated deficit........................................................... (73,303,499) (56,792,239)
------------ -------------
Total shareholders' equity................................................ $120,974,982 36,985,015
------------ -------------
$128,667,918 $45,725,637
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
3
<PAGE> 4
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE ............................... $ 7,012,871 $ 2,032,894 $ 13,802,099 $ 3,507,321
COST OF REVENUE ....................... 3,970,137 2,265,874 8,384,436 4,151,999
------------ ------------ ------------ ------------
GROSS MARGIN (DEFICIT) ................ 3,042,734 (232,980) 5,417,663 (644,678)
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Product development ................. 324,101 685,149 713,231 1,357,370
Sales and marketing ................. 4,630,826 2,737,953 8,993,689 4,969,877
General and administrative .......... 2,924,452 1,737,599 6,139,015 3,397,734
Depreciation and amortization ....... 3,845,512 3,059,938 7,674,310 4,454,265
------------ ------------ ------------ ------------
Total operating expenses ............ 11,724,891 8,220,639 23,520,245 14,179,246
============ ============ ============ ============
LOSS FROM OPERATIONS .................. (8,682,157) (8,453,619) (18,102,582) (14,823,924)
INTEREST EXPENSE ...................... (26,419) (39,908) (53,618) (73,850)
INTEREST AND OTHER INCOME, net ........ 1,203,714 254,431 1,644,940 433,402
------------ ------------ ------------ ------------
NET LOSS .............................. $(7,504,862) $(8,239,096) $(16,511,260) $(14,464,372)
============ ============ ============ ============
NET LOSS PER SHARE - -BASIC AND DILUTED $(0.41) $(0.75) $(0.96) $(1.43)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING - -
BASIC AND DILUTED ................... 18,250,189 10,935,597 17,170,329 10,128,636
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
4
<PAGE> 5
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Accumulated
Shares Amount Paid in 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 (unaudited) -- -- -- (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.
5
<PAGE> 6
SPORTSLINE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................... $(16,511,260) $(14,464,372)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .............................................................. 7,674,310 4,454,265
Provision for doubtful accounts ............................................................ 64,605 29,679
Changes in operating assets and liabilities:
Accounts receivable ........................................................................ (3,061,866) (406,219)
Prepaid expenses and other current assets .................................................. 133,734 (721,895)
Accounts payable ........................................................................... (986,048) 420,097
Accrued liabilities ........................................................................ 822,263 822,047
Deferred revenue ........................................................................... (43,009) 285,595
------------ ------------
Net cash used in operating activities ...................................................... (11,907,271) (9,580,803)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, net .................................................... (12,950,634) --
Purchases of property and equipment, net ................................................... (1,139,066) (1,715,856)
Acquisition of business .................................................................... (352,630) --
Net redemption of restricted certificates of deposit ....................................... 46,200 --
------------ ------------
Net cash used in investing activities ...................................................... (14,396,130) (1,715,856)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and exercise of common stock
warrants and options 86,956,403 12,941,591
Proceeds from long-term borrowings ......................................................... -- 125,855
Repayment of long-term borrowings .......................................................... (682,159) --
Repayment of capital lease obligations ..................................................... (263,045) (198,034)
------------ ------------
Net cash provided by financing activities .................................................. 86,011,199 12,869,412
------------ ------------
Net increase in cash and cash equivalents .................................................. 59,707,798 1,572,753
CASH AND CASH EQUIVALENTS, beginning of period ............................................. 32,482,039 15,249,542
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................................................... $92,189,837 $16,822,295
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash issuance of common stock and common stock warrants pursuant to CBS agreement ...... $11,897,454 $8,352,001
============ ============
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 ..................................................................... $53,618 $73,850
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
6
<PAGE> 7
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, 1998 and 1997. 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.
7
<PAGE> 8
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 4,016,679 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,
------------------------ -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Advertising ....................... $4,134,195 $1,184,651 $8,553,057 $1,966,791
E-commerce ........................ 573,686 252,076 1,041,458 408,812
Membership and premium services.... 1,103,168 537,015 2,112,104 1,057,564
Content licensing and other ....... 1,201,822 59,152 2,095,480 74,154
----------- ----------- ----------- -----------
$7,012,871 $2,032,894 $13,802,099 $3,507,321
=========== =========== =========== ===========
</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 19% and 1% of total revenue for the three months
ended June 30, 1998 and 1997, respectively. Barter transactions accounted for
17% and 2% of total revenue for the six months ended June 30, 1998 and 1997
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 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
8
<PAGE> 9
SPORTSLINE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(Continued)
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 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.
9
<PAGE> 10
ITEM 2. 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. Factors
that might cause or contribute to such differences include, among others,
competitive pressures, the growth rate of the Internet, constantly changing
technology and market acceptance of the Company's products and services.
Investors are also directed to consider the other risks and uncertainties
discussed in the Company's Securities and Exchange Commission filings, including
those discussed under the caption "Risk Factors That May Affect Future Results"
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997. The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The following discussion also should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Report.
Recent Developments
In April 1998, the Company completed a public offering (the "Secondary
Offering") of 4 million shares of common stock at $37.625 per share. Of the 4
million shares offered, 2,288,430 shares were offered by the Company and
1,711,570 shares by selling shareholders. The Company realized approximately
$81,000,000 in net proceeds as a result of the Secondary Offering.
In June 1998, the Company acquired all of the outstanding common stock
of International Golf Outlet, Inc. ("IGO") in exchange for $350,000 in cash and
46,924 shares of common stock. The Company also agreed to issue additional
common stock to the former shareholders of IGO if IGO meets certain revenue and
earnings targets over the three year period following the acquisition. The
acquisition was accounted for under the purchase method; a majority of the
purchase price, approximately $2 million, has been recorded as goodwill and will
be amortized over the next ten years.
Results of Operations
Revenue
Total revenue for the quarter ended June 30, 1998 and 1997 was
$7,013,000 and $2,033,000, respectively. 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 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 three months ended June
30, 1998 and 1997 represented 59% and 58%, respectively, of total revenue.
Advertising revenue for the six months ended June 30, 1998 and 1997 accounted
for 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 $566,000
in the three months ended June 30, 1998 compared to the same period in 1997 and
$1,055,000 in the six months ended June 30, 1998 compared to the same period in
1997. Basic membership revenue increased in each period as a result of
additional member signups and retention. Premium service revenue increased due
to increased participation in the Company's fantasy sports contests as well as
an increased number of premium products, including the Company's
vegasinsider.com Web site, which was launched in March 1997. E-commerce revenue
increased 128% to $574,000 in the three months ended June 30, 1998 from $252,000
for the three months ended June 30, 1997. 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 in part due to special events in
1998, such as the Winter Olympics and World Cup Soccer. Content licensing and
other revenue increased $1,143,000 in the three months ended June 30, 1998
compared to the same period in 1997 and $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 America Online, Inc. ("AOL").
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.
10
<PAGE> 11
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% and 1% of total revenue for the three months
ended June 30, 1998 and 1997, respectively. Barter transactions accounted for
17% and 2% of total revenue for the six months ended June 30, 1998 and 1997,
respectively. Barter revenue increased in 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 for the three months ended June 30, 1998 and 1997 was
$3,970,000 and $2,266,000 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 was primarily the result of increased revenue sharing,
content fees and athlete/personality fees incurred, as well as increases in
editorial and operations staff necessary for the production of sports-related
information and programming on the Company's Web sites. In addition,
telecommunications cost increased 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 total cost of revenue will continue to 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 Internet service providers. As a percentage of revenue,
cost of revenue decreased to 57% for the three months ended June 30, 1998 from
111% for the three months ended June 30, 1997. For the six months ended June 30,
1998 and 1997 cost of revenue decreased to 61% from 118%.
Operating Expenses
Product Development. For the three months ended June 30, 1998 and 1997,
product development costs were $324,000 and $685,000, respectively. For the six
months ended June 30, 1998 and 1997, product development costs were $713,000 and
$1,357,000, respectively. The decrease in product development expense 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 5% for the three months ended June 30, 1998 from 34% for the three months
ended June 30, 1997. For the six months ended June 30, 1998 and 1997 product
development expense decreased to 5% from 39%.
Sales and Marketing. For the three months ended June 30, 1998 and 1997,
sales and marketing expense was $4,631,000 and $2,738,000, 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 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 29% and 1% of sales and
marketing expense for the three months ended June 30, 1998 and 1997,
respectively and 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 barter for content licensing for
advertising during 1998. As a percentage of revenue, sales and marketing expense
decreased to 66% for the three months ended June 30, 1998 from 135% for the
three months ended June 30, 1997. For the six months ended June 30, 1998 and
1997, sales and marketing expense decreased to 65% from 142%.
General and Administrative. General and administrative expense for the
three months ended June 30, 1998 and 1997, was $2,924,000 and $1,738,000,
respectively. For the six months ended June 30, 1998 general and administrative
expense 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. As a percentage of revenue, general and
administrative expense decreased to 42% for the three months ended June 30, 1998
from 85% for the three months ended June 30, 1997, 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
was $3,845,000 and $3,060,000 for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 depreciation and
amortization expense was $7,674,000 compared to $4,454,000 for the six months
ended June 30, 1997., The increase in depreciation and amortization expense was
primarily due to the amortization of amounts related to the Company's March 1997
agreement with CBS Inc. ("CBS"). The Company also acquired additional property
and equipment during the first six months of 1998 which resulted in an increase
in depreciation and amortization for the period.
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<PAGE> 12
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. Total expense under the CBS agreement was $6,000,000 for the six
months ended June 30, 1998, and will be $6,000,000 for the remainder of 1998.
Interest Expense. Interest expense was $26,000 for the three months
ended June 30, 1998 compared to $40,000 for the three months ended June 30,
1997. For the six months ended June 30, 1998 and 1997, interest expense was
$54,000 and $74,000 respectively. In February 1998, the Company fully paid the
balance of two of its equipment credit facilities.
Interest and Other Income, Net. Interest and other income, net for the
three months ended June 30, 1998 was $1,204,000 compared to $254,000 for the
three months ended June 30, 1997. For the six months ended June 30, 1998 and
1997, interest and other income was $1,645,000 and $433,000, respectively. The
increase was primarily attributable to the higher average balance of cash and
cash equivalents and marketable securities resulting from the investment of the
proceeds from the Company's IPO and the Secondary Offering.
Liquidity and Capital Resources
As of June 30, 1998, the Company's primary source of liquidity
consisted of $106,646,000 in cash and marketable securities, an increase of
$72,658,000 from December 31, 1997. In January 1998, CBS exercised warrants to
purchase 380,000 shares of common stock, resulting in the net proceeds of
$3,800,000. In April 1998 the Company completed the Secondary Offering resulting
in the net proceeds to the Company of $80,841,000. The Company invests
predominantly in instruments that are highly liquid, of high-quality investment
grade, and predominantly have maturities of less than one year with the intent
to make such funds readily available for operating and investing purposes.
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 balance of 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 $11,907,000 and $9,581,000
for the six months ended June 30, 1998 and 1997, respectively. The principal
uses of cash in operating activities were to fund the Company's net losses from
operations, partially offset by depreciation and amortization.
Net cash used in investing activities was $14,396,000 and $1,716,000
for the six months ended June 30, 1998 and 1997, respectively. The principal use
of cash in investing activities was for the net purchase of marketable
securities for $12,951,000 in 1998. Additionally, the Company purchased
$1,139,000 of property and equipment in 1998 consisting primarily of computer
hardware and software.
Net cash provided by financing activities was $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
in connection with the Company's Secondary Offering and exercise of warrants by
CBS.
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
12
<PAGE> 13
appreciation of warrants issued, the value of the Company's 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 guaranteed
minimum 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. There can be no assurance that additional financing, if
required, will be available to the Company in amounts or on terms acceptable to
the Company.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. 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 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.
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<PAGE> 14
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. 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the three months ended June 30, 1998, there were no material
developments in previously reported litigation involving the Company.
ITEM 2. CHANGE IN SECURITIES
Sales of Unregistered Securities During the Three Months Ended June 30, 1998
During the three months ended June 30, 1998, the Company issued and
sold the following securities without registration under the Securities Act:
In June 1998, as part of the Company's acquisition of all of the
outstanding stock of International Golf Outlet, Inc. ("IGO"), the Company issued
to the shareholders of IGO a total of 46,924 shares of common stock. During the
three months ended June 30, 1998, upon exercise of warrants, the Company issued
a total of 50,000 shares of common stock for aggregate cash consideration of
$300,000 including: (i) 5,000 shares of common stock to Gabrielle Reece for cash
consideration of $25,000; (ii) 5,000 shares of common stock to Lee Kolligian for
cash consideration of $25,000; (iii) 10,000 shares of common stock to William
Morris Agency, Inc. for cash consideration of $100,000; (iv) 20,000 shares of
common stock to James Walsh for cash consideration of $100,000; (v) 8,500 shares
of common stock to Pistol Pete, Inc. for cash consideration of $42,500; and (vi)
1,500 shares to IMG for cash consideration of $7,500.
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 of 1933, as amended, on the basis that
they were issued under circumstances not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 11, 1998, the Company held its Annual Meeting of Shareholders.
At the meeting, the shareholders elected the following individuals as directors:
Michael Levy (with 16,948,675 affirmative votes and 10,234 votes withheld),
Joseph Lacob (with 16,929,338 affirmative votes and 29,571 votes withheld),
Andrew Nibley (with 16,948,675 affirmative votes and 10,234 votes withheld) and
James C. Walsh (with 16,948,675 affirmative votes and 10,234 votes withheld).
The shareholders also approved an amendment to the 1997 Incentive
Compensation Plan increasing the number of shares of the Company's Common Stock
reserved for issuance thereunder by 1,000,000 shares (with 13,908,755 shares
voting for, 987,711 shares voting against, 10,299 shares abstaining and
2,052,164 non-voting shares).
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
<S> <C>
Exhibit 10.1 Employment Agreement, dated as of June 15, 1998, between the Company and Michael Levy.
Exhibit 10.2 Form of Letter Agreement entered into between the Company and each of Kenneth W. Sanders and
Mark J. Mariani.
Exhibit 27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended June 30,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998 SPORTSLINE USA, INC.
(Registrant)
/s/ Michael Levy
-------------------------------------
Michael Levy
President and Chief Executive Officer
/s/ Kenneth W. Sanders
--------------------------------------
Kenneth W. Sanders
Chief Financial Officer
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<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") dated as of June 15, 1998,
between SPORTSLINE USA, INC., a Delaware corporation (the "Company"), and
Michael Levy (the "Executive").
PRELIMINARY STATEMENTS
A. The Executive is currently Chairman of the Board, President and
Chief Executive Officer of the Company.
B. The Board of Directors of the Company (the "Board") recognizes that
the Executive's contribution to the growth and success of the Company has been
substantial and desires to assure the Company of the Executive's continued
employment in an executive capacity and to compensate him therefor.
C. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company.
D. The Executive is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. Employment. The Company hereby agrees to continue to employ the
Executive and the Executive hereby agrees to continue to serve the Company, on
the terms and conditions set forth in this Agreement.
2. Term of Agreement. Subject to the terms and conditions hereof, the
term of the Executive's employment pursuant to this Agreement (the "Term") shall
commence on the date hereof and shall continue in effect through December 31,
2003. The Term may be extended or renewed at any time by mutual written
agreement.
3. Position and Duties. The Executive shall serve as the Chairman of
the Board, President and Chief Executive Officer of the Company and shall have
powers and authority superior to any other officer or employee of the Company or
of any subsidiary of the Company. The Executive shall also have such other
powers and duties as may from time to time be delegated to him by the Board,
provided that such duties are consistent with his present duties and with the
Executive's position. The Executive shall report to the Board. The Executive
shall devote substantially all of his working time and efforts during normal
business hours to the business and affairs of the Company in substantially the
same manner (both as to working time and effort) as the Executive has devoted to
the Company in the past; provided, that it shall not be a violation of this
Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures or fulfill speaking engagements or
(iii) manage personal investments, so long as such activities do not interfere
with the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
<PAGE> 2
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the Company's principal executive
offices except for required travel on the Company's business to an extent
substantially consistent with his present travel obligations. The Company shall
not, without the written consent of the Executive, relocate or transfer its
principal executive offices outside Broward County, Florida.
5. Compensation and Related Matters.
(a) Base Salary. The Executive shall receive a base salary, payable
in substantially equal bi-weekly installments, at the annual rate of at least
$300,000 during each fiscal year during the Term, or such greater amount as
shall be determined by the Compensation Committee ("Compensation Committee") of
the Board or the entire Board, in its sole discretion (the "Base Salary").
Notwithstanding the foregoing, on January 1, 1999 and on each January 1
thereafter (the "Salary Adjustment Date"), the Executive's then Base Salary
shall be increased by an amount equal to 10% of the Base Salary payable to the
Executive during the preceding calendar year. The Base Salary shall also be
reviewed, at least annually, for merit increases and may, by action and in the
discretion of the Compensation Committee or the Board, be increased at any time
or from time to time. Any increase in the Base Salary or other compensation
granted by the Compensation Committee or the Board shall in no way limit or
reduce any other obligation of the Company under this Agreement and, once
established at an increased specified rate, the Base Salary shall not thereafter
be reduced.
(b) Incentive Compensation. In addition to the Base Salary, the
Executive shall be entitled to receive such bonuses or incentive compensation
("Incentive Compensation") as the Compensation Committee may determine in its
discretion. In determining Incentive Compensation, the Compensation Committee
shall take into consideration improvements in the Company's earnings, cash flow
and other indicators of financial and operating performance (such as EBITDA and
site traffic), the Executive's involvement in and contribution to new strategic
agreements and other corporate developments and such other criteria as it shall
deem relevant. The Executive shall be entitled to participate in any bonus pool
established by the Company for its executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such bonus pool.
(c) Stock Options. During the Term, the Executive shall be entitled
to receive stock option grants, no less frequently than annually. The number of
stock options and the terms and conditions of stock options granted to the
Executive shall be determined by the Compensation Committee in its discretion;
provided, that the Executive shall be granted stock options to purchase at least
150,000 shares of the Company's common stock during each calendar year.
(d) Expenses. During the Term, the Company, in accordance with its
expense reimbursement policies and procedures in effect for senior management
employees from time to time, shall reimburse the Executive for all reasonable
expenses actually paid or incurred by the Executive in the course of and
pursuant to the business of the Company, including expenses for travel and
entertainment.
(e) Other Benefits. The Company shall not make any changes in any
employee benefit plans or arrangements in effect on the date of this Agreement
in which the Executive participates, (including without limitation, to the
extent in effect, each pension and retirement plan, supplemental pension and
retirement plan, savings and profit sharing plan, life insurance policies,
officers and
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<PAGE> 3
directors policies, stock option plan, life insurance plan, medical and health
insurance plan, disability plan, dental plan, health-and-accident plan or,
similar plans or arrangements) which would adversely affect the Executive's
rights or benefits thereunder, unless such change occurs pursuant to an
amendment applicable to all senior executives and/or employees of the Company
and does not result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any other senior executives and/or
employees of the Company. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement made available
by the Company in the future to its executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plan or arrangement. The Company shall also provide the
Executive such coverage under any directors and officers liability policies it
maintains as is provided to its other senior management employees. Nothing paid
or provided to the Executive under any plan or arrangement presently in effect
or made available in the future shall be deemed to be in lieu of the Base Salary
or any other obligation payable to the Executive pursuant to this Agreement.
(f) Vacation. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than four weeks in any calendar
year (prorated in any calendar year during which the Executive is employed under
this Agreement for less than the entire such year in accordance with the number
of days in such calendar year during which he is so employed). The Executive
shall also be entitled to all paid holidays given by the Company to its senior
executive officers.
(g) Perquisites and Fringe Benefits. The Executive shall be entitled
to continue to receive all perquisites and fringe benefits provided or available
to senior executive officers of the Company in accordance with present practice
and as may be changed from time to time with respect to all senior executive
officers of the Company.
(h) Working Facilities. The Company shall furnish the Executive with an
office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
6. Other Offices. The Executive agrees to serve without additional
compensation as a director of the Company and any of its subsidiaries and as an
officer of any of the Company's present or future subsidiaries; provided, that
the Executive shall be indemnified for serving in any and all such capacities on
a basis no less favorable than may be from time to time provided to other senior
executives of the Company, and the Company shall use its best efforts consistent
with sound business practices obtain and maintain appropriate coverage under
officers and directors policies.
7. Restrictive Covenants.
(a) Noncompetition. The Executive agrees that he will not, either
during the Term or for a period of two years following any termination of this
Agreement, other than a termination by the Executive for Good Reason (as
hereinafter defined) or a termination by the Company without Cause (as
hereinafter defined), directly or indirectly, engage in, operate, have any
investment or interest or otherwise participate in any manner (whether as an
employee, officer, director, partner, agent, security holder, creditor,
consultant or otherwise) in any sole proprietorship, partnership, corporation or
business or any other person or entity that engages, directly or indirectly, in
a Competing Business; provided, that the Executive may continue to hold Company
securities and/or acquire, solely as an investment, shares of capital stock or
other equity securities of any company which are
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<PAGE> 4
publicly traded, so long as the Executive does not control, acquire a
controlling interest in, or become a member of a group which exercises direct or
indirect control of, more than five percent (5%) of any class of capital stock
of such corporation. For purposes of this Agreement, the term "Competing
Business" means any sole proprietorship, partnership, corporation or business or
any other person or entity that owns, operates, manages or distributes an
on-line service that provides sports news, information and content, whether such
service is accessed through the Internet, a commercial on-line service or
otherwise.
(b) Unauthorized Disclosure. During the Term and for a period of two
years following any termination of this Agreement, other than a termination by
the Executive for Good Reason (as hereinafter defined) or a termination by the
Company without Cause (as hereinafter defined), the Executive shall not, without
the written consent of the Board or a person authorized thereby, disclose to any
person, other than an employee of the Company (or its subsidiaries) or a person
to whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Company, any
confidential information obtained by him while in the employ of the Company with
respect to any of the Company's customers, suppliers, creditors, lenders,
investment bankers, methods of distribution or methods of marketing, the
disclosure of which he knows will be damaging to the Company; provided, however,
that confidential information shall not include any information known generally
to the public (other than as a result of unauthorized disclosure by the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company. Notwithstanding the foregoing, nothing herein shall be deemed to
restrict the Executive from disclosing Confidential Information to the extent
required by law.
(c) Nonsolicitation of Employees. During the Term and for a period of
two years following any termination of this Agreement, other than a termination
by the Executive for Good Reason (as hereinafter defined) or a termination by
the Company without Cause (as hereinafter defined), the Executive shall not
directly or indirectly, for himself or for any other person, firm, corporation,
partnership, association or other entity, attempt to employ or enter into any
contractual arrangement with any employee or former employee of the Company,
unless such employee or former employee has not been employed by the Company for
a period in excess of six months.
(d) Injunction. It is recognized and hereby acknowledged by the
Company and the Executive that a breach by the Executive of any of the
agreements contained in this Section 7 may cause irreparable harm or damage to
the Company or its subsidiaries, the monetary amount of which may be virtually
impossible to ascertain. As a result, the Executive and the Company agree that
the Company and any of its subsidiaries shall be entitled to an injunction
issued by any court of competent jurisdiction enjoining and restraining any and
all violations of such agreements by the Executive or his associates,
affiliates, partners or agents, and that such right to an injunction shall be
cumulative and in addition to whatever other remedies the Company may possess.
(e) Certain Provisions. The limitations of Section 7(a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 9 hereof; however, such
termination shall not affect the rights of the Executive to receive all
payments, undiminished in any way, provided by such Section 9. The provisions of
Section 7 shall apply during the time the Executive is receiving any payments
from the Company as a result of a termination resulting from Disability.
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<PAGE> 5
8 8. Termination. The Executive's employment under this Agreement may
be terminated without any breach of this Agreement only on the following
circumstances:
(a) Death. The Executive's employment under this Agreement shall
terminate automatically upon his death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the
performance of his duties under this Agreement for six consecutive months during
any twelve-month period, and within 30 days after written notice of termination
is given (which notice may only be given after the end of such six-month
period), the Executive shall not have returned to the performance of his duties
under this Agreement, the Company may terminate the Executive's employment under
this Agreement for "Disability."
(c) Cause. The Company may terminate the Executive's employment under
this Agreement for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) the willful and continued failure by the Executive to substantially
perform his duties under this Agreement (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or from the
termination of this Agreement by the Executive for Good Reason), after a demand
for substantial performance is delivered to the Executive by the Company
specifically identifying the manner in which the Company believes the Executive
has not substantially performed his duties, and the Executive shall have failed
to resume substantial performance of such duties within thirty (30) days of
receiving such demand, (ii) the willful engaging by the Executive in criminal
conduct (including embezzlement and criminal fraud) which is demonstrably and
materially injurious to the Company, monetarily or otherwise, or (iii) the
conviction of the Executive of a felony (other than a traffic violation) or the
conviction of the Executive of a misdemeanor which impairs the Executive's
ability substantially to perform his duties with the Company. For purposes of
this paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Company. Notwithstanding anything herein to the contrary, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution, duly
adopted by the affirmative vote of not less than a majority of the members of
the Board then in office (other than the Executive) at a meeting of the Board
called and held for such purpose (after reasonable notice to the Executive and
an opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive was
guilty of conduct set forth in clause (i), (ii) or (iii), above, and specifying
the particulars thereon in detail.
(d) Termination by the Executive. The Executive may terminate his
employment under this Agreement (i) for Good Reason, or (ii) if his health
should become impaired to any extent that makes the continued performance of his
duties under this Agreement hazardous to his physical or mental health or his
life, provided that the Executive shall have furnished the Company with a
written statement from a qualified doctor to such effect and provided, further,
that at the Company's request and expense the Executive shall submit to an
examination by a doctor selected by the Company and such doctor shall have
concurred in the conclusion of the Executive's doctor.
For purposes of this Agreement the term "Good Reason" shall mean,
without the Executive's express prior written consent, the occurrence of any one
or more of the following: (A) the assignment to the Executive of any duties or
reporting obligations other than those contemplated by,
-5-
<PAGE> 6
or any limitation of the powers of the Executive in any respect not contemplated
by, Section 3 hereof, or any other action by the Company which results in a
diminution in the nature or status of the Executive's position, authority,
duties or responsibilities; (B) a reduction by the Company in the Executive's
Base Salary as the same shall be increased from time to time; (C) the Company's
requiring the Executive to be based at a location outside of Broward County,
Florida; (D) a failure by the Company to comply with its other obligations and
agreements contained herein, including but not limited to any failure by the
Company to comply with any of the provisions of Section 5 hereof; (E) a failure
of the Company to obtain a satisfactory agreement from any successor to the
Company to assume and agree to perform this Agreement, as contemplated in
Section 10(c) hereof; or (F) any purported termination by the Company of the
Executive's employment that is not effected pursuant to a Notice of Termination
satisfying the requirements of subsection 8(e) hereof and otherwise in
accordance with the terms of this Agreement, and for purposes of this Agreement,
no such termination shall be effective.
The Executive's right to terminate his employment for Good Reason or
Retirement shall not be affected by his incapacity due to physical or mental
illness, nor shall the Executive's continued employment constitute consent to,
or a waiver of rights with respect to, any circumstances constituting Good
Reason hereunder. For purposes of this Section 8(d), any good faith
determination of "Good Reason" made by the Executive shall be conclusive;
provided, that with respect to the matters set forth in clauses (A) and (D),
above, the Executive shall give the Board thirty (30) days prior written notice
of his intent to terminate this Agreement as a result of any breach or alleged
breach of the applicable provision and the Company shall have the right to cure
any such breach or alleged breach within such 30-day period; provided, that no
such prior written notice or opportunity to cure shall be required following a
Change in Control.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 8(a), above) shall be communicated by written Notice of Termination
to the other party hereto given in accordance with Section 12. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
indicates the specific termination provision in this Agreement relied upon and
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. The failure by the Executive to set forth in any Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
(f) Date of Termination. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the performance of his duties during such thirty (30) day period),
(iii) if the Executive's employment is terminated by the Company for Cause, the
date specified in the Notice of Termination after the expiration of any cure
periods, and (iv) if the Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given after the expiration
of any cure periods; provided, that if within thirty (30) days after any Notice
of Termination one party notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date finally
determined to be the Date of Termination, either by mutual written agreement of
the parties or by a binding and final arbitration award or an adjudication by a
court of competent jurisdiction (and in such event the Company shall continue to
perform its obligations hereunder until the date so determined).
-6-
<PAGE> 7
9. Compensation Upon Termination or During Disability.
(a) Death. If the Executive's employment shall be terminated by
reason of his death, the Company shall pay to such person as the Executive shall
have designated in a notice filed with the Company, or, if no such person shall
have been designated, to his estate, (i) any unpaid amounts of his Base Salary
or Incentive Compensation accrued prior to the date of his death and (ii) a lump
sum death benefit equal to the sum of the Executive's then current Base Salary
and the Executive's Incentive Compensation for the immediately preceding
calendar year (the "Most Recent Incentive Compensation"); and upon making such
payments, the Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death pursuant to Section 5(c)); provided, that the Executive's
spouse, beneficiaries or estate shall also be entitled to receive any amounts or
other benefits payable pursuant to any pension or employee benefit plan, life
insurance policy or other plan, program or policy then maintained or provided by
the Company in accordance with the terms thereof, or any other agreement between
the Executive and the Company.
(b) Disability. During any period that the Executive fails to perform
his duties hereunder as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full Base Salary and any
Incentive Compensation until the Executive's employment is terminated pursuant
to Section 8(b) hereof, or until the Executive terminates his employment
pursuant to Section 8(d)(ii) hereof, whichever first occurs. Following such
termination, the Executive shall be paid in equal monthly installments an amount
equal to his Base Salary at the rate in effect at the time Notice of Termination
is given until the later of one year after termination of his employment or the
expiration of the Term (as in effect on the date of termination), plus any
disability payments otherwise payable by or pursuant to plans provided by the
Company. In addition, the Executive shall be entitled to receive any amounts
payable pursuant to any pension or employee benefit plan, life insurance policy
or other plan, program or policy then maintained or provided by the Company to
the Executive in accordance with the terms thereof.
(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated by the Company for Cause, or by the Executive for other than
Good Reason, the Company shall pay the Executive his full Base Salary and
accrued vacation pay through the Date of Termination at the rate in effect at
the time Notice of Termination is given (or on the Date of Termination if no
Notice of Termination is required hereunder) plus all other amounts to which the
Executive is entitled under any plan, program, policy or practice of the Company
or otherwise at the time such payments are due and such payments shall, assuming
the Company is in compliance with the provisions of this Agreement, fully
discharge the Company's obligations hereunder.
(d) Good Reason; Other than Cause or Disability. If the Company shall
terminate the Executive's employment other than for Cause or Disability (it
being understood that a purported termination for Cause or Disability which is
disputed and finally determined not to have been proper shall be a termination
by the Company in breach of this Agreement), or the Executive shall terminate
his employment for Good Reason, then the Company shall pay the Executive, not
later than the fifth day following the Date of Termination, the aggregate of the
following amounts:
(A) his full Base Salary and accrued vacation pay through the
Date of Termination at the rate in effect at the time Notice of
Termination is given, or the Date of Termination where no Notice of
Termination is required hereunder, any accrued Incentive
-7-
<PAGE> 8
Compensation and any other amounts to which the Executive is entitled
under any plan, policy, practice or program of the Company or otherwise
at the time such payments are due;
(B) the product of (x) the Most Recent Incentive Compensation,
times (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination and the
denominator of which is 365; and
(C) in lieu of any further salary or bonus payments to the
Executive for periods subsequent to the Date of Termination, and as a
severance benefit to the Executive, a lump sum amount equal to the
greater of (x) two (2) times the Executive's annual Base Salary in
effect immediately prior to the occurrence of the circumstances giving
rise to such termination and (y) the amount of Base Salary that would
have been payable to the Executive through the end of the Term had the
Executive's employment not been terminated, assuming that the
Executive's annual Base Salary for such period was determined in
accordance with the provisions of Section 5(a).
(e) Acceleration of Vesting; Sale of Shares. Unless the Executive is
terminated for Cause, upon termination of the Executive's employment for any
reason, all unvested stock options held by the Executive at the time of such
termination shall immediately vest and become exercisable on the Date of
Termination; and all such stock options, together with any previously vested and
unexercised stock options, shall be exercisable by the Executive in accordance
with their respective terms for a period of one (1) year following the Date of
Termination or, if earlier, until the then scheduled expiration date(s) of such
options. The Company shall provide the Executive such cooperation and assistance
as may reasonably be necessary to effect cashless exercises of such stock
options, as well as the sale of any restricted Company securities beneficially
owned by the Executive at the Date of Termination.
(f) Maintenance of Benefit. Unless the Executive is terminated for
Cause, the Company shall maintain in full force and effect, for the continued
benefit of the Executive and/or his family for two (2) years after termination
for any reason, all employee medical, health and hospitalization plans and
programs in which the Executive and/or his family was entitled to participate in
immediately prior to the Date of Termination provided that the continued
participation of the Executive and/or his family is possible under the general
terms and provisions of such plans and programs. In the event that the
participation of the Executive and/or his family in any such plan or program is
barred, the Company shall arrange to provide the Executive and/or his family
with benefits substantially similar to those which the Executive and/or his
family would otherwise have been entitled to receive under such plans and
programs from which his or their continued participation is barred.
(g) Full Settlement. The Company's obligation to make the payments
provided for herein and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others,
except claims in respect of the Executive's gross negligence, wilful misconduct
or violation of any applicable law. The Executive shall not be required to
mitigate the amount of any payment provided for in Section 9 hereof by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in Section 9 hereof be reduced by any compensation earned by the Executive as
the result of employment by another employer or business, by profits earned by
the Executive from any source at any time before or after the Date of
Termination, or otherwise. Unless the Executive is found by a court of competent
jurisdiction to have committed an act that constitutes gross negligence, wilful
misconduct or a violation of
-8-
<PAGE> 9
applicable law, the Company agrees to pay, to the fullest extent permitted by
law, all legal fees and expenses incurred by the Executive as a result of any
contest or dispute (regardless of the outcome thereof) by the Company or others
of the validity or enforceability of, or liability under, any provision of this
Agreement, or by the Executive in seeking to obtain or enforce any right or
benefit provided by this Agreement (including the amount of any payment pursuant
to Section 9 hereof or the validity of any purported termination by the Company
hereunder).
10 10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement and all
rights of the Executive hereunder shall inure to the benefit of and be enforce
able by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees. If the
Executive should die while any amounts would still be payable to him hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's personal or legal
representatives or, if there be no such persons, the Executive's estate.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed the Date
of Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers an assumption and agreement provided for
in this Section 10(c) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, or otherwise.
11. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company or any of its subsidiaries and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any stock option or other agreements with the Company or any of its
subsidiaries. Except as herein specifically provided, amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program.
12. Notice. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
-9-
<PAGE> 10
If to the Executive: 600 S.E. 28th Avenue
Pompano Beach, Florida 33062
If to the Company: SportsLine USA, Inc.
6350 N.W. 5th Way
Fort Lauderdale, Florida 33309
Attn: Board of Directors
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
13. Miscellaneous.
(a) This Agreement has been approved by the Board. No provisions of
this Agreement may be modified, waived or discharged unless such modification,
waiver or discharge is agreed to in a writing signed by the Executive and such
officer as may be specifically designed by the Board.
(b) The failure by either party hereto to insist upon compliance with
any condition or provision of this Agreement shall not be deemed a waiver of
such condition or provision or any other provision hereof.
(c) No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement and this Agreement
supersedes any other employment agreement between the Company and the Executive.
(d) The Company may withhold from any accounts payable under this
Agreement all Federal, state or other taxes as legally shall be required.
(e) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Florida, without
reference to principles of conflicts of laws.
(f) The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(g) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year first above written.
SPORTSLINE USA, INC.
By: /s/ Kenneth W. Sanders
-----------------------------------------
Title: Chief Financial Officer and Secretary
/s/ Michael Levy
---------------------------------------------
Michael Levy
-10-
<PAGE> 11
The foregoing Employment Agreement was approved by the Compensation
Committee of the Company's Board of Directors:
/s/ Sean McManus
- ------------------------------
Sean McManus
/s/ Gerry Hogan
- ------------------------------
Gerry Hogan
-11-
<PAGE> 1
Exhibit 10.2
SPORTSLINE USA, INC.
6350 N.W. 5th Way
Fort Lauderdale, Florida 33309
May ___, 1998
Dear ___________:
This letter sets forth the terms on which SportsLine USA, Inc. (the
"Company") agrees to provide you certain compensation in the event your
employment with the Company is terminated by the Company without Cause (as
hereinafter defined). We have agreed as follows:
1. If, during the term of this letter agreement, the Company terminates your
employment other than for Cause or as a result of your death or disability,
then:
(a) within thirty (30) days after the date your employment is
terminated, the Company will pay you any unpaid amounts of
your base salary accrued prior to the date of termination;
(b) in lieu of any further salary, incentive compensation or other
payments for periods subsequent to the date of termination,
and as a severance benefit, the Company will continue to pay
you an amount equal the installments of your base salary (at
the rate in effect immediately prior to the date of
termination) that would have been paid to you had your
employment not been terminated (i) if your employment is
terminated either prior to a Change in Control (as hereinafter
defined) or more than one (1) year after a Change in Control,
for a period of six months following the date of termination,
or (ii) if your employment is terminated within one (1) year
following a Change in Control, for a period of one (1) year
following the date of termination; provided, that you shall
use reasonable efforts to seek other employment following such
termination, and the amount of any payment provided for in
this paragraph (b) will be reduced by any compensation you
earn as the result of employment by another employer or
business during the period the Company is obligated to make
payments hereunder.
(c) you will be entitled to receive, at the time such payments are
due, any other amounts payable to you at the time your
employment is terminated under any pension or employee benefit
plan, life insurance policy or other plan, program or policy
then maintained by the Company; and
<PAGE> 2
[Name of Employee]
May ___, 1998
Page -2-
(d) all unvested stock options held by you at the time your
employment is terminated will immediately vest and become
exercisable on the date of such termination; and all such
stock options, together with any previously vested and
unexercised stock options, shall be exercisable by you in
accordance with their respective terms for a period of one (1)
year following the termination of your employment or, if
earlier, until the then scheduled expiration date(s) of such
options.
2. In consideration of the Company's agreements contained herein, you agree
that:
(a) You will not, either while you are employed by the Company or
for a period of one year following any termination of your
employment, directly or indirectly, engage in, operate, have
any investment or interest or otherwise participate in any
manner (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) in
any sole proprietorship, partnership, corporation or business
or any other person or entity that engages, directly or
indirectly, in a Competing Business; provided, that you may
continue to hold Company securities and/or acquire, solely as
an investment, shares of capital stock or other equity
securities of any company which are publicly traded, so long
as you do not control, acquire a controlling interest in, or
become a member of a group which exercises direct or indirect
control of, more than five percent (5%) of any class of
capital stock of such corporation. For purposes of this letter
agreement, the term "Competing Business" means any sole
proprietorship, partnership, corporation or business or any
other person or entity that owns, operates, manages or
distributes an on-line service that provides sports news,
information and content, whether such service is accessed
through the Internet, a commercial on-line service or
otherwise.
(b) While you are employed by the Company and for a period of two
years following any termination of your employment, you will
not, without the written consent of the Board or a person
authorized thereby, disclose to any person, other than an
employee of the Company (or its subsidiaries) or a person to
whom disclosure is reasonably necessary or appropriate in
connection with the performance by you of your duties as an
executive of the Company, any confidential information
obtained by you while in the employ of
<PAGE> 3
[Name of Employee]
May ___, 1998
Page -3-
the Company with respect to any of the Company's customers,
suppliers, creditors, lenders, investment bankers, methods of
distribution or methods of marketing, the disclosure of which
you knows will be damaging to the Company; provided, however,
that confidential information shall not include any
information known generally to the public (other than as a
result of unauthorized disclosure by you) or any information
of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that
conducted by the Company. Notwithstanding the foregoing,
nothing herein shall be deemed to restrict you from disclosing
confidential information to the extent required by law.
(c) While you are employed by the Company and for a period of one
year following any termination of your employment, you will
not, directly or indirectly, for yourself or for any other
person, firm, corporation, partnership, association or other
entity, attempt to employ or enter into any contractual
arrangement with any employee or former employee of the
Company, unless such employee or former employee has not been
employed by the Company for a period in excess of six months.
(d) It is recognized and hereby acknowledged by the Company and
you that a breach by you of any of the agreements contained in
this Section 2 may cause irreparable harm or damage to the
Company or its subsidiaries, the monetary amount of which may
be virtually impossible to ascertain. As a result, you agree
that the Company and any of its subsidiaries shall be entitled
to an injunction issued by any court of competent jurisdiction
enjoining and restraining any and all violations of such
agreements by you or your associates, affiliates, partners or
agents, and that such right to an injunction shall be
cumulative and in addition to whatever other remedies the
Company may possess.
(e) Your noncompete agreement contained in Section 2(a), above,
shall terminate if following termination of your employment
for any reason the Company does not fulfill its obligations
under Section 1 hereof; however, such termination shall not
affect your rights to receive all payments, undiminished in
any way, provided by such Section 1.
3. For purposes of this letter:
(a) "Cause" shall mean (i i) subject to the following sentences,
any action or omission by you which constitutes (A) a willful
breach of any
<PAGE> 4
[Name of Employee]
May ___, 1998
Page -4-
employment or other agreement between the Company and you, (B)
a breach by you of your fiduciary duties and obligations to
the Company, or (C) your failure or refusal to follow any
lawful directive of the Chairman, the Chief Executive Officer,
the President or the Board, in each case which act or omission
is not cured (if capable of being cured) within thirty (30)
days after written notice of same from the Company to you, or
(ii) conduct constituting fraud, embezzlement,
misappropriation or gross dishonesty by you in connection with
the performance of your duties to the Company, or a formal
charge or indictment of you for, or your conviction of, a
felony (other than a traffic violation) or, if it shall damage
or bring into disrepute the business, reputation or goodwill
of the Company or impair your ability to perform your duties
with the Company, any crime involving moral turpitude.
(b) A "Change in Control" shall mean and be deemed to have
occurred if, without your express written consent: (i) any
person, entity or "group", within the meaning of Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than (A) the Company,
its subsidiaries or any employee benefit plan established and
maintained by the Company or its subsidiaries, or (B) you or
any of your affiliates, becomes the "beneficial owner" (within
the meaning of Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Company
representing forty percent (40%) or more of the combined
voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors; (ii)
the individuals who, as of the date hereof constitute the
Company's Board of Directors (as of the date hereof, the
"Incumbent Board") cease for any reason to constitute a
majority of the Board of Directors, provided that any person
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board (other than
the election or nomination of an individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or (iii) the
shareholders of the Company approve (A) a reorganization,
merger or consolidation with respect to which persons who were
the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined
<PAGE> 5
[Name of Employee]
May ___, 1998
Page -5-
voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's
then outstanding voting securities, (B) a liquidation or
dissolution of the Company, or (C) the sale of all or
substantially all of the assets of the Company, unless the
approved reorganization, merger, consolidation, liquidation,
dissolution or sale is subsequently abandoned.
4. This letter agreement will remain in effect until the later of two years
after the date hereof or, if a Change of Control occurs within that two-year
period, one year following the Change in Control. By signing below, you
acknowledge that this letter agreement is not an employment agreement and shall
not confer upon you any right to employment or continuance of employment by the
Company.
Please acknowledge your agreement to the foregoing by signing and
returning a copy of this letter.
Very truly yours,
Michael Levy,
Chairman of the Board and
Chief Executive Officer
Acknowledged and Agreed:
- ---------------------------------
[Name of Employee]
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 92,189,837
<SECURITIES> 14,456,543
<RECEIVABLES> 5,211,409
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 120,731,843
<PP&E> 8,228,613
<DEPRECIATION> 4,048,538
<TOTAL-ASSETS> 128,667,913
<CURRENT-LIABILITIES> 7,346,708
<BONDS> 0
0
0
<COMMON> 189,323
<OTHER-SE> 120,785,659
<TOTAL-LIABILITY-AND-EQUITY> 128,667,913
<SALES> 13,802,090
<TOTAL-REVENUES> 13,802,090
<CGS> 8,343,436
<TOTAL-COSTS> 23,520,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,618
<INCOME-PRETAX> (16,511,260)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,511,260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,511,260)
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