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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-78921
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SPORTSLINE USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7375 65-0470894
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(954) 351-2120
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
--------------
MICHAEL LEVY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SPORTSLINE USA, INC.
6340 N.W. 5TH WAY
FORT LAUDERDALE, FLORIDA 33309
(954) 351-2120
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES OF COMMUNICATIONS TO:
KENNETH C. HOFFMAN, ESQ.
GREENBERG TRAURIG, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
PHONE: (305) 579-0500
FAX: (305) 579-0717
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_____
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]______
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 16, 1999
$150,000,000
[LOGO]
5% CONVERTIBLE SUBORDINATED NOTES DUE 2006
(AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES)
-------------------------
We issued $150,000,000 of notes in a private placement in March 1999.
This prospectus will be used by selling security holders to resell their notes
and the common stock issuable upon conversion of their notes.
The notes are convertible at any time prior to maturity into common
stock, at an initial conversion rate of 15.355 shares of common stock per $1,000
principal amount of notes which is equivalent to a conversion price of
approximately $65.125 per share, subject to adjustment in certain events. Our
common stock is quoted on the Nasdaq National Market under the symbol "SPLN." On
July 15, 1999, the closing price of our common stock was $40.75 per share.
We will pay interest on the notes on April 1 and October 1 of each
year, beginning on October 1, 1999, at a rate of 5% per year. The notes will
mature on April 1, 2006 unless earlier converted or redeemed. The notes are
unsecured and are subordinated to our existing and future senior indebtedness.
As of June 30, 1999, we had no material indebtedness other than the notes.
We may redeem the notes after April 2, 2002, at the declining
redemption prices listed in this prospectus, plus accrued interest. In addition,
if a repurchase event occurs, we must offer to repurchase the notes.
We will not receive any proceeds from the sale by the selling security
holders of the notes or the common stock into which the notes are convertible.
We will pay all expenses of the registration of the notes and the common stock
other than selling commissions and fees and stock transfer taxes.
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE NOTES OR THE COMMON
STOCK INTO WHICH THE NOTES ARE CONVERTIBLE.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, the selling security holders may sell up to
$150,000,000 aggregate principal amount of the notes or the applicable number of
shares of common stock which are issuable upon conversion of the notes. This
prospectus provides you with a general description of the notes and the common
stock into which the notes are convertible that the selling security holders may
offer. When the selling security holders sell the notes or the common stock, we
may provide, if necessary, a prospectus supplement that will contain specific
terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read this prospectus and
any prospectus supplement together with the additional information described
under the heading "Where You Can Find More Information."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference statements about
our future that are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. This act provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this prospectus or any other document incorporated by reference are
forward-looking. In some cases, you can identify these forward-looking
statements by terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates," or
"anticipates" or the negative of those words or other comparable terminology. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under the caption "Risk Factors" in this
prospectus. You should pay particular attention to the cautionary statements
involving our limited operating history, the unpredictability of our future
revenues, the unpredictable and evolving nature of our business model, the
intensely competitive market for Internet services and products and the risks
associated with capacity constraints, systems development, management of growth,
acquisitions and international and domestic business expansion. These factors
may cause our actual results to differ materially and adversely from any
forward-looking statement.
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TABLE OF CONTENTS
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About This Prospectus.............................................................................................2
Special Note Regarding Forward-Looking Statements.................................................................2
Prospectus Summary................................................................................................3
Risk Factors......................................................................................................5
Use of Proceeds..................................................................................................14
Ratio of Earnings to Fixed Charges...............................................................................14
Description of Notes.............................................................................................15
Description of Capital Stock.....................................................................................23
United States Federal Income Tax Consequences....................................................................25
Selling Security Holders.........................................................................................29
Plan of Distribution.............................................................................................33
Legal Matters....................................................................................................34
Experts..........................................................................................................34
Where You Can Find More Information..............................................................................35
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"SportsLine USA" is a registered service mark of SportsLine USA, Inc.
The CBS "eye device" is a registered trademark of CBS Inc. This prospectus also
includes trademarks and trade names of companies other than SportsLine USA and
CBS. All other company or product names are trademarks or registered trademarks
of their owners.
Information contained on our Web sites are not part of this prospectus.
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PROSPECTUS SUMMARY
Because this is a summary, it may not contain all information that may
be important to you. You should read this entire prospectus, including the
information incorporated by reference and the financial data and related notes,
before making an investment decision. When used in this prospectus, the terms
"we," "our" and "us" refer to SportsLine USA, Inc. and not the selling security
holders.
SPORTSLINE USA, INC.
We are a leading Internet-based sports media company that provides
branded, interactive information and programming as well as merchandise to
sports enthusiasts worldwide. cbs.sportsline.com, our flagship site on the World
Wide Web, delivers real-time, in-depth and compelling sports content and
programming that capitalizes on the Web's unique graphical and interactive
capabilities. Our other Web sites include those devoted to the following:
- sports superstars such as Joe Namath, Michael Jordan
(jordan.sportsline.com), Tiger Woods (tigerwoods.com),
Shaquille O'Neal (shaq.com) and Cal Ripken, Jr. (2131.com),
- specific sports such as baseball (majorleaguebaseball.com),
golf (golfweb.com and pgatour.com) and cricket (cricinfo.org),
- international sports coverage (sportsline.com/u/worldwide),
and
- electronic odds and analysis on major sports events
(vegasinsider.com).
Our objective is to become the leading Internet-based sports media
company and to create a global sports brand. Accordingly, we focus exclusively
on sports and distinguish ourselves from other content providers by offering
innovative, timely and comprehensive sports content.
Our products and services include:
- distribution of a broad range of up-to-date news, scores,
player and team statistics and standings, photos and audio and
video clips obtained from CBS and other leading sports news
organizations as well as our superstar athletes,
- broadcasts of web-based real-time animated re-creations of
major sporting events,
- distribution of instant odds and picks from well-known
handicappers,
- production and distribution of entertaining, interactive and
original programming such as editorials and analyses from our
in-house staff and freelance journalists,
- production and offerings of contests, games, fantasy league
products and fan clubs, and
- sales of sports-related merchandise and memorabilia.
We also own and operate a state-of-the-art radio studio from which we
produce all-sports radio programming which is broadcast over the Internet and on
traditional radio stations.
We were incorporated in Delaware in February 1994. Our principal
executive offices are located at 6340 N.W. 5th Way, Fort Lauderdale, Florida
33309, and our telephone number is (954) 351-2120.
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THE OFFERING
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Securities Offered........................ $150,000,000 aggregate principal amount of our 5% Convertible
Subordinated Notes due 2006 and shares of our common stock
issuable upon conversion of the notes.
Interest.................................. We will pay interest on the notes on April 1 and October 1 of
each year, commencing October 1, 1999.
Maturity.................................. April 1, 2006
Conversion................................ You may convert your notes at any time through the close of
business on the final maturity date of the notes, unless the
notes have been previously redeemed or repurchased, at an
initial conversion rate of 15.355 shares of common stock per
$1,000 principal amount of notes which is equivalent to a
conversion price of approximately $65.125 per share.
Optional Redemption....................... We may redeem the notes in whole or in part on or after April
2, 2002, at the redemption prices listed in this prospectus,
together with accrued interest.
Repurchase at Option of Holders
Upon a Repurchase Event................ If a repurchase event occurs, we will be required to offer to
repurchase the notes for cash or, at our option, shares of our
common stock at a repurchase price of 100% of the principal
amount of the notes, plus accrued interest. If we decide to
offer our common stock instead of cash, our common stock will
be valued at 95% of the average of the closing prices for the
five trading days immediately before and including the third
trading day prior to the repurchase date.
Ranking................................... Subordinate to all of our existing and future senior
indebtedness. As of June 30, 1999, we had no material senior
indebtedness. Neither we nor our subsidiaries are limited
under the indenture from incurring additional debt.
Use of Proceeds........................... We will not receive any of the proceeds from the sale of the
notes or the common stock offered in this prospectus.
Trading................................... The notes are currently traded in The Portal Market. However,
any notes sold under this prospectus will no longer trade in
The Portal Market. Our common stock is quoted on the Nasdaq
National Market under the symbol "SPLN".
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RISK FACTORS
You should carefully consider the following factors and other
information included or incorporated by reference in this prospectus before
investing in the notes or common stock.
WE HAVE ONLY BEEN OPERATING OUR BUSINESS SINCE AUGUST 1995
We were incorporated in February 1994 and commercially introduced our
first Web site in August 1995. We first recognized revenue from operations in
the quarter ended September 30, 1995. Accordingly, we have a limited operating
history upon which you may evaluate us. You should consider our prospects in
light of the risks, expenses and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, including the
Internet-based advertising, information services and commerce markets. As an
early stage online content provider and commerce company, we have an evolving
and unpredictable business model, we face intense competition, we must
effectively manage our growth and we must respond quickly to rapid changes in
customer demands and industry standards. To address these risks, we must provide
compelling and original content to our users, we must maintain our existing
relationships and effectively develop new relationships with advertisers,
advertising agencies and other third parties, we must develop and upgrade our
technology and respond to competitive developments, and we must attract, retain
and motivate qualified personnel. We may not succeed in addressing these
challenges and risks.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE FURTHER LOSSES
We have incurred significant losses since we began doing business. To
date, we have achieved only limited revenue and our ability to generate
significant revenue is subject to substantial uncertainty. We may not ever
generate sufficient revenue to meet our expenses or achieve or maintain
profitability. We incurred net losses of $16.1 million during 1996, $34.2
million during 1997, $35.5 million during 1998, and $10.1 million during the
first quarter of 1999. As of March 31, 1999, we had an accumulated deficit of
$102.4 million. We expect to continue to incur losses for at least the next 24
to 36 months.
Since inception, we have incurred substantial costs to develop and
enhance our technology, to create, introduce and enhance our service offerings,
to acquire and develop content, to build traffic on our Web sites, to acquire
members, to establish marketing relationships and to build an administrative
organization. We intend to continue these efforts and we plan to increase our
spending for marketing and for the development and acquisition of content. We
have 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 shares of our 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 March 31, 1999, the minimum guaranteed payments we
were required to make under such agreements were $6,076,000. Our minimum
guaranteed payments are subject to reduction in the case of certain agreements
based upon the appreciation of warrants issued, the value of stock received on
exercise of such warrants and the amount of profit sharing earned under the
related agreements. Also, we recorded non-cash expense of $12,000,000 for the
year ended December 31, 1998 related to our agreement with CBS and will record
an additional $160,098,000 of non-cash expense over the remaining eight-year
term of our agreement with CBS. Additionally, non-cash expense under our
agreement with AOL will total $21,906,000 over the remaining term of that
agreement.
OUR QUARTERLY RESULTS MAY FLUCTUATE AND OUR FUTURE REVENUES ARE UNPREDICTABLE
AND MAY BE SEASONAL
Due to our limited operating history and the unpredictability of our
industry, we cannot accurately forecast our revenue. Our revenues for the
foreseeable future will continue to come from a mix of advertising, merchandise
sales, membership and premium service fees, content licensing, Web site
development and syndication fees. We are likely to experience fluctuations in
quarterly revenue and operating results due to the level of advertising revenue
within each quarter. We base our current and future expense levels on our
investment plans and estimates of future revenues. Our expenses are to a large
extent fixed. We may not be able to adjust our spending quickly if our revenues
fall short of our expectations.
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Our revenues and operating results may vary significantly from quarter
to quarter due to a number of factors, including:
- the level of usage of the Internet,
- the level of traffic on our Web sites,
- demand for Internet advertising,
- seasonal trends in both Internet usage and advertising
placements,
- the addition or loss of advertisers,
- the advertising budgeting cycles of individual advertisers,
- the number of users that purchase memberships, merchandise or
premium services,
- the amount and timing of capital expenditures and other costs
relating to the expansion of our operations,
- the introduction of new sites and services by us or our
competitors,
- price competition or pricing changes in the industry, and
- general economic conditions and economic conditions specific
to the Internet, electronic commerce and online media.
Furthermore, we expect that our 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 and World Cup events, although such
events do not occur every year. We believe 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 in which case our revenues
may be affected by such seasonal and cyclical patterns.
Due to all of the foregoing factors, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. It is possible that our operating results
may fall below the expectations of securities analysts or investors in some
future quarter which would likely cause the trading price of the notes and our
common stock to decline.
WE ARE DEPENDENT UPON OUR RELATIONSHIP WITH CBS TO EXECUTE OUR BUSINESS PLAN
In March 1997, we entered into a five-year agreement with CBS, pursuant
to which our flagship Web site was renamed "cbs.sportsline.com." We amended our
agreement with CBS in February 1999 to extend the term through 2006. Over the
term of the agreement, we have the right to use certain CBS logos and
television-related sports content and will receive extensive network television
advertising and on-air promotions. This network television advertising and
on-air promotions, as well as the association of our brand with CBS, are
important elements of our strategy to increase awareness of the SportsLine brand
and build traffic on our Web sites. Under the agreement, CBS has the right to
receive specified percentages of our net revenues. The agreement requires us to
maintain and operate our flagship Web site, cbs.sportsline.com, in accordance
with certain guidelines and restrictions and to cease using any content on
cbs.sportsline.com which CBS determines conflicts, interferes with or is
detrimental to CBS's reputation or business or which becomes subject to any
third party restriction or claim which would prohibit, limit or restrict the use
of such content on the Internet. CBS has the right to terminate the agreement
upon the acquisition by a CBS competitor of 40% or more of the voting power of
our equity securities or in certain other circumstances, including if we breach
a material term or condition or the agreement or if we become insolvent or
subject to bankruptcy or similar proceedings.
We cannot assure you that CBS will perform its obligations under the
agreement, or that the agreement will significantly increase consumer awareness
of our brand or build traffic on our Web sites. Any failure of CBS to perform
its material obligations under the agreement, or the termination of the
agreement prior to the end of its term, would have a material adverse effect on
our business, results of operations and financial condition.
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WE RELY ON OTHER STRATEGIC RELATIONSHIPS IN ORDER TO EXECUTE OUR BUSINESS PLAN
In addition to our relationship with CBS, we have entered into other
strategic relationships with sports superstars and personalities, sports
organizations, commercial online services (such as AOL), third party Web sites
(such as Excite, Netscape and InfoSpace) and developers of browsers and other
Internet-based products. We rely on these relationships to increase awareness of
our brand among consumers, to create revenue opportunities and to obtain content
for our Web sites. We cannot assure you that a party to any of our strategic
agreements will perform its obligations as agreed or that we will be able to
specifically enforce any such agreement. Many of the these strategic agreements
are short-term in nature and certain of these agreements may be terminated by
either party on short notice. Our failure to maintain or renew these existing
strategic relationships, to establish additional strategic relationships or to
fully capitalize on any such relationship could have a material adverse effect
on our business, results of operations and financial condition.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
The market for Internet services and products is relatively new,
intensely competitive and rapidly changing. Since the Internet's
commercialization in the early 1990's, the number of Web sites on the Internet
competing for consumers' attention and spending has proliferated with no
substantial barriers to entry, and we expect that competition will continue to
intensify. Competition could result in less user traffic to our Web sites, price
reductions for our advertising, reduced margins or loss of market share, any of
which would have a material adverse effect on our business, results of
operations and financial condition.
We compete for advertisers, viewers, members, content providers,
merchandise sales and rights to sports events with the following categories of
companies:
- online services or Web sites targeted to sports enthusiasts
generally (such as ESPN.com, CNN and Sports Illustrated's
CNN/SI and Fox Sports) or to enthusiasts of particular sports
(such as Web sites maintained by the NFL, the NBA and the
NHL),
- publishers and distributors of traditional off-line media
(such as television, radio and print), including those
targeted to sports enthusiasts, many of which have established
or may establish Web sites,
- general purpose consumer online services such as AOL and
Microsoft Network, each of which provides access to
sports-related content and services,
- vendors of sports information, merchandise, products and
services distributed through other means, including retail
stores, mail, facsimile and private bulletin board services,
and
- Web search and retrieval services and portals, such as
AltaVista, Excite, InfoSeek, Lycos, Netscape and Yahoo!, and
other high-traffic Web sites.
Our ability to compete depends on many factors, many of which are
outside of our control. These factors include the quality of content provided by
us and by our competitors, the ease of use of services developed either by us or
by our competitors, the timing and market acceptance of new and enhanced
services developed either by us or by our competitors, and sales and marketing
efforts by us and our competitors.
Based on our review of publicly available documents, we believe some of
our existing competitors, as well as potential new competitors, have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and substantially larger user or membership
bases than we do. This may allow them to devote greater resources than we can to
the development and promotion of their services. In addition, some of these
competitors may be able to respond more quickly than us to new or emerging
technologies and changes in Internet user requirements and to devote greater
resources than us to the development, promotion and sale of their services.
There can be no assurance that our current or potential competitors will not
develop products and services comparable or superior to those developed by us or
adapt more quickly than us to new technologies, evolving industry trends or
changing Internet user preferences. In addition, as we expand internationally we
are likely to face new competition. There can be no assurance that we will be
able to compete successfully against current and future competitors, or that
competitive pressures would not have a material adverse effect on our business,
results of operations and financial condition.
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WE ARE DEPENDENT ON CERTAIN CONTENT PROVIDERS AND ARE REQUIRED TO MAKE
SIGNIFICANT PAYMENTS TO SUCH CONTENT PROVIDERS
We rely on independent content providers for sports news, scores,
statistics and other sports information. Our future success depends, in
significant part, on our ability to maintain and renew our relationships with
these content providers and to build new relationships with other content
providers. Our agreements with content providers generally are short-term and
may be terminated by the content provider if we fail to fulfill our obligations
under the applicable agreement. Some of our content providers compete with one
another and, to some extent, with us for advertising and members. Termination of
one or more significant content provider agreements would decrease the
availability of sports news and information which we can offer our customers and
could have a material adverse effect on our business, results of operations and
financial condition.
Most of our agreements with content providers are nonexclusive, and
many of our competitors offer, or could offer, content that is similar or the
same as that obtained by us from such content providers. In addition, the
growing reach and use of the Internet have further intensified competition in
this industry. Consumers have gained free access to certain information provided
directly on the Internet by certain content providers. To the extent that
content providers, including but not limited to our current suppliers, provide
information to users at a lower cost than us or at minimal or no cost, our
business, results of operations and financial condition could be materially
adversely affected.
Fees payable to content providers constitute a significant portion of
our cost of revenue. There can be no assurance that these content providers will
enter into or renew agreements with us on the same or similar terms as those
currently in effect. If we are required to increase the fees payable to our
content providers, such increased payments could have a material adverse effect
on our business, results of operations and financial condition.
EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT
We have rapidly and significantly expanded our operations and
anticipate that significant expansion of our operations will continue to be
required in order to address potential market opportunities. This growth is
likely to place a significant strain on our management, operational and
financial resources and systems. To manage our growth, we must implement systems
and train and manage our employees. In addition, it may become necessary to
increase the capacity of our software, hardware and telecommunications systems
on short notice. We cannot assure you that our management will be able to
effectively or successfully manage our growth.
OUR ACQUISITION STRATEGY HAS CERTAIN RISKS
Our acquisition strategy is subject to the following risks:
- we may not be able to identify additional suitable acquisition
candidates available for sale at reasonable prices,
- acquisitions may cause a disruption in our ongoing business,
distract our management and other resources and make it
difficult to maintain our standards, controls and procedures,
- we may not be able to consummate any acquisition or
successfully integrate services, products and personnel of any
acquisition into our operations,
- we may acquire companies in markets in which we have little
experience, and
- we may be required to incur debt or issue equity securities,
which may be dilutive to existing shareholders, to pay for
acquisitions.
OUR STRATEGY TO EXPAND INTERNATIONALLY HAS CERTAIN RISKS
We plan to continue to expand our business internationally and expect
that our international operations will be subject to most of the risks inherent
in our business generally. We can not assure you that revenue from international
operations will increase in the future or that operating losses will not be
incurred from such operations. In addition, there are certain risks inherent in
doing business in international markets, such as:
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- changes in regulatory requirements, tariffs and other trade
barriers,
- fluctuations in currency exchange rates,
- potentially adverse tax consequences,
- difficulties in managing or overseeing foreign operations, and
- differences in consumer preferences and requirements in
different markets.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND WE MAY INFRINGE THE
PROPRIETARY RIGHTS OF OTHERS
Proprietary rights are important to our success and competitive
position. In 1996, we were issued a United States trademark registration for our
former SportsLine USA logo. We have applied to register in the United States our
current SportsLine USA logo and a number of other marks, several of which
include the term "SportsLine USA." We have filed applications to register
"SportsLine" marks in Australia, the United Kingdom and other countries. We can
not assure you that we will be able to secure adequate protection for these
trademarks in the United States or in foreign countries. Although we seek to
protect our proprietary rights, our actions may be inadequate to protect any
trademarks and other proprietary rights or to prevent others from claiming
violations of their trademarks and other proprietary rights. In addition,
effective copyright and trademark protection may be unenforceable or limited in
certain countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of our work. We also license content from third
parties and it is possible that we could become subject to infringement actions
based upon the content licensed from those third parties. We generally obtain
representations as to the origin and ownership of such licensed content;
however, this may not adequately protect us. Any of these claims, with or
without merit, could subject us to costly litigation and divert the attention of
our technical and management personnel.
OUR BUSINESS IS AT RISK OF SYSTEM FAILURES, DELAYS AND INADEQUACY
The performance of our Web sites is critical to our reputation and
ability to attract and retain users, advertisers and members. Services based on
sophisticated software and computer systems often encounter development delays
and the underlying software may contain undetected errors or failures when
introduced. Any system error or failure that causes interruption in availability
or an increase in response time could result in a loss of potential or existing
users, advertisers or members and, if sustained or repeated, could reduce the
attractiveness of our Web sites to users and advertisers. A sudden and
significant increase in the number of users of our Web sites also could strain
the capacity of the software, hardware or telecommunications systems we deploy,
which could lead to slower response time or system failures. In addition, if the
number of Web pages or users of our Web sites increases substantially, our
hardware and software infrastructure may not be able to adequately handle the
increased demand. Our operations also are dependent upon receipt of timely feeds
and computer downloads from content providers, and any failure or delay in the
transmission or receipt of such feeds and downloads, whether on account of our
system failure, our content providers, the public network or otherwise, could
disrupt our operations. Any failure or delay that causes interruptions in our
operations could have a material adverse effect on our business, results of
operations and financial condition.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL
Our future success depends, in part, upon the continued service of our
senior management and other key personnel. Although we are the beneficiary of a
key man life insurance policy covering Michael Levy, our President and Chief
Executive Officer, and in June 1998 we entered into an employment agreement with
Mr. Levy which continues in effect through December 31, 2003, the loss of his
services or the services of one or more of our other executive officers or key
employees could have a material adverse effect on our business, results of
operations and financial condition. Our future success also depends on our
continuing ability to attract and retain highly qualified technical, editorial
and managerial personnel. Competition for such personnel is intense, and we
have, at times, experienced difficulties in attracting the desired number of
such individuals.
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<PAGE> 11
OUR BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET
Our market is new and rapidly evolving. Our success is highly dependent
upon continued growth in the use of the Internet generally and, in particular,
as a medium for advertising, information services and commerce. Internet usage
may be inhibited for a number of reasons, such as:
- the Internet infrastructure may not be able to support the
demands placed on it, and its performance and reliability may
decline as usage grows,
- security and authentication concerns with respect to the
transmission over the Internet of confidential information,
such as credit card numbers, and attempts by unauthorized
computer users, so-called hackers, to penetrate online
security systems,
- privacy concerns, including those related to the ability of
web sites to gather user information without the user's
knowledge or consent, and
- the lack of availability of cost-effective, high-speed
services.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, Web sites may from time to time experience
interruptions in service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Internet usage, as well as usage of our Web
sites, could be adversely affected.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN
Our business, results of operations and financial condition would be
materially adversely affected if the Internet advertising market develops more
slowly than we expect or if we are unsuccessful in increasing our advertising
revenues. We derive a substantial portion of our revenue from the sale of
advertisements on our Web sites. Since the Internet advertising market is new
and rapidly evolving, we cannot yet gauge its effectiveness as compared to
traditional advertising media.
The adoption of Internet advertising, particularly by those entities
that have historically relied upon traditional media for advertising, requires
the acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally relied
upon other advertising media may be reluctant to advertise on the Internet.
These businesses may find Internet advertising to be less effective than
traditional advertising media for promoting their products and services. Many
potential advertisers have little or no experience using the Internet for
advertising purposes. Consequently, they may allocate only limited portions of
their advertising budgets to Internet advertising.
Advertisers may not advertise on our Web sites or may pay less for
advertising on our Web sites if they do not believe that they can reliably
measure the effectiveness of Internet advertising or the demographics of the
user viewing their advertisements. We use both internal measurements and
measurements provided to us by third parties. If these third parties are unable
to continue to provide these services, we would have to perform them ourselves
or obtain them from another provider. This could cause us to incur additional
costs or cause interruptions in our business while we are replacing these
services. In addition, we are implementing additional systems designed to record
demographic data on our users. If we do not implement these systems
successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. Moreover, "filter" software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software could adversely affect the
commercial viability of Internet advertising.
To the extent that minimum guaranteed impression levels are not met
ratably over the contract period, we defer recognition of the corresponding
pro-rata portion of the revenues related to such unfulfilled obligation until
the guaranteed impression levels are achieved. Advertising based on impressions,
or the number of times an advertisement is delivered to users, comprises
virtually all of our current revenues. To the extent that minimum impression
levels are not achieved for any reason, we may be required to provide additional
impressions after the contract term, which would reduce our advertising
inventory.
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Our revenues could be adversely affected if we are unable to adapt to
other Internet advertising pricing models that are adopted as industry standard.
It is difficult to predict which, if any, pricing models for Internet
advertising will emerge as the industry standard. This makes it difficult to
project our future advertising rates and revenues.
WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE
To be successful, we must adapt to rapidly changing Internet
technologies by continually enhancing our Web sites and introducing new services
to address our customers' changing demands. We could incur substantial costs if
we need to modify our services or infrastructure in order to adapt to changes
affecting providers of Internet services. Our business, results of operations
and financial condition could be materially adversely affected if we incurred
significant costs to adapt, or cannot adapt, to these changes.
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMITTING CONFIDENTIAL
INFORMATION OVER THE INTERNET
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information. We cannot assure you that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the algorithms we use
to protect customer transaction data. If any such compromise of our security
were to occur it could have a material adverse effect on our business, results
of operations and financial condition. If someone is able to circumvent our
security measures, such person could misappropriate proprietary information or
cause interruptions in our operations. We may be required to expend significant
capital and other resources to protect against the threat of such security
breaches or to alleviate problems caused by such breaches. Concerns over the
security of Internet transactions and the privacy of users may also inhibit the
growth of the Internet generally, and the Web in particular, especially as a
means of conducting commercial transactions. To the extent that our activities
or the activities of third party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could expose us to a risk of loss or litigation and possible liability.
We cannot assure you that our security measures will prevent security breaches
or that failure to prevent such security breaches would not have a material
adverse effect on our business, results of operations and financial condition.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
Any new law or regulation pertaining to the Internet, or the
application or interpretation of existing laws, could decrease the demand for
our service, increase our cost of doing business or otherwise have a material
adverse effect on our business, results of operations and financial condition.
There is, and will be, an increasing number of laws and regulations pertaining
to the Internet. These laws or regulations may relate to liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and the quality of products and services.
Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy and other issues is
uncertain and developing.
Our contests and sweepstakes may be subject to state and federal laws
governing lotteries and gambling. We seek to design our contest and sweepstakes
rules to fall within exemptions from such laws and restricts participation to
individuals over 18 years of age who reside in jurisdictions within the United
States and Canada in which the contests and sweepstakes are lawful. We cannot
assure you that our contests and sweepstakes will be exempt from such laws or
that the applicability of such laws to us would not have a material adverse
effect on our business, results of operations and financial condition.
WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE INTERNET
We may be subject to legal claims relating to the content we make
available on our Web sites, or the downloading and distribution of such content.
For example, persons may bring claims against us if material that is
inappropriate for viewing by young children can be accessed from our Web sites.
Claims could also involve such matters as defamation, invasion of privacy and
copyright infringement. Providers of Internet products and services have been
sued in the past, sometimes successfully, based on the content of material.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to cover all costs
11
<PAGE> 13
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed. Any costs or imposition of liability that is not covered by
insurance or in excess of insurance coverage could have a material adverse
effect on our business, results of operations and financial condition.
Implementing measures to reduce our exposure to this liability may require us to
spend substantial resources and limit the attractiveness of our service to
users.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
We utilize a significant number of computer software programs and
operating systems across our entire organization, including applications used in
operating our various Web sites, member services, e-commerce, and various
administrative and billing functions. To the extent that our software
applications contain source codes that are unable to appropriately interpret the
upcoming calendar year 2000, some level of modification, or even possible
replacement of such applications may be necessary.
We have retained a consulting firm to help assess our Year 2000
compliance. The assessment is currently being conducted in four phases, the
first two of which have been completed. During Phase One, we analyzed
facilities, applications, network, distributed computing, infrastructure, and
data in order to determine the size, scope, and complexity of our exposure to
Year 2000. During Phase Two, specific strategies required to bring exposure
areas into compliance were formulated. Additionally, during Phase Two, we began
interviewing hardware, software, market feed, and firmware vendors for Year 2000
compliance plans. The results of the first and second phases were used to
develop a compliance/renovation approach, budget, and project plan which
includes an analysis of compliance strategies, cost parameters and timelines.
During Phase Three, which is currently in process, we will complete the
renovations of software and applications, implement hardware patches, develop
project contingencies and complete final testing. Phase Four will complete the
process with the development of a contingency plan for any hardware or software
failure. We expect to be substantially Year 2000 compliant by the end of August
1999 with respect to our mission-critical computing infrastructure, associated
applications, and strategic vendors/suppliers.
The costs we incurred during 1998 to address the Year 2000 compliance
were approximately $143,750. We estimate we will incur a maximum of $500,000 in
direct costs during 1999 to support our compliance initiatives. Although we
expect to be Year 2000 compliant on or before December 31, 1999, we cannot
assure you that we will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in our internal systems or by failures of our vendors and
partners to address their Year 2000 issues in a timely and effective manner.
Should miscalculations or other operational errors occur as a result of
the Year 2000 issue, we, or the parties on which we depend, may be unable to
produce reliable information or to process routine transactions. Furthermore, in
the worst case, we, or the parties on which we depend, may, for an extended
period of time, be incapable of conducting critical business activities which
include, but are not limited to, the production and delivery of our Internet
sites, invoicing customers and paying vendors, which could have a material
adverse effect on our business, prospects, financial condition and operating
results.
WE MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN EFFECTIVE WEB ADDRESSES
We hold rights to various Web domain names, including
"cbs.sportsline.com," "golfweb.com" and "vegasinsider.com," among others.
Governmental agencies typically regulate domain names. These regulations are
subject to change. We may not be able to acquire or maintain appropriate domain
names in all countries in which we do business. Furthermore, regulations
governing domain names may not protect our trademarks and similar proprietary
rights. We may be unable to prevent third parties from acquiring domain names
that are similar to, infringe upon or diminish the value of our trademarks and
other proprietary rights.
THE PRICE OF THE NOTES AND OUR COMMON STOCK IS HIGHLY VOLATILE
The trading price of the notes and our Common Stock fluctuates
significantly. For example, during the 52-week period ended June 30, 1999, the
reported closing price of our common stock on the Nasdaq National Market was as
high as $57.81 and as low as $7.69. Trading prices of the notes and the common
stock may fluctuate in response to a number of events and factors, such as:
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<PAGE> 14
- quarterly variations in operating results,
- announcements of technological innovations,
- new services, products and strategic developments by us or our
competitors,
- changes in financial estimates or recommendations by
securities analysts, and
- the operating and stock price performance of other companies.
In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of companies within
certain industry groups such as technology companies and Internet-related
companies in particular, and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may materially
adversely affect the trading price of the notes and the common stock, regardless
of our operating performance.
THE NOTES ARE SUBORDINATED TO OUR SENIOR DEBT
The notes are unsecured and subordinated to our existing and future
senior indebtedness. In the event of our bankruptcy, liquidation or
reorganization or acceleration of the notes due to an event of default, we will
pay our obligations on the notes only after we have paid all of our senior
indebtedness in full. Our assets may not be sufficient to cover amounts due on
any of the notes. The notes also will be effectively subordinated to the
liabilities, including trade payables, of any of our subsidiaries.
As of June 30, 1999, we had no material indebtedness outstanding that
constituted senior indebtedness. Neither we nor our subsidiaries are prohibited
under the indenture from incurring additional debt. Additional debt could
prevent us from meeting our obligations on the notes. From time to time we and
our subsidiaries likely will incur additional debt, including senior
indebtedness. See "Description of Notes - Subordination of Notes."
REDEMPTION OF THE NOTES IS SUBJECT TO CERTAIN LIMITATIONS
We may not have sufficient funds to pay the repurchase price in cash on
a repurchase event. In addition, a repurchase event may result in a default
under one or more agreements governing our senior indebtedness, whether the
repurchase price is paid in common stock or cash. In this event, the
subordination provisions may prevent us from making any cash payment on the
notes, including a payment of the repurchase price, unless we first obtained the
consent of the holders of defaulted senior indebtedness or repay the senior
indebtedness in full.
The repurchase event may have the effect of delaying, deferring or
preventing a change of control or other attempt to acquire control of us. As a
result, the right may render more difficult a merger, consolidation or tender
offer, or an assumption of control by a holder of a large block of our shares
and the removal of incumbent management. The change of control repurchase
feature was a result of negotiations between us and the initial purchasers in
the initial private placement. The repurchase feature is not the result of our
knowledge of any specific effort to accumulate shares of common stock or to
obtain control of us by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by us to adopt a series of anti-takeover
provisions. We have no present intention to engage in a transaction involving a
change of control, although it is possible that we would decide to do so in the
future.
THERE IS CURRENTLY NO PUBLIC MARKET FOR THE NOTES
The initial purchasers of the notes, though they have advised us that
they intend to make a market in the notes, are not obligated to do so and may
discontinue market making at any time without notice. Their market-making
activity will be subject to the limits imposed by the securities laws. We cannot
guarantee that the market for the notes will be maintained. The trading price of
notes will decline if there ceases to be an active trading market for them. We
do not intend to apply for listing of the notes on any securities exchange.
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<PAGE> 15
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or the
common stock by the selling security holders.
RATIO OF EARNINGS TO FIXED CHARGES
The following table shows the amounts by which our earnings were
insufficient to cover fixed charges on a historical basis for the fiscal years
indicated, except for 1994, our initial year of operations, which began in
February 1994. Earnings consist of income before income taxes plus fixed
charges. Fixed charges consist of interest charges and the portion of rent
expense under operating leases representing interest, which is estimated to be
one-third of rent expense.
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Amount by which earnings were
insufficient to cover fixed charges
(in thousands)........................ $404 $6,108 $16,103 $34,177 $35,509 $9,006 $10,128
</TABLE>
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<PAGE> 16
DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of March 15, 1999,
between us and State Street Bank and Trust Company, as trustee. Many of the
terms and conditions applicable to the notes are contained in the indenture. The
following summarizes some, but not all, of the provisions of the notes and the
indenture. Prospective buyers of notes should refer to the actual terms of the
notes and the indenture for the definitive terms and conditions. The indenture
and a form of the notes have been filed as exhibits to the registration
statement of which this prospectus is a part. As used in this Description of
notes, the words "we," "us," or "our" do not include any of our subsidiaries.
GENERAL
The aggregate principal amount of the notes is limited to $150,000,000.
The notes will be issued in fully registered form and denominated in integral
multiples of $1,000. The notes will mature on April 1, 2006 unless earlier
converted, redeemed or repurchased.
The notes bear interest at an annual rate of 5%. Interest will be paid
on April 1 and October 1 of each year, commencing October 1, 1999, and upon
maturity, redemption and repurchase. The record dates for payment of interest on
the notes is March 15 and September 15. If any payment date falls on a day that
is not a business day, payment will be made on the next business day and no
additional interest will be paid. Interest will be computed the basis of a 360
day year comprised of twelve 30-day months.
We will maintain an office in the Borough of Manhattan, State of New
York where notes may be presented for registration, transfer, exchange or
conversion. Initially this will be an office or agency of the trustee. Interest
payable on the notes will generally be paid by check and mailed to the holders
of record as of the close of business on the last Business Day before the
related record date. Holders of more than $2,000,000 of notes may request that
their interest be paid by wire transfer.
We are not restricted under the indenture from entering into any
transaction or altering the nature of our business, even if the transaction or
alteration would be detrimental to the holders of the notes. For example, we may
incur substantial amounts of debt or sell our assets to an acquiror without
violating the terms of the indenture. If the transaction involves a "change of
control," a holder will have the right to require us to repurchase their notes,
in the manner described in "--Repurchase at Option of Holders Upon a Repurchase
Event." Dividends, stock splits and other distributions may result in an
adjustment to the conversion price of the notes.
Holders will not be required to pay a service charge for registration
or transfer of their notes. However, we may require you to pay any tax or other
governmental charge in connection with the transfer. We are not required to
exchange or register the transfer of:
- any notes selected for redemption for a period of 15 days
prior to redemption,
- any note or portion selected for redemption,
- any note or portion surrendered for conversion, or
- any note or portion surrendered for repurchase but not
withdrawn in connection with a repurchase event.
The notes will have no sinking fund. A sinking fund is a custodial or
similar account into which regularly scheduled deposits are made for purposes of
redeeming or repurchasing of securities.
CONVERSION
Each holder may convert its notes, in whole or in part, into our common
stock at an initial conversion rate of 15.355 shares of common stock per $1,000
principal amount of notes, which is equivalent to a conversion price of
approximately $65.125 per share. A note may be converted at any time prior to
the close of business on the final maturity date of the notes. If the notes are
called for redemption, the holder's conversion rights on the called notes will
expire at the close of business of the last business day before the redemption
date. Any note that has been presented for repurchase following a repurchase
event may only be converted if the holder delivers a notice of withdrawal prior
to the close of business on the last business day before the repurchase date.
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<PAGE> 17
A holder may exercise the right to convert their notes in denominations
of integral multiples of $1,000 by delivering their notes to the office of our
conversion agent accompanied by a conversion notice in the form required by the
indenture. If the date of conversion occurs on or after a record date, but
before the next interest payment date, and we have not called the notes for
redemption, the notes to be converted and conversion notice must be accompanied
by a payment equal to the amount of the interest payable on the next interest
payment date. Instead of issuing a fractional share upon conversion, we will pay
a cash adjustment based on the closing market price of the common stock on the
last business day before the date of conversion.
A holder that presents a note for conversion will not be required to
pay any taxes or duties resulting from the issuance of our common stock, but a
holder will be required to pay any tax or duty resulting from the issuance of
common stock in the name of any person other than the holder.
The conversion price shall initially be $1,000 divided by the
conversion rate of 15.355 and shall be adjusted upon certain events including:
- our issuing common stock as a dividend or distribution on our
common stock,
- our dividing or combining our outstanding shares of common
stock into a different number of shares,
- subject to certain exceptions, our issuing rights or warrants
to all holders of our common stock to purchase common stock at
less than the current market price of the common stock,
- our making a dividend or distribution to the holders of our
common stock of capital stock or debt or assets, excluding:
- common stock distributions covered by the first
bullet point,
- right or warrant distributions covered by the third
bullet point, and
- cash distributions covered by the next bullet point,
- our paying a cash dividend or distribution to all holders of
our common stock or our repurchasing any shares of our common
stock (whether by tender offer or otherwise) in a transaction
in which all holders of our common stock are invited to
participate if, when aggregated with all other dividends,
distributions or repurchases during the prior 12 calendar
months for which no adjustment to the conversion price has
been made, the dividend, distribution or repurchase exceeds
10% of the Company's market capitalization (calculated by
multiplying the current market price of its common stock by
the number of outstanding shares of common stock, on a fully
diluted basis), and
- payment on certain tender offers or exchange offers by a third
party if, as of the closing date of the offer, our board of
directors does not recommend rejection of the offer.
We will only make an adjustment in the last bullet point if the tender
offer increases the person's ownership to more than 25% of our outstanding
common stock. We won't make any adjustment in the last bullet point if the
tender offer is a merger or transaction described below under "--Consolidation,
Merger or Assumption."
If we implement a stockholders' rights plan that grants rights to the
holders of our common stock, the indenture requires that the plan also allow the
holders of notes to receive the same rights upon conversion of the notes into
common stock, on a share-for-share basis.
In the event of any reclassification or other change in our common
stock, or our consolidation, merger, or combination with or into another entity
or a sale or conveyance to another person of our property and assets as an
entirety or substantially as an entirety, that results in the holders of our
common stock becoming entitled to receive stock, other securities, cash or other
property or assets on or in exchange for their shares of common stock, the
holders will generally be entitled to convert their notes into the type of
property or assets that they would have received had the notes been converted
immediately before such event. If the holders of common stock have the right to
chose between or among alternative types of property, the holders of notes will
receive the kind and amount of property received per share by a plurality of
non-electing shares. All references in this Description of notes to "common
stock" in the context of any holder's right to convert should be construed to
mean either our common stock or the other property into which the note is
convertible.
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The holders of notes or common stock issuable upon conversion of the
notes may, in certain circumstances, be deemed to have received a distribution
or dividend subject to United States income tax as a result of an adjustment (or
the nonoccurrence of an adjustment) to the conversion price. See "Certain
Federal Income Tax Considerations."
We are permitted to reduce the conversion price of the notes for
certain periods of time, if our Board of Directors deems it advisable. Any such
reduction shall be effective for not less than 20 days. We may also reduce the
conversion price to avoid or diminish income tax to holders of our common stock
in connection with a dividend or distribution of stock or similar event. We are
required to give at least 15 days prior notice of any such reduction.
No adjustment in the conversion price will be required unless it would
result in a change in the conversion price of at least 1%. Any adjustment not
made will be taken into account in subsequent adjustments.
OPTIONAL REDEMPTION BY US
On or after April 2, 2002, we may elect to redeem all or part of the
notes. We will provide the holders at least 30 but not more than 60 days' notice
of our intent to redeem.
If we elect to redeem the notes the redemption price will be as
follows, expressed as a percentage of the principal amount of the notes to be
redeemed:
<TABLE>
<CAPTION>
Redemption
Redemption Date Price
--------------- -----
<S> <C>
From April 2, 2002 through March 31, 2003............................................... 102.857%
From April 1, 2003 through March 31, 2004............................................... 102.143
From April 1, 2004 through March 31, 2005............................................... 101.429
From April 1, 2005 through March 31, 2006............................................... 100.714
</TABLE>
and 100% at April 1, 2006.
We will also pay accrued interest to, but excluding, the date of
redemption. If a redemption date occurs on an interest payment date, the
interest will be payable to the holder of record as of the record date.
In the event of a partial redemption, the trustee will select the notes
to be redeemed by lot, or in its discretion, on a pro rata basis or by any other
method that the trustee considers fair and appropriate, as long as the method
chosen is not prohibited by any exchange or automated market. Partial
redemptions of any note must be in integral multiples of $1,000. A new note will
be issued having a principal amount equal to the unredeemed principal portion of
the old note. In the event that a holder partially converts a note that has been
called for a partial redemption, the conversion shall first reduce the portion
of the note called for redemption.
In addition, we may at any time or from time to time repurchase notes
in the open market or in private transactions. We will cancel any notes that we
repurchase.
REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT
If a repurchase event occurs, each holder will have the right to
require us to repurchase all or part of its notes on the 40th calendar day after
the date that we mail a notice of repurchase to the holders. The purchase price
will be 100% of the principal amount of the notes. We will also pay accrued
interest to, but excluding, the repurchase date. However, if a repurchase date
occurs on an interest payment date, the interest becoming due on the interest
payment date will be payable to the holder of record on the Record Date, which
will satisfy our obligation to otherwise pay interest in connection with the
repurchase.
At our option, instead of paying the repurchase price in cash, we may
pay the repurchase price in shares of our common stock, valued at 95% of the
average of the closing prices of our common stock for the five consecutive
trading days prior to such repurchase. We may not make payment in shares of our
common stock unless we satisfy certain conditions with respect to such payment
set forth in the indenture.
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We are required to mail a notice to each holder of record within 15
calendar days after the occurrence of a repurchase event. The notice must
describe the repurchase event, the holder's right to elect repurchase of the
notes and the repurchase date. We must deliver a copy of the notice to the
trustee and cause a copy, or a summary of the notice, to be published in a
newspaper of general circulation in the City of New York. A holder may exercise
its repurchase rights by delivering written notice to us and the trustee
indicating that the holder has elected to exercise its repurchase rights. The
notice is to be accompanied by the notes endorsed for transfer to us. The
exercise notice is to be delivered to us on or before the close of business on
the 35th calendar day after the date the repurchase notice is mailed.
A "change in control" will be deemed to have occurred when:
- any person or group is or becomes the beneficial owner of
shares representing more than 50% of our voting stock,
- our stockholders approve any plan or proposal for our
liquidation, dissolution or winding up,
- we
(A) consolidate with or merge into any other corporation
or any other corporation merges into us and our
outstanding common stock is changed or exchanged for
other assets or securities unless our stockholders
immediately before the transaction own immediately
following the transaction at least 51% of the
combined voting power of the corporation resulting
from the transaction in substantially the same
proportion as their ownership of our voting stock
immediately before the transaction, or
(B) convey, transfer or lease all or substantially all of
our assets to any person, or
- any time continuing directors do not constitute a majority of
our Board of Directors.
A change in control will not be deemed to have occurred if:
- the last sale price of our common stock for any five trading
days during the ten trading days immediately before any event
listed in the bullet points above is at least equal to 105% of
the conversion price in effect on that day, or
- in the case of a merger or consolidation, all of the
consideration in such merger or consolidation constituting the
change in control consists of common stock traded on a United
States national securities exchange or quoted on the Nasdaq
National Market and as a result of the transaction the notes
become convertible solely into that common stock.
The term "continuing director" means at any date a member of our Board
of Directors:
- who was a member of our Board of Directors on March 19, 1999,
or
- who was nominated or elected by at least a majority of the
directors who were continuing directors at the time of the
nomination or election or whose election to our Board of
Directors was recommended by at least a majority of the
directors who were continuing directors at the time of the
nomination or election or by the nominating committee
comprised of our independent directors.
The term "repurchase event" means a change in control or a termination
of trading.
A "termination of trading" is considered to have occurred if our common
stock is neither listed for trading on a United States national securities
exchange nor approved for trading on an established automated over-the-counter
trading market in the United States.
If the phrase "all or substantially all" used in the definition of
change in control were to be interpreted, the interpretation would likely depend
on the facts and circumstances existing at such time. As a result, there may be
uncertainty as to whether or not a sale or transfer of "all or substantially
all" of our assets has occurred.
We may not have sufficient funds to pay the repurchase price in cash on
a repurchase event. In addition, a repurchase event may result in a default
under one or more agreements governing our senior indebtedness, whether the
repurchase price is paid in common stock or cash. In this event, the
subordination provisions may prevent us from making any cash payment on the
notes, including a payment of the repurchase price, unless we first obtained the
consent of the holders of defaulted senior indebtedness or repay the senior
indebtedness in full.
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The repurchase event may have the effect of delaying, deferring or
preventing a change of control or other attempt to acquire control of us. As a
result, the right may render more difficult a merger, consolidation or tender
offer, or an assumption of control by a holder of a large block of our shares
and the removal of incumbent management. The change of control repurchase
feature was a result of negotiations between us and the initial purchasers in
the initial private placement. The repurchase feature is not the result of our
knowledge of any specific effort to accumulate shares of common stock or to
obtain control of us by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by us to adopt a series of anti-takeover
provisions. We have no present intention to engage in a transaction involving a
change of control, although it is possible that we would decide to do so in the
future.
Rule 13e-4 under the Exchange Act requires the distribution of certain
information to security holders in the event of certain issuer tender offers and
may apply in the event of a repurchase. We will comply with this rule to the
extent applicable.
SUBORDINATION
All payments under the notes are subordinate to the prior payment in
full of all existing and future senior indebtedness as provided in the
indenture. Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization of us, payments on the notes will be subordinated
in right of payment to the prior payment in full of all senior indebtedness.
However, if the notes are accelerated following an event of default, the holders
of any senior indebtedness then outstanding will be entitled to payment in full
before the holders of the notes are entitled to receive any payment on the
notes.
In addition, we may not make any payments on the notes if:
- we fail to pay any payment on any designated senior
indebtedness beyond any grace period, or
- any other default occurs and is continuing under any
designated senior indebtedness that permits holders of the
designated senior indebtedness to accelerate the maturity of
any designated senior indebtedness and the holders of
designated senior indebtedness send the trustee and us a
payment blockage notice of the default.
We may resume making payments on the notes
- in the case of a payment default, when the default is cured or
waived or ceases to exist, and
- in the case of a nonpayment default, the earlier of when the
default is cured or waived or ceases to exist or 179 days
after receipt of the payment blockage notice.
No new period of payment blockage may be commenced pursuant to a
payment blockage notice unless:
- 365 days have elapsed since our receipt of the prior payment
blockage notice, and
- all scheduled payments on the notes have been paid in full,
or, if not paid in full, neither the trustee nor any of the
holders of notes has begun proceedings to enforce the right of
the holders to receive such payments.
No default that existed on any senior indebtedness on the date of
delivery of any payment blockage notice may be the basis for a subsequent
payment blockage notice.
The term "senior indebtedness" means the principal, premium, if any,
and interest on, including bankruptcy interest, and any other payment on the
following:
- all indebtedness of SportsLine for money borrowed that is
evidenced by notes, debentures, bonds or other securities,
- all indebtedness of SportsLine due and owing with respect to
letters of credit,
- all indebtedness or other obligations of SportsLine due and
owing with respect to interest rate and currency swap
agreements, cap, floor and collar agreements, currency spot
and forward contracts and other similar agreements and
arrangements,
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- all indebtedness consisting of commitment or standby fees due
and payable to lending institutions with respect to credit
facilities or letters of credit available to SportsLine,
- all obligations of SportsLine under leases required or
permitted to be capitalized under generally accepted
accounting principles,
- all indebtedness or obligations of the type listed in the
bullet points above assumed by or guaranteed by SportsLine or
in effect guaranteed, directly or indirectly, by SportsLine
through an agreement to purchase, and
- any amendments or modifications of indebtedness of type listed
in the bullet points above.
Senior indebtedness shall not include:
- any debt or amendment or modification that is not senior to or
is on the same basis as the notes,
- any indebtedness to any or our subsidiaries,
- indebtedness for trade payables or the deferred purchase price
of assets or services incurred in the ordinary course of
business, or
- the notes.
The term "designated senior indebtedness" means our obligations under
any senior indebtedness that expressly provides that it shall be designated
senior indebtedness.
If the trustee or any holder of notes receives any payment or
distribution of our assets of any kind on the notes in contravention of any of
the terms of the indenture, then such payment or distribution will be held by
the recipient in trust for the benefit of the holders of senior indebtedness,
and will be immediately paid or delivered to the holders of senior indebtedness
or their representative or representatives.
We are the sole obligor on the notes. If, in the future, a significant
portion of our consolidated operations is conducted through our subsidiaries,
the cash flow and our ability to service our debt may be dependent upon the
earnings of these subsidiaries and the distribution of those earnings to us.
Each subsidiary will be a separate legal entity, will not be required to
guaranty our obligations with respect to the notes and will have no obligation
to pay any amounts due on the notes or to make any funds available for payment
on the notes. In addition, the payment of dividends and the making of loans and
advances to us by our subsidiaries may be subject to statutory, contractual or
other restrictions. Our right to receive assets of any of our subsidiaries upon
its liquidation or reorganization will be effectively subordinated to the claims
of that subsidiary's creditors, including trade creditors and even if those
claims do not include "senior indebtedness" of that subsidiary, and that
subsidiary's preferred stockholders.
The indenture will not prevent us from incurring additional
indebtedness, including senior indebtedness. As of June 30, 1999, we had no
material indebtedness outstanding which constituted senior indebtedness.
The subordination provisions of the indenture and the notes will not
prevent the occurrence of any default or event of default or limit the rights of
any holder of notes to pursue any other rights or remedies with respect to the
notes.
As a result of the subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings, holders of the notes may receive less than other creditors on a
ratable basis.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute "events of default" under the
indenture:
- our failure to pay the principal of, or premium, if any, on
any of the notes when due,
- our failure to pay interest or liquidated damages on the notes
when due if such failure continues for 30 days,
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- our failure to deliver shares of our common stock required to
be delivered upon conversion of a note if the failure
continues for 5 days,
- our failure to perform any covenant in the indenture if such
failure continues for 60 days after notice is given by the
trustee or by the holders of not less than 25% of the notes,
- our failure following a repurchase event to repurchase any
notes,
- our failure to provide timely notice of a repurchase event,
- our failure or the failure of any of our significant
subsidiaries to make any payments on any Indebtedness
following any applicable grace periods, in an amount in excess
of $15,000,000 and such amount has not been paid or discharged
within 30 days after notice is given in accordance with the
indenture,
- a default by us or any of our significant subsidiaries on any
indebtedness that results in the acceleration of indebtedness
in an amount in excess of $15,000,000 and such indebtedness or
such acceleration has not been discharged for 30 days after
notice is given in accordance with the indenture, or
- certain events involving bankruptcy, insolvency or
reorganization of us or any of our significant subsidiaries.
The trustee is generally required, within 90 days after its becoming
aware of a default, to provide the registered holders of the notes written
notice of the default. Except in the case of a payment default, the trustee will
not be required to deliver a default notice if it determines in good faith that
withholding the notice is in the best interest of the holders of the notes.
If an event of default has occurred and is continuing, the trustee, or
the holders of not less than 25% of the notes, may declare all amounts
outstanding on the notes to be immediately due and payable. If an event of
default occurs resulting from the bankruptcy, insolvency or reorganization of
us, all unpaid principal of and accrued interest on the outstanding notes would
become due and payable immediately without any declaration or other act on the
part of the trustee or holders of notes.
Holders of a majority of the notes may direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee, subject to certain
limitations. Before proceeding to exercise any right or power under the
indenture at the direction of the holders, the trustee will be entitled to
receive from such holders reasonable security or indemnity against any costs,
expenses and liabilities that it might incur as a result. Following an event of
default for nonpayment, each holder to which such default pertains will have the
absolute right to institute suit to enforce payment of any notes held by it.
Generally, the holders of not less than a majority of the notes may
waive any default or event of default. However, the consent of all holders will
be required to waive any default and events of default relating to:
- a failure by us to make payment on any note,
- a failure by us to convert any note into common stock, or
- a failure by us to comply with any of the provisions of the
indenture that would require the consent of affected holders
to modify.
We are required, within 120 days of the end of each fiscal year, to send
the trustee a statement of certain of our officers:
- stating whether or not to the best of their knowledge we are
out of compliance with any terms of the indenture or the
notes, and
- specifying, if any of them has any such knowledge that we are
out of compliance, the nature of the default.
We are also required to deliver to the trustee a statement specifying
the nature of any default of which we are aware and any action we have taken to
cure the default.
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CONSOLIDATION, MERGER OR ASSUMPTION
We may not consolidate or merge into another person or sell, lease,
convey or transfer all or substantially all of our assets to another person
unless:
- either
(A) in the case of a merger or consolidation that does
not involve a transfer of all or substantially all of
our assets, we are the surviving entity, or
(B) the resulting corporation is a U.S. corporation and
expressly assumes all of our obligations under the
notes and the indenture,
- no default or event of default exists or would occur, and
- certain other conditions are satisfied.
MODIFICATIONS OF THE INDENTURE
With the consent of the holders of not less than a majority of the
notes, we and the trustee may modify the indenture, any supplemental indenture
or the notes. However, the following modifications require the consent of each
holder:
- an extension of the maturity of any note,
- a reduction in the rate or an extension of the time or payment
of interest on any note,
- a reduction in the principal amount of any note,
- a reduction in any amount payable upon redemption or
repurchase of any note,
- any change in our obligation to repurchase any note upon a
repurchase event if adverse to any holder,
- any change that adversely affects the right of any holder to
institute suit for the payment of any note,
- any change in currency in which any note is payable,
- any adverse modification to the right to convert the notes,
- any adverse modification of the subordination provisions of
the notes, or
- any change to the percentage required to consent to
modifications and amendments.
SATISFACTION AND DISCHARGE
We may discharge our obligations under the indenture while notes remain
outstanding if:
- all notes are within one year of their scheduled maturity or
the date on which they are scheduled for redemption, and
- we have deposited with the trustee an amount sufficient to pay
all outstanding notes on their scheduled maturity or
redemption date.
REGISTRATION RIGHTS OF THE HOLDERS OF THE NOTES
Under a registration rights agreement, we are generally required to
keep the shelf registration statement of which this prospectus is a part
effective until the earlier of (1) the sale of all the securities registered
under this prospectus and (2) the expiration of the holding period for the
securities held by people or entities that are not our affiliates under Rule
144(k) under the Securities Act. We may suspend the use of this prospectus under
certain circumstances relating to pending corporate developments, public filings
with the Securities and Exchange Commission and similar events for a period not
to exceed an aggregate of 90 days in any period of 365 consecutive days. We must
pay predetermined liquidated damages (i) for the notes, at a rate per annum
equal to 0.5% of the principal amount of the notes, and (ii) for any shares of
common stock issued on conversion of the notes, at a rate per annum equal to
0.5% of the conversion price, if the prospectus is unavailable for periods in
excess of those permitted above.
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A holder who sells notes or common stock issued upon conversion of the
notes pursuant to this prospectus generally must be named as a selling holder,
deliver this prospectus to purchasers and be bound by certain provisions of the
registration rights agreement. We will pay all expenses of the shelf
registration statement, provide to each registered holder copies of such
prospectus and take certain other actions as are required to permit unrestricted
resales of the notes and the common stock.
A copy of the registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part.
GOVERNING LAW
The indenture and the notes will be governed by the laws of the State
of New York without regard to conflicts of laws principles.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the trustee under the indenture,
has been appointed by us as the initial paying agent, conversion agent,
registrar and custodian with regard to the notes. An affiliate of the trustee is
the transfer agent for our common stock. We may maintain deposit accounts and
conduct other banking transactions with the trustee or its affiliates in the
ordinary course of business, and the trustee and its affiliates may from time to
time in the future provide banking and other services to us in the ordinary
course of their business.
If the trustee becomes a creditor of us, the indenture and the Trust
Indenture Act of 1939, as amended, may limit the right of the trustee to obtain
payment on or realize on security for its claims. If the trustee develops any
conflicting interest with the holders of notes or us, it must eliminate the
conflict or resign.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common
stock, $.01 par value per share, and 1,000,000 shares of preferred stock, $0.01
par value per share. The following statements are brief summaries of certain
provisions relating to our capital stock contained in our Certificate of
Incorporation and Bylaws and in the laws of Delaware.
COMMON STOCK
As of June 30, 1999, there were 22,748,228 shares of our common stock
outstanding. Holders of our common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of outstanding preferred stock. Upon our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of our common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future.
PREFERRED STOCK
As of June 30, 1999, we had no shares of preferred stock outstanding.
Our Board of Directors is authorized, without further shareholder approval, to
issue from time to time up to an aggregate of 1,000,000 shares of preferred
stock in one or more series and to fix or alter the designations, preferences,
rights and any qualifications, limitations or restrictions of the shares of each
such series thereof, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. We have no present plans
to issue any shares of preferred stock.
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REGISTRATION RIGHTS
Certain of our security holders are entitled to require us to register
under the Securities Act, up to a total of approximately 10.1 million shares of
our common stock (including 1.4 million shares of our common stock which is
issuable upon the exercise of warrants). In the event we propose to register any
of our securities under the Securities Act at any time, these security holders,
subject to certain exceptions, have the right to include their shares in the
registration. In addition, some of these security holders also have the right,
subject to certain conditions and limitations, to require us to prepare and file
a registration statement under the Securities Act with respect to their shares.
We are generally required to bear the expenses of all these registrations,
except underwriting discounts and commissions.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. Section 203 prevents certain
Delaware corporations, including those whose securities are listed on the Nasdaq
National Market, from engaging, under certain circumstances, in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who
acquired 15% or more the corporation's outstanding voting stock without the
prior approval of the corporation's board of directors) for three years
following the date that such stockholder became an "interested stockholder." A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. We have not
"opted out" of the provisions of Section 203.
In addition, certain provisions of our Certificate of Incorporation and
Bylaws may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider in
its best interest, including those attempts that might result in a premium over
the market price for the shares held by shareholders.
Classified Board of Directors. Our Board of Directors is
divided into three classes of directors serving staggered three-year
terms. As a result, approximately one-third of our directors will be
elected each year. These provisions, when coupled with the provision of
our Certificate of Incorporation authorizing only the Board of
Directors to fill vacant directorships or increase the size of the
Board of Directors, may deter a shareholder from removing incumbent
directors and simultaneously gaining control of the Board of Directors
by filling the vacancies created by such removal with its own nominees.
Shareholder Action; Special Meeting of Shareholders. Our
Certificate of Incorporation provides that shareholders may not take
action by written consent, but only at duly called annual or special
meetings of shareholders. Our Certificate of Incorporation further
provides that special meetings of our shareholders may be called only
by the Chairman of the Board of Directors or a majority of the Board of
Directors.
Advance Notice Requirements for Shareholder Proposals and
Director Nominations. Our Bylaws provide that shareholders seeking to
bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at an annual meeting of
shareholders, must provide timely notice in writing. To be timely, a
shareholder's notice must be delivered to or mailed and received at our
principal executive offices, not less than 120 days nor more than 150
days prior to the first anniversary of the date of our notice of annual
meeting provided with respect to the previous year's annual meeting.
For example, the date of the notice for our 1999 Annual Meeting is May
14, 1999. Accordingly, a shareholder's notice to bring business before
our 2000 Annual Meeting must be received by us by January 17, 2000. Our
Bylaws also specify certain requirements for a shareholder's notice to
be in proper written form. These provisions may preclude shareholders
from bringing matters before the shareholders at an annual meeting or
from making nominations for directors at an annual meeting.
Authorized But Unissued Shares. The authorized but unissued
shares of our common stock and preferred stock are available for future
issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate
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acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock may enable
the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt
to obtain control by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of our management.
Delaware law provides generally that the affirmative vote of a majority
of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or bylaws, unless a corporation's
certificate of incorporation or bylaws, as the case may be, requires a greater
percentage. Our Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the combined voting power of the outstanding
shares of our capital stock entitled to vote for the election of directors to
amend or repeal any of the provisions of our Certificate of Incorporation listed
above. This 80% shareholder vote is also required to amend or repeal any of the
provisions of our Bylaws listed above, although these Bylaws provisions may also
be amended or repealed by a majority vote of the entire Board of Directors. This
80% shareholder vote would be in addition to any separate class vote that might
in the future be required pursuant to the terms of any preferred stock that
might be outstanding at the time any such amendments are submitted to
stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Delaware law authorizes a Delaware corporation to eliminate or limit
the personal liability of a director to the corporation and its stockholders for
monetary damages for breach of certain fiduciary duties as a director. We
believe that such a provision is beneficial in attracting and retaining
qualified directors, and accordingly our Certificate includes a provision
eliminating liability for monetary damages for any breach of fiduciary duty as a
director, except as provided under Delaware law. Pursuant to Delaware law, our
directors are not insulated from liability for breach of their duty of loyalty
(requiring that, in making a business decision, directors act in good faith and
in the honest belief that the action was taken in the best interest of the
corporation), or for certain other claims. The foregoing provisions of our
Certificate may reduce the likelihood of success of derivative litigation
against directors for breaches of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited us and our stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is EquiServe,
Canton, Massachusetts.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material United States federal income tax
consequences of purchasing, owning, and disposing of the notes and the common
stock into which you may convert the notes. This summary is not a complete
analysis of all the potential tax consequences that you may need to consider
before investing based on your particular circumstances.
This summary is based on the Internal Revenue Code of 1986, as amended,
the applicable Treasury regulations promulgated or proposed under the Internal
Revenue Code, judicial authority and administrative rulings and practice. Any of
these may change, possibly on a retroactive basis.
This summary deals only with beneficial owners of notes and common
stock who hold the notes and common stock as "capital assets." It does not
address tax consequences under any special tax rules. Special rules may apply,
for example, to banks, tax-exempt organizations, pension funds, insurance
companies, dealers in securities or foreign currencies, persons participating in
a hedging transaction or a "straddle" or "conversion transaction," or persons
that have a "functional currency" other than the U.S. dollar. In addition, this
discussion does not address the tax consequences to non-U.S. holders. We have
not sought any ruling from the Internal Revenue Service with respect to the
statements and conclusions in this summary. We cannot guarantee that the IRS
will agree with these statements and conclusions.
Before you invest in the notes, you should consult your own tax adviser
to determine how the United States federal income and estate tax laws apply to
your particular situation and for information about any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction or under any
applicable tax treaty.
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PAYMENT OF INTEREST
You generally must include interest on a note in your income as
ordinary income at the time you receive or accrue the interest based on your
method of accounting for United States federal income tax purposes. We must pay
liquidated damages to holders of the notes in certain circumstances. According
to Treasury regulations, the possibility of liquidated damages being paid on the
notes will not affect the amount of interest income you recognize, in advance of
the payment of any liquidated damages, if there is only a remote chance as of
the date the notes were issued that you will receive liquidated damages. We
believe that the likelihood that we will pay liquidated damages is remote.
Therefore, we do not intend to treat the potential payment of liquidated damages
as part of the yield to maturity of any note. However, if we pay liquidated
damages, you would treat the payments as interest income when you receive them.
Similarly, we intend to take the position that the likelihood of a repurchase of
the notes upon a repurchase event is remote, and likewise do not intend to treat
the possibility of any premium payable on a repurchase as affecting the yield to
maturity of any note.
MARKET DISCOUNT
If you purchase a note for an amount that is less than the principal
amount of the note, the difference will be "market discount" for United States
federal income tax purposes, unless the difference is less than one-fourth (1/4)
of one percent of the principal amount of the note multiplied by the number of
complete years to maturity (after you acquire the note). Under the rules on
market discount, you will be required to treat any partial principal payment on
a note, or any gain on a sale, exchange or redemption of a note, as ordinary
income up to the amount of the market discount that has accrued as of the time
of the payment or disposition, to the extent you have not previously included
such market discount in ordinary income. In addition, you may be required to
defer, until the earlier of the maturity date of the note or the date you
dispose of the note in a taxable transaction, the deduction of part or all of
the interest expense on any debt you may incur to purchase the note or any debt
you keep outstanding to carry the note.
Any market discount on a note will accrue during the period starting on
the date you acquire the note and ending on the maturity date of the note. The
market discount will accrue ratably unless you make an election to accrue the
market discount on the note on a constant interest method. You also may elect to
include market discount in income for United States federal income tax purposes
as it accrues (on either the ratable or constant interest method). If you make
that election, the rule described above requiring the deferral of deductions for
interest expense will not apply. If you make an election to include market
discount in income currently, that election will apply to all market discount
obligations that you acquire on or after the first day of the first taxable year
to which your election applies, and the election may not be revoked without the
consent of the IRS.
AMORTIZABLE BOND PREMIUM
If you purchase a note for an amount that is more than the principal
amount of the note, the excess will be "amortizable bond premium". You may elect
to amortize the premium over the remaining term of the note on a constant yield
method. However, if you purchase the note at a time when we may redeem the note
at our option for an amount greater than the note's principal amount, the amount
of amortizable bond premium will be determined based on the earlier call date
and the call price payable on that earlier call date, if the result of that
calculation would be a smaller amortizable bond premium. If an earlier call date
is used in calculating the amount of amortizable bond premium and the note is
not called on that date, the note will be treated as maturing on that call date
and then reissued on that date for an amount equal to the call price on that
date, with the amortizable bond premium being recalculated under these rules on
that date. Amortizable bond premium, as it accrues, will reduce the amount of
interest payments on the note on which you are taxable and will reduce your
adjusted tax basis in the note.
Once you make an election to amortize bond premium on any debt
obligation, including the notes, that election will apply to all debt
obligations that you own on the first day of the taxable year to which the
election relates and to all debt obligations that you acquire after that day.
You make revoke the election only with the consent of the IRS. If you do not
elect to amortize bond premium, the amount of the premium will decrease the
amount of any gain or increase the amount of any loss you recognize on a
disposition of the note.
26
<PAGE> 28
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
You generally will recognize gain or loss on the sale, exchange (other
than a conversion) or redemption of a note equal to the difference between (1)
the amount of cash proceeds and the fair market value of any property you
receive on the sale, exchange or redemption (except any portion that is accrued
interest income, which is taxable as ordinary income) and (2) your adjusted tax
basis in the note. Your adjusted tax basis generally will equal the cost of the
note to you, reduced by any principal payments you have received and any
amortizable bond premium you have taken into account and increased by any market
discount you have included in income. That gain or loss generally will be
capital gain or loss, except to the extent of any accrued market discount (see
"--Market Discount" above). Capital gain or loss will be long-term if you have
held the note for more than one year and will be short-term if you have held the
note for one year or less. Long-term capital gains for noncorporate taxpayers,
including individuals, are taxed at a maximum rate of 20%, and short-term
capital gains at a maximum rate of 39.6%. Corporate taxpayers pay a maximum
regular tax rate of 35% on all net capital gains and ordinary income.
CONVERSION OF THE NOTES
You generally will not recognize any income, gain or loss on conversion
of a note into common stock, except for any cash you receive instead of a
fractional share of common stock. Your tax basis in the common stock will be the
same as your adjusted tax basis in the note at the time of conversion. For
capital gains purposes, your holding period for the common stock will generally
include the holding period of the note you converted.
You should treat cash you receive instead of a fractional share of
common stock as a payment in exchange for the fractional share of common stock.
This will result in capital gain or loss (measured by the difference between the
cash you receive for the fractional share and your adjusted tax basis in the
fractional share).
DIVIDENDS ON COMMON STOCK
Generally a distribution on common stock (probably including any
liquidated damages) is treated as a dividend and taxed as ordinary income to the
extent of our current and/or accumulated earnings and profits. A distribution in
excess of earnings and profits is treated as a tax-free return of capital to the
extent of your tax basis in the common stock, on a share-by-share basis, and
then as gain from the sale or exchange of such stock.
A dividend to a corporate holder may qualify for a deduction of 70% of
the dividend received, subject to limitations in certain cases, if the holder
owns less than 20% of the voting power and value of our stock (disregarding
certain nonvoting, nonconvertible, nonparticipating preferred stock). A
corporate holder that owns 20% or more of the voting power or value of our stock
(similarly disregarding such preferred stock) generally will qualify for an 80%
dividends received deduction.
ADJUSTMENTS TO CONVERSION PRICE
The conversion price of the notes may change under certain
circumstances. In such a case, you may be treated as having received a
constructive distribution whether or not you ever exercise your conversion
privilege. The constructive distribution will be taxed as ordinary income,
subject to a possible dividends received deduction if you are a corporate
holder, to the extent of our current and/or accumulated earnings and profits,
if, and to the extent that, the adjustment in the conversion price increases
your proportionate interest in our assets or earnings and profits. Moreover,
common stockholders will generally be treated as having received a constructive
distribution if there is not a full adjustment to the conversion price of our
notes to reflect a stock dividend or other event increasing the proportionate
interest of the common stockholders in our assets or earnings and profits. In
such an event, the constructive distribution will be taxable as ordinary income
(subject to a possible dividends received deduction if you are a corporate
holder) to the extent of our current and/or accumulated earnings and profits. At
this time, we have a deficit in accumulated earnings and profits and have no
current earnings and profits.
SALE OF COMMON STOCK
On the sale or exchange of common stock, you generally will recognize
capital gain or loss equal to the difference between (1) the amount of cash and
the fair market value of any property you receive on the sale or exchange and
(2) your adjusted tax basis in the common stock. This capital gain or loss will
be long-term if you
27
<PAGE> 29
have held the stock for more than one year and will be short-term if you have
held the stock for one year or less. Long-term capital gains for noncorporate
taxpayers, including individuals, are taxed at a maximum rate of 20%, and
short-term capital gains at a maximum rate of 39.6%. A holder's basis and
holding period in common stock received upon conversion of a note are determined
as discussed above under "Conversion of the Notes." Corporate taxpayers pay a
maximum regular tax rate of 35% on all net capital gains and ordinary income.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, a broker or we must report to the Internal Revenue Service
payments of principal, premium and interest on a note, payments of dividends on
common stock, payments of the proceeds of the sale or exchange of a note and
payments of the proceeds of the sale or exchange of common stock. The payer or
broker must backup withhold at the rate of 31% if
- the payee fails to furnish a taxpayer identification number to
the payer or broker or establish an exemption from backup
withholding,
- the IRS notifies the payer or broker that the number furnished
by the payee is incorrect,
- the payee has underreported interest, dividends or original
issue discount, or
- the payee has failed to certify under penalties of perjury
that he or she is not subject to backup withholding under the
Code.
Certain holders, including all corporations, are exempt from backup
withholding. You may credit any amounts withheld under the backup withholding
rules against your United States federal income tax or receive a refund, if you
furnish the required information to the IRS.
Treasury regulations that apply to payments made after December 31,
2000 will modify current information reporting and backup withholding procedures
and requirements. These regulations provide certain presumptions regarding the
status of holders when payments to the holders cannot be reliably associated
with appropriate documentation provided to the payer. For payments made after
December 31, 2000, holders must provide certification, if applicable, that
conforms to the requirements of the regulations, subject to certain transitional
rules permitting certification in accordance with current Treasury regulations
until December 31, 2000. Because the application of these regulations may depend
on your particular circumstances, we urge you to consult your tax adviser
regarding the application of these regulations.
28
<PAGE> 30
SELLING SECURITY HOLDERS
The notes were originally issued by us and sold by the initial
purchasers in a transaction exempt from the registration requirements of the
Securities Act to persons reasonably believed by the initial purchasers to be
qualified institutional buyers or other institutional accredited investors.
Selling security holders, which term includes their transferees, pledgees or
donees or their successors, may from time to time offer and sell pursuant to
this prospectus any or all of the notes and common stock into which the notes
are convertible.
The following table sets forth information, as of July 14, 1999, with
respect to the selling security holders and the respective principal amounts of
notes and the underlying common stock beneficially owned by each selling
security holder that may be offered pursuant to this prospectus.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
BENEFICIALLY PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
OWNED AND NOTES OF COMMON STOCK COMMON STOCK
NAME OFFERED HEREBY OUTSTANDING OFFERED HEREBY (1) OUTSTANDING (2)
- ----------------------------------- -------------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C>
AAM/Zazove Institutional Income
Fund, L.P....................... $ 3,000,000 2.0% 46,065 *
AIG/National Union Fire
Insurance.......................... 580,000 * 8,905 *
Allstate Insurance Company......... 2,000,000 1.3 30,710 *
Alta Partners Holdings, LDC........ 6,000,000 4.0 92,130 *
Arpeggio Fund, LP.................. 300,000 * 4,606 *
Associated Electric & Gas
Insurance Services Ltd.......... 400,000 * 6,142 *
BancBoston Robertson
Stephens........................ 20,000,000 13.3 307,100 1.4%
Bancroft Convertible Fund, Inc..... 500,000 * 7,677 *
Baystate Health Systems, Inc....... 35,000 * 537 *
Bear, Sterns & Co. Inc. 5,000,000 3.3 76,775 *
BNP Arbitrage SNC 7,500,000 5.0 115,162 *
Calamos Convertible Hedge
Limited Partnership............. 200,000 * 3,071 *
Calamos Strategic Income Fund...... 60,000 * 921 *
Christian Science Trustees for
Gifts and Endowments............ 490,000 * 7,523 *
Conseco Fund Group -
Convertible Securities Fund..... 375,000 * 5,758 *
Conseco Health Insurance Co. -
Convertible..................... 375,000 * 5,758 *
Conseco Senior Health Insurance
Co. - Convertible .............. 375,000 * 5,758 *
Conseco Variable Insurance Co. -
Convertible..................... 375,000 * 5,758 *
Convexity Partners LP.............. 550,000 * 8,445 *
David Lipscomb University
General Endowment............... 20,000 * 307 *
Declaration of Trust for the
Defined Benefit Plans of ICI
American Holdings Inc........... 975,000 * 14,971 *
Declaration of Trust for the
Defined Benefit Plans of
ZENECA Holdings Inc............. 645,000 * 9,903 *
Delaware PERS...................... 700,000 * 10,748 *
Delaware State Employees'
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
BENEFICIALLY PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
OWNED AND NOTES OF COMMON STOCK COMMON STOCK
NAME OFFERED HEREBY OUTSTANDING OFFERED HEREBY (1) OUTSTANDING (2)
- ----------------------------------- -------------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Retirement Fund................. 1,245,000 * 19,116 *
Deutsche Bank Securities Inc....... 16,030,000 10.7 246,140 1.1
Donaldson, Lufkin &
Jenrette Securities Corp........ 700,000 * 10,748 *
Ellsworth Convertible
Growth and Income Fund, Inc..... 500,000 * 7,677 *
First Church of Christ, Scientist -
Endowment....................... 535,000 * 8,214 *
Forest Alternative Strategies Fund
II LP A5I....................... 125,000 * 1,919 *
Forest Alternative Strategies Fund
II LP A5M....................... 60,000 * 921 *
Forest Fulcrum Fund LP............. 3,150,000 2.1 48,368 *
Forest Global Convertible Fund
Series A-5...................... 6,825,000 4.6 104,797 *
Foundation Account No. 1........... 305,000 * 4,683 *
Grace Brothers, LTD................ 750,000 * 11,516 *
Greyhound Lines.................... 100,000 * 1,535 *
Gryphon Domestic III, LLC.......... 1,400,000 * 21,497 *
Hamilton Partners Limited.......... 1,000,000 * 15,355 *
Hudson River Trust Balanced
Account......................... 200,000 * 3,071 *
Hudson River Trust Growth
Investors....................... 260,000 * 3,992 *
Hudson River Trust Growth &
Income Account.................. 615,000 * 9,443 *
ICI American Holdings Trust........ 305,000 * 4,683 *
Investcorp SAM Fund Limited........ 2,400,000 1.6 36,852 *
Jackson Investment Fund LTD........ 470,000 * 7,216 *
JMG Convertible
Investments, L.P................ 3,195,000 2.1 49,059 *
Kentfield Trading Ltd.............. 6,000,000 4.0 92,130 *
LDG Limited........................ 300,000 * 4,606 *
Lincoln National Convertible
Securities Fund................. 1,000,000 * 15,355 *
LLC Account No. 1.................. 165,000 * 2,533 *
LLT Limited........................ 90,000 * 1,381 *
Massachusetts Mutual Life
Insurance Company............... 700,000 * 10,748 *
MassMutual Corporate
Investors....................... 240,000 * 3,685 *
MassMutual Corporate
Value Partners Limited.......... 425,000 * 6,525 *
MassMutual High Yield Partners
II LLC.......................... 700,000 * 10,748 *
MassMutual Participation
Investors....................... 125,000 * 1,919 *
Memphis Light, Gas & Water
Retirement Fund................. 260,000 * 3,992 *
MFS Series Trust I - MFS
Convertible Securities Fund..... 13,000 * 199 *
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
BENEFICIALLY PERCENTAGE OF NUMBER OF SHARES PERCENTAGE OF
OWNED AND NOTES OF COMMON STOCK COMMON STOCK
NAME OFFERED HEREBY OUTSTANDING OFFERED HEREBY (1) OUTSTANDING (2)
- ----------------------------------- -------------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C>
MFS Series Trust V - MFS Total
Return Fund..................... 3,500,000 2.3 53,742 *
Nalco Chemical Company............. 145,000 * 2,226 *
National Union Fire Insurance
Company of Pittsburgh........... 500,000 * 7,677 *
Oppenheimer Convertible
Securities Fund................. 1,775,000 1.2 27,255 *
PaceSetter 1, LP................... 1,915,000 1.3 29,404 *
Peoples Benefit Life
Insurance Company............... 5,000,000 3.3 76,775 *
Rhapsody Fund, LP.................. 400,000 * 6,142 *
S G Cowen Securities Corp.......... 2,000,000 1.3 30,710 *
Saar Holdings CDO Limited.......... 275,000 * 4,222 *
Southern Farm Bureau Life
Insurance - FRIC................ 870,000 * 13,358 *
Starvest Combined Portfolio........ 835,000 * 12,821 *
Starvest Managed Portfolio......... 125,000 * 1,919 *
State of Oregon Equity............. 3,470,000 2.3 53,281 *
State of Oregon/SIAF
Corporation..................... 3,390,000 2.3 52,053 *
Summer Hill Global Partners L.P.... 110,000 * 1,689 *
The Class IC Company, Ltd.......... 1,000,000 * 15,355 *
The Frist Foundation............... 55,000 * 844 *
TQA Arbitrage Fund, L.P............ 750,000 * 11,516 *
TQA Leverage Fund, LP.............. 1,960,000 1.3 30,095 *
TQA Vantage Fund, Ltd.............. 3,950,000 2.6 60,652 *
TQA Vantage Plus Fund, Ltd......... 700,000 * 10,748 *
Triton Capital Investments, LTD.... 12,045,000 8.0 184,950 *
Value Line Convertible Fund........ 250,000 * 3,838 *
Warburg Dillon Read LLC............ 1,050,000 * 16,122 *
Winchester Convertible Plus Ltd.... 430,000 * 6,602 *
Zeneca Holdings Trust.............. 305,000 * 4,683 *
Any other holder of notes or
future transferees from any such
holder (3)...................... 2,552,000 2.0 39,185 *
</TABLE>
* Less than one percent.
- --------------
(1) Assumes conversion of all of the holder's notes at the initial conversion
rate of 15.355 shares of common stock per $1,000 principal amount of notes.
This initial conversion price may be adjusted under certain circumstances.
As a result, the number of shares issuable upon conversion of the notes may
increase or decrease.
(2) Calculated pursuant to Rule 13d-3(d)(i) of the Exchange Act based on
22,748,228 shares of common stock outstanding as of June 30, 1999. In
calculating the percentage for each holder, we treated as outstanding the
number of shares of common stock issuable upon conversion of all of the
applicable holder's notes. However, we did not assume the conversion of any
other holder's notes.
(3) Information about other selling security holders will be set forth in
prospectus supplements, if required.
We prepared this table based on the information supplied to us by the
selling security holders named in the table.
31
<PAGE> 33
The selling security holders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their notes since the date on which the
information is presented in the above table. Information about the selling
security holders may change over time. Any changed information will be set forth
in prospectus supplements.
Because the selling security holders may offer all or some of their
notes or the underlying common stock from time to time, we can not estimate the
amount of notes or the underlying common stock that will be held by the selling
security holders upon the termination of any particular offering. Please see
"Plan of Distribution" for additional information.
32
<PAGE> 34
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and
the underlying common stock offered by this prospectus. The notes and the
underlying common stock may be sold from time to time to purchasers:
- directly by the selling security holders, or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or
commissions from the selling security holders or the
purchasers of the notes and the underlying common stock.
The selling security holders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock may
be deemed to be "underwriters." As a result, any profits on the sale of the
notes and the underlying common stock by selling security holders and any
discounts, commissions or concessions received by any such broker-dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. If the selling security holders were deemed to be underwriters,
the selling security holders may be subject to certain statutory liabilities of,
including, but not limited to, Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
If the notes and the underlying common stock are sold through
underwriters or broker-dealers, the selling security holders will be responsible
for underwriting discounts or commissions or agent's commissions.
The notes and the underlying common stock may be sold in one or more
transactions at:
- fixed prices,
- prevailing market prices at the time of sale,
- varying prices determined at the time of sale, or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on
which the notes and underlying common stock may be listed or
quoted at the time of the sale, including the Nasdaq National
Market in the case of our common stock,
- in the over-the-counter market,
- in transactions otherwise than on such exchanges or services
or in the over-the-counter market, or
- through the writing of options.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and the underlying common stock
or otherwise, the selling security holders may enter into hedging transactions
with broker-dealers. These broker-dealers may in turn engage in short sales of
the notes and the underlying common stock in the course of hedging their
positions. The selling security holders may also sell the notes and underlying
common stock short and deliver notes and the underlying common stock to close
out short positions, or loan or pledge notes and the underlying common stock to
broker-dealers that in turn may sell the notes and the underlying common stock.
Our common stock trades on the Nasdaq National Market under the symbol
"SPLN". We do not intend to apply for listing of the notes on any securities
exchange or for quotation through Nasdaq. Accordingly, no assurance can be given
as to the development of liquidity or any trading market for the notes.
There can be no assurance that any selling security holder will sell
any or all of the notes or the underlying common stock pursuant to this
prospectus. In addition, any notes or underlying common stock covered by this
33
<PAGE> 35
prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to
this prospectus.
The selling security holders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the underlying common stock by the
selling security holders and any other such person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the notes and the underlying common stock to engage in
market-making activities with respect to the particular notes and the underlying
common stock being distributed for a period of up to five business days prior to
the commencement of such distribution. This may affect the marketability of the
notes and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the notes and the underlying
common stock.
Pursuant to the registration rights agreement that has been filed as an
exhibit to the registration statement of which this prospectus is a part, we and
the selling security holders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection with these liabilities.
We have agreed to pay substantially all of the expenses incidental to
the registration, offering and sale of the notes and underlying common stock to
the public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
Greenberg Traurig, P.A., Miami, Florida will provide us with an opinion
as to legal matters in connection with the notes and the common stock offered by
this prospectus.
EXPERTS
The consolidated balance sheets of SportsLine USA, Inc. as of December
31, 1997 and 1998, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998 incorporated herein by reference have been
audited by Arthur Andersen LLP, independent certified public accountants, and
are incorporated herein by reference in reliance upon the authority of said firm
as experts in giving said report.
34
<PAGE> 36
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any documents we file at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for information on the
operation of the Public Reference Room. Our SEC filings are also available to
the public from the SEC's Website at "http://www.sec.gov."
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information we later file with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act until this offering is completed:
1. Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998,
2. Our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1999,
3. Our Current Report on Form 8-K filed on February 25, 1999,
4. Our Current Reports on Form 8-K filed on March 19, 1999,
5. Our Proxy Statement for our 1999 Annual Meeting filed on May
17, 1999, and
6. The description of our Common Stock contained in the
Registration Statement on Form 8-A filed on November 7,
1997, under Section 12(g) of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
SportsLine USA, Inc.
6340 N.W. 5th Way
Fort Lauderdale, Florida 33309
Attention: Investor Relations
(954) 351-2120
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. The selling security
holders may not make an offer of the notes or our common stock in any state
where the offer is not permitted. You should not assume that the information in
this prospectus or any prospectus supplement is accurate as of any date other
than the date on the front of those documents.
35
<PAGE> 37
[SPORTSLINE USA LOGO]
<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with
the offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $ 41,700
Nasdaq National Market listing fee................................... 17,500
Printing expenses.................................................... 20,000
Transfer Agent and Registrar Fees.................................... 15,000
Accounting fees and expenses......................................... 10,000
Legal fees and expenses.............................................. 40,000
Miscellaneous........................................................ 5,800
----------
Total........................................................... $ 150,000
</TABLE>
All amounts except the Securities and Exchange Commission registration
fee and the Nasdaq National Market additional listing fee are estimated.
The Company will pay all expenses of registration of the shares being
sold by the Selling security holders, excluding fees and expenses of counsel, if
any, to the Selling security holders, any commissions, discounts or concessions,
and transfer or other taxes, which shall be borne by the Selling security
holders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 145 of the Delaware General
Corporation Law to indemnify its directors and officers to the extent provided
in such statute. The Company's Amended and Restated Certificate of
Incorporation, incorporated by reference as Exhibit 3.2 to this Registration
Statement, provides that the Company shall indemnify its executive officers and
directors to the fullest extent permitted by law either now or hereafter. The
Company has also entered into an agreement with each of its directors and
certain of its officers, in the form incorporated by reference in this
Registration Statement as Exhibit 10.2, wherein it has agreed to indemnify each
of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
II-1
<PAGE> 39
Item 16. Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of SportsLine USA, Inc. (3.1) (1)
3.2 Amendment of Article IV of the Amended and Restated Certificate of Incorporation of SportsLine
USA, Inc. (2)
3.3 Form of Amended and Restated Bylaws (3.2) (1)
4.1 Indenture, dated as of March 15, 1999, between the Company and State Street Bank and Trust
Company, as trustee, including the form of the 5% Convertible Subordinated Notes due 2006
attached as Exhibit A thereto (9)
4.2 Registration Rights Agreement, dated as of March 15, 1999, for the benefit of the holders of
the 5% Convertible Subordinated Notes due 2006 (9)
5.1 Opinion of Greenberg Traurig, P.A., counsel to the Company regarding the legality of the 5%
Convertible Subordinated Notes due 2006 and the common stock into which the 5% Convertible
Subordinated Notes due 2006 are convertible. (9)
10.1 1995 Stock Option Plan (10.1) (3)*
10.2 Form of Indemnification Agreement between the Company and each of its directors and executive
officers (10.2) (3)
10.3 1997 Incentive Compensation Plan (10.3) (3)*
10.4 Employee Stock Purchase Plan (10.4) (3)*
10.5 Amended and Restated Investors' Rights Agreement dated as of September 25, 1996, among the
Company, the holders of the Company's Series A, Series B and Series C Preferred Stock, The
Estate of Burk Zanft and Michael Levy (10.5) (3)
10.6 Agreement dated March 5, 1997 between the Company and CBS Inc. (10.6) (3)
10.7 Consulting Agreement dated September 1, 1994, between the Company and Horrow Sports Ventures
(10.10) (3)*
10.8 Agreement dated June 1996 between the Company and Michael P. Schulhof (10.11) (3)*
10.9 Agreement dated August 1994 between the Company and Planned Licensing, Inc. (10.12)
10.10 Employment Agreement dated as of September 1, 1997, between the Company and Kenneth W. Sanders
(10.13) (3)*
10.11 Stock Option between the Company and Gerry Hogan (10.19) (4)*
10.12 Agreement and Plan of Merger dated as of January 15, 1998, among the Company, GolfWeb.Com, Inc.
and GolfWeb (excluding Exhibits thereto), and Amendment No. 1 to the Merger Agreement dated of
January 29, 1998, among the Company, GolfWeb.Com, Inc. and GolfWeb (2.1; 2.2) (5)
10.13 Employment Agreement dated as of June 15, 1998, between the Company and Michael Levy (10.1) (6)*
10.14 Form of Letter Agreement entered into between the Company and each of Kenneth W. Sanders, Mark
J. Mariani, Andrew Sturner and Thomas Jessiman (10.2) (6)*
10.15+ Premier Sports Information and Commerce Agreement, effective as of October 1, 1998, by and
between the Company and America Online, Inc. (10.1) (7)
10.16 Amendment to Agreement, effective as of January 1, 1999, between the Company and CBS
Broadcasting, Inc. (99.1) (8)
12.1 Computation of Ratio of Earnings to Fixed Charges (9)
23.1 Consent of Arthur Andersen LLP (2)
23.2 Consent of Greenberg Traurig, P.A. (contained in Exhibit 5.1)
24.1 Power of Attorney (9)
25.1 Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee
under the indenture governing the 5% Convertible Subordinated Notes due 2006 (9)
</TABLE>
- ------------------
(1) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on Form
S-1 (Registration No. 333-62685).
(2) Filed herewith.
(3) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on Form
S-1 (Registration No. 333-25259).
II-2
<PAGE> 40
(4) Incorporated by reference to an exhibit shown in the preceding
parentheses and filed with the Company's Registration Statement on Form
S-8 (Registration No. 333-46029).
(5) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 8-K (Event of
January 29, 1998).
(6) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q for the
quarterly period ending June 30, 1998.
(7) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 10-Q for the
quarterly period ending September 30, 1998.
(8) Incorporated by reference to the exhibit shown in the preceding
parentheses and filed with the Company's Report on Form 8-K (Event of
February 10, 1999).
(9) Previously filed.
+ Confidential treatment granted to certain portions of this Exhibit.
* Management Contract or Compensatory Plan
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Company's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered thereby, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities
II-3
<PAGE> 41
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on July 16, 1999.
SPORTSLINE USA, INC.
By: /s/ Michael Levy
---------------------------------
Michael Levy, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael Levy President, Chief Executive Officer and July 16, 1999
- ----------------------------------------- Director (principal executive officer)
Michael Levy
/s/ Kenneth W. Sanders Chief Financial Officer July 16, 1999
- ----------------------------------------- (principal financial and accounting officer)
Kenneth W. Sanders
* Director July 16, 1999
- -----------------------------------------
Thomas Cullen
* Director July 16, 1999
- -----------------------------------------
Gerry Hogan
* Director July 16, 1999
- -----------------------------------------
Richard B. Horrow
* Director July 16, 1999
- -----------------------------------------
Joseph Lacob
* Director July 16, 1999
- -----------------------------------------
Sean McManus
* Director July 16, 1999
- -----------------------------------------
Andrew Nibley
Director
- -----------------------------------------
Fredric G. Reynolds
* Director July 16, 1999
- -----------------------------------------
Michael P. Schulhof
* Director July 16, 1999
- -----------------------------------------
James C. Walsh
</TABLE>
* By: /s/ Michael Levy
- -----------------------------------------
Michael Levy
as Attorney-in-Fact
II-5
<PAGE> 43
EXHIBIT INDEX
3.2 Amendment of Article IV of the Amended and Restated Certificate of
Incorporation of Sportsline USA, Inc.
23.1 Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SPORTSLINE USA, INC.
SPORTSLINE USA, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware DOES HEREBY CERTIFY:
FIRST: That the first sentence of Article IV of the Amended and
Restated Certificate of Incorporation of the Corporation is hereby amended to
read as follows:
The aggregate number of shares of all classes of capital stock which
this Company shall have authority to issue is 201,000,000, consisting
of (i) 200,000,000 shares of common stock, par value $0.01 per share
(the "Common Stock"), and (ii) 1,000,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock").
SECOND: That said amendment was duly adopted and approved by the Board
of Directors and the stockholders of the Corporation entitled to vote thereon in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Certificate be
signed by its duly authorized officer this 22nd day of June, 1999.
SPORTSLINE USA, INC.,
a Delaware corporation
/s/ Kenneth W. Sanders
--------------------------------------------------
Kenneth W. Sanders, Secretary
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
January 25, 1999 (except with respect to the matter discussed in the eight
paragraph of Note 5, as to which the date is February 10, 1999) included in
SportsLine USA, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
July 15, 1999.
