<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20939
CNET, INC.
(Name of small business issuer in its charter)
DELAWARE 13-3696170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 CHESTNUT STREET
SAN FRANCISCO, CA 94111
(Address of principal executive officers) (zip code)
TELEPHONE NUMBER (415) 395-7800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
As of July 31, 1997 there were 13,597,745 shares of the registrant's common
stock outstanding.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of June 30, 1997 and
December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations for the three and
six months ended June 30, 1997 and 1996. . . . . . . . . . . . . 4
Condensed Statements of Cash Flows for the
six months ended June 30, 1997 and 1996. . . . . . . . . . . . . 5
Notes to Condensed Financial Statements. . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . 8
Changes in securities. . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
CNET, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . $ 4,996,354 $ 20,155,935
Accounts receivable, net. . . . . . . . . . . 6,919,969 5,292,177
Other receivable . . . . . . . . . . . . . . 10,000,000 -
Other current assets. . . . . . . . . . . . . 1,280,455 940,691
------------ -------------
Total current assets . . . . . . . . . . 23,196,778 26,388,803
Property and equipment, net. . . . . . . . . . . . 15,334,202 11,743,291
Other assets . . . . . . . . . . . . . . . . . . . 4,818,961 1,709,775
------------ -------------
$ 43,349,941 $ 39,841,869
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . $ 3,740,552 $ 2,911,663
Accrued liabilities . . . . . . . . . . . . . 5,807,178 2,973,364
Current portion of long-term debt . . . . . . 274,087 281,145
------------ -------------
Total current liabilities. . . . . . . . 9,821,817 6,166,172
Long-term debt . . . . . . . . . . . . . . . . . . 440,162 577,543
------------ -------------
Total liabilities. . . . . . . . . . . . 10,261,979 6,743,715
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . - -
Common stock. . . . . . . . . . . . . . . . . 1,357 1,328
Additional paid in capital. . . . . . . . . . 70,286,925 62,424,993
Accumulated deficit . . . . . . . . . . . . . (37,200,320) (29,328,167)
------------ -------------
Total stockholders' equity . . . . . . . 33,087,962 33,098,154
------------ -------------
$ 43,349,941 $ 39,841,869
------------ -------------
------------ -------------
See accompanying notes to financial statements.
<PAGE>
CNET, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Television. . . . . . . . . . . . . . . . . . . . . $1,695,207 $ 819,998 $ 3,475,002 $ 1,427,695
Internet. . . . . . . . . . . . . . . . . . . . . . 6,618,816 1,810,231 11,157,165 2,855,376
---------- ----------- ----------- -----------
Total Revenues . . . . . . . . . . . . . . . . . 8,314,023 2,630,229 14,632,167 4,283,071
Cost of revenues:
Television. . . . . . . . . . . . . . . . . . . . . 1,694,008 1,340,718 3,467,710 2,695,196
Internet. . . . . . . . . . . . . . . . . . . . . . 3,885,918 1,920,372 7,590,429 3,363,099
---------- ----------- ----------- -----------
Total cost of revenues . . . . . . . . . . . . . 5,579,926 3,261,090 11,058,139 6,058,295
---------- ----------- ----------- -----------
Gross profit (deficit) . . . . . . . . . . . . . . . . 2,734,097 (630,861) 3,574,028 ( 1,775,224)
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . 2,661,133 1,809,645 5,014,401 3,115,911
Development . . . . . . . . . . . . . . . . . . . . 3,674,224 643,634 6,207,622 1,133,547
General and administrative. . . . . . . . . . . . . 1,459,833 822,195 2,804,380 1,470,506
Warrant compensation expense. . . . . . . . . . . . - - 7,000,000 -
---------- ----------- ----------- -----------
Total operating expenses . . . . . . . . . . . . 7,795,190 3,275,474 21,026,403 5,719,964
---------- ----------- ----------- -----------
Operating loss . . . . . . . . . . . . . . . . . . . . (5,061,093) (3,906,335) (17,452,375) (7,495,188)
Other income (expense):
Gain (loss) on joint venture. . . . . . . . . . . . 9,963,760 (258,978) 9,214,806 (275,397)
Other income (expense). . . . . . . . . . . . . . . 113,383 (155,164) 365,416 (248,415)
---------- ------------ ----------- ------------
Total other income (expense). . . . . . . . . . . . 10,077,143 (414,142) 9,580,222 (523,812)
---------- ------------ ----------- ------------
Net income (loss) . . . . . . . . . . . . . . . . . $5,016,050 $(4,320,477) $(7,872,153) $(8,019,000)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net income (loss) per share. . . . . . . . . . . . . . $ 0.34 $ (0.47) $ (0.59) $ (0.87)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Shares used in calculating per share data. . . . . . . 14,947,215 9,216,045 13,368,429 9,216,045
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNET, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,872,153) $ (8,019,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 2,146,418 592,588
Amortization of program costs. . . . . . . . . . . . . . . 3,639,729 1,287,854
Interest expense converted into preferred stock. . . . . . - 222,141
Allowance for doubtful accounts. . . . . . . . . . . . . . 156,338 25,000
Reserve for joint venture. . . . . . . . . . . . . . . . . (1,665,299) 275,397
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . (11,784,130) (1,136,581)
Other current assets. . . . . . . . . . . . . . . . . . (589,706) (301,096)
Other assets. . . . . . . . . . . . . . . . . . . . . . (113,663) (520,090)
Accounts payable. . . . . . . . . . . . . . . . . . . . 828,889 2,254,806
Accrued liabilities . . . . . . . . . . . . . . . . . . 1,063,780 727,552
Deferred revenue. . . . . . . . . . . . . . . . . . . . 1,770,031 -
Warrant Compensation Expense. . . . . . . . . . . . . . 7,000,000 -
------------- -------------
Net cash used in operating activities. . . . . . . . (5,419,766) (4,591,429)
------------- -------------
Cash flows from investing activities:
Purchases of equipment, excluding capital leases. . . . . . . (5,611,911) (2,534,562)
Purchases of programming assets . . . . . . . . . . . . . . . (3,389,746) (1,775,427)
Loan to joint venture . . . . . . . . . . . . . . . . . . . . (1,455,643) (260,830)
------------- -------------
Net cash used in investing activities. . . . . . . . (10,457,300) (4,570,819)
------------- -------------
Cash flows from financing activities:
Net proceeds from issuance of convertible preferred stock . . - 4,643,826
Allocated proceeds from issuance of warrants. . . . . . . . . - 164,000
Proceeds from debt. . . . . . . . . . . . . . . . . . . . . . - 3,636,000
Net proceeds from employee stock purchase plan. . . . . . . . 334,184 -
Net proceeds from exercise of options . . . . . . . . . . . . 527,743 -
Principal payments on capital leases. . . . . . . . . . . . . (79,090) -
Principal payments on equipment note. . . . . . . . . . . . . (65,352) (73,812)
------------- -------------
Net cash provided by financing activities . . . . . . . 717,485 8,370,014
------------- -------------
Net decrease in cash and cash equivalents. . . . . . . . . . . . (15,159,581) (792,234)
Cash and cash equivalents at beginning of period . . . . . . . . 20,155,935 703,083
------------- -------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 4,996,354 $ (89,151)
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 46,283 $ 42,338
------------- -------------
------------- -------------
Supplemental disclosure of noncash transactions:
Capital Lease obligations incurred . . . . . . . . . . . . . . $ - $ 270,203
------------- -------------
------------- -------------
Conversion of debt and interest into convertible
preferred stock. . . . . . . . . . . . . . . . . . . . . . . . $ - $ 3,858,141
------------- -------------
------------- -------------
Exercise of stock options through issuance of note receivable
from stockholder . . . . . . . . . . . . . . . . . . . . . . . $ - $ 594,654
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
CNET, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of the
financial condition, results of operations and cash flows for the periods
presented. These condensed financial statements should be read in
conjunction with the audited financial statements included in the Company's
10-KSB, as filed with the Securities and Exchange Commission which contains
additional financial and operating information and information concerning the
significant accounting policies followed by the Company.
The results of operations for the three and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
current year or any other period.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of shares of common stock outstanding and common equivalent shares
from stock options and warrants (under the treasury stock method, if
dilutive). In accordance with certain SEC Staff Accounting Bulletins, such
computations include all common equivalent shares (using the treasury stock
method) issued subsequent to May 10, 1995 as if they were outstanding for all
periods presented using the IPO price. Common equivalent shares issued prior
to May 10, 1995 are excluded from the computation if their effect is
anti-dilutive. Furthermore, common equivalent shares from convertible
preferred stock that automatically or voluntarily converted upon the
completion of the Company's IPO are included in the calculation using the
as-converted method from the original date of issuance.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and,
for companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997. The
Company expects that for profitable periods, basic EPS will be higher than
primary earnings per share as presented in the accompanying consolidated
financial statements and diluted EPS will not differ materially from earnings
per share as presented in the accompanying financial statements.
Computations for loss periods should not change significantly.
The Financial Accounting Standards Board has also issued SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." These new accounting standards are for
disclosure purposes and the Company is analyzing the impact of these
standards for future reporting.
(2) BALANCE SHEET
PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<PAGE>
JUNE 30, DECEMBER 31,
1997 1996
---- ----
Computer Equipment. . . . . . . . . . . . . . . . $9,601,298 $6,389,144
Production Equipment. . . . . . . . . . . . . . . 2,096,381 2,017,546
Office Equipment. . . . . . . . . . . . . . . . . 1,146,442 1,349,978
Leasehold improvements. . . . . . . . . . . . . . 5,346,596 4,128,625
Furniture & Fixtures. . . . . . . . . . . . . . . 514,779 156,861
Other . . . . . . . . . . . . . . . . . . . . . . 998,739 50,169
----------- -----------
19,704,235 14,092,323
Less accumulated depreciation and amortization. . 4,370,033 2,349,032
----------- -----------
$15,334,202 $11,743,291
----------- -----------
ACCRUED LIABILITIES
A summary of accrued liabilities follows:
JUNE 30, DECEMBER 31,
1997 1996
---- ----
Compensation and related benefits . . . . . . . . $1,904,701 $1,298,700
Advertising . . . . . . . . . . . . . . . . . . . 1,323,373 734,934
Deferred Revenue. . . . . . . . . . . . . . . . . 1,400,000 -
Other . . . . . . . . . . . . . . . . . . . . . . 1,179,104 939,730
---------- ----------
$5,807,178 $2,973,364
---------- ----------
(3) GAIN (LOSS) ON JOINT VENTURE
Gain (loss) on joint venture is derived from the Company's joint venture
with E! Entertainment. The joint venture, which was owned 50% by the Company
and 50% by E! Entertainment, was formed in January 1996 to launch an Internet
site called E! ONLINE. The Company provided approximately $3.0 million in
debt financing to the joint venture through June 30, 1997, which was the
venture's sole source of financing. As a result of the Company's financing
commitment to the joint venture, the Company recognized 100% of any losses
incurred by the joint venture. In June 1997 the Company sold its 50% equity
position and certain technology licenses and marketing and consulting
services to its joint venture partner for $10.0 million (which amount was
subsequently received by the Company on July 11, 1997), a $3.2 million note
receivable, which is included in other assets, and certain additional
payments for up to three years.
(4) SUBSEQUENT EVENT
On June 5, 1997, the Company agreed to sell Intel Corporation 201,253
shares of common stock at a per share price of $26.34. The transaction was
completed and proceeds from the sale of $5.3 million were received by the
Company on July 21, 1997. The sale increased Intel's ownership position in
the Company to 6.0 percent.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company was founded in December 1992 and first recognized revenues
from its television operations in April 1995 and from its Internet operations
in October 1995. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company and its prospects can be
based. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by start-up companies in the
television programming industry and in the new and rapidly evolving market of
Internet products, content and services. To address these risks, the Company
must, among other things, effectively develop new relationships and maintain
existing relationships with its advertising customers, their advertising
agencies and other third parties, provide original and compelling content to
Internet users and television viewers, develop and upgrade its technology,
respond to competitive developments and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will succeed
in addressing such risks and the failure to do so could have a material
adverse effect on the Company's business, financial condition or operating
results. Additionally, the limited history of the Company makes the
prediction of the future operating results difficult or impossible, and there
can be no assurance that the Company's revenues will increase or even
continue at their current level or that the Company will achieve or maintain
profitability or generate cash from operations in future periods. Since
inception, the Company has incurred significant losses and, as of June 30,
1997, had an accumulated deficit of $37.2 million. The Company expects to
continue to incur significant losses on a quarterly and annual basis in the
future.
RESULTS OF OPERATIONS
REVENUES
TOTAL REVENUES
Total revenues were $8.3 million and $2.6 million for the three months
and $14.6 million and $4.3 million for the six months ended June 30, 1997 and
1996, respectively.
TELEVISION REVENUES
Television revenues were $1.7 million and $820,000 for the three months
and $3.5 million and $1.4 million for the six months ended June 30, 1997 and
1996, respectively. The increase of $875,000 for the three month and $2.0
million for the six month period was due to the launch of three new
television series during the second half of 1996. Through June 30, 1996
television revenues were principally derived from the sale of advertising
during the Company's CNET CENTRAL television series, which was carried
nationally on USA Network and Sci-Fi Channel pursuant to an agreement with
USA Networks. In April 1996, the Company and USA Networks amended their
agreement, effective July 1, 1996. Under the amended agreement, USA Networks
licensed the right to carry CNET CENTRAL and two additional programs on its
networks for an initial one-year term for a fee equal to the cost of
production of those programs up to a maximum of $5.2 million. In January
1997, USA Network excercised an option to extend its agreement with the
Company to carry the Company's three television programs through June 30,
1998 for a fee equal to the cost of production of the program up to a maximum
of $5.5 million. Fees derived under the agreement will vary on a quarterly
basis depending on the delivery of original or refreshed programming.
In addition to the two additional programs carried on USA Networks, the
Company entered into an agreement in August 1996 with Golden Gate
Productions, L.P. ("GGP") whereby the Company produces the syndicated
television series TV.COM, which is exclusively distributed by GGP. The
program commenced distribution in September 1996. In August 1997 the assets
of GGP were acquired by a third party. The Company cannot predict the effect
of the transaction on the distribution of TV.COM, or on the advertising sales
for TV.COM.
<PAGE>
INTERNET REVENUES
Internet revenues were $6.6 million and $1.8 million for the three
months and $11.2 million and $2.9 million for the six months ended June 30,
1997 and 1996, respectively. The increase in Internet revenues of $4.8
million for the three months and $8.3 million for the six months was
primarily the result of additional delivery of advertising attributable to
the increase in Internet sites produced by the Company from three on June 30,
1996 to nine on June 30, 1997 as well as increased traffic and delivery of
advertising on the three Internet sites existing on June 30, 1996. The
number of banner advertising units delivered on all sites grew 196% to 420
for the three month period and 212% to 690 for the six month period ended
June 30, 1997 as compared to the comparable periods in 1996. In addition,
Internet revenues include non-advertising revenues of $1.1 million for the
three months and $1.7 million for the six months ended June 30, 1997.
Non-advertising revenues include electronic commerce revenue, content
licensing revenue and technology sales and licensing. The Company first
realized non-advertising revenue in the third quarter of 1996.
A portion of the Company's Internet revenues were derived from barter
transactions whereby the Company delivered advertisements on its Internet
sites in exchange for advertisements on the Internet sites of other
companies. Barter transactions accounted for $472,000 and $216,000 for the
three months ended and $496,000 and $340,000 for the six months ended June
30, 1997 and 1996, respectively.
COST OF REVENUES
TOTAL COST OF REVENUES
Total cost of revenues were $5.6 million and $3.3 million for the three
months and $11.1 million and $6.1 million for the six months ended June 30,
1997 and 1996, respectively. Cost of revenues includes costs associated
with the production and delivery of the Company's television programming and
the production of its Internet sites. The principal elements of cost of
revenues for the Company's television programming have been the production
costs of its television programs, which primarily consist of payroll and
related expenses for the editorial and production staff and costs for
facilities and equipment. The principal elements of cost of revenues for the
Company's Internet sites have been payroll and related expenses for the
editorial, production and technology staff, as well as costs for facilities
and equipment.
COST OF TELEVISION REVENUES
Cost of television revenues were $1.7 million and $1.3 million for the
three months and $3.5 million and $2.7 million for the six months ended June
30, 1997 and 1996, representing 100%, 164%, 100% and 189% of the related
revenues, respectively. The increase of $353,000 for the three month period
and $773,000 for the six month period ended June 30, 1997 as compared to the
same periods in 1996 was primarily due to costs incurred from the production
of two additional programs under the Company's amended contract with USA
Networks and to additional costs incurred for the production of TV.COM.
Under the Company's agreement with GGP, any revenues from the
distribution of TV.COM will be first used to offset costs of distribution and
production and thereafter be shared equally by CNET and GGP. There can be no
assurance that distribution revenue will be sufficient to cover these costs.
COST OF INTERNET REVENUES
Cost of Internet revenues were $3.9 million and $1.9 million for the
three months and $7.6 million and $3.4 million for the six months ended June
30, 1997 and 1996, representing 59%, 106%, 68% and 118% of the
<PAGE>
related revenues, respectively. The increase of $2.0 million for the three
months and $4.2 million for the six months ended June 30, 1997 as compared to
the same periods in 1996 is primarily attributable to the increase in Internet
sites produced by the Company from three on June 30, 1996 to nine on June 30,
1997. The increase in Internet sites produced by the Company required
significant additional expenditures in payroll and related expenses, and for
facilities and equipment. The Company anticipates substantial increases in
cost of revenues for Internet production in the future.
SALES AND MARKETING
Sales and marketing expenses consist primarily of payroll and related
expenses, consulting fees and advertising expenses. Sales and marketing
expenses were $2.7 million and $1.8 million for the three months and $5.0
million and $3.1 million for the six months ended June 30, 1997 and 1996,
representing 32%, 69%, 34% and 73% of total revenues, respectively. The
increase in sales and marketing expenses for the three and six months ended
June 30, 1997 of $851,000 and $1.9 million compared to the same periods in
1996 was primarily attributable to increases in payroll and related benefits
and additional expenses of $318,000 and $626,000 related to the Company's
SNAP! Online project.
DEVELOPMENT
Development expenses consist of expenses incurred in the development of
new Internet sites and in research and development of new or improved
technologies designed to enhance the performance of the Company's Internet
sites. Development expenses for Internet operations include payroll and
related expenses for editorial, production and technology staff, as well as
costs for facilities and equipment. Costs associated with the development of
a new Internet site are no longer recognized as development expenses when the
new site begins generating revenue. Development expenses were $3.7 million
and $644,000 for the three months and $6.2 million and $1.1 million for the
six months ended June 30, 1997 and 1996, representing 44%, 24%, 42% and 26%
of total revenues, respectively. The increase in development expenses of $3.0
million for the three months and $5.1 million for the six months ended June
30, 1997 as compared to the same periods in 1996 was primarily attributable
to $2.7 million and $4.6 million in development expenses related to SNAP!
Online. SNAP! Online is a free consumer online service built on the open
standards of the Internet. The Company anticipates a continued increase in
development expenses in the future.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist of payroll and related
expenses for executive, finance and administrative personnel, professional
fees and other general corporate expenses. General and administrative
expenses were $1.5 million and $822,000 for the three months and $2.8 million
and $1.5 million for the six months ended June 30, 1997 and 1996,
representing 18%, 31%, 19% and 34% of total revenues, respectively. The
increase for the three months and six months ended June 30, 1997 as compared
to the same periods in 1996 were primarily attributable to increases in
payroll and related expenses and are primarily associated with the growth
of the Company.
WARRANT COMPENSATION EXPENSE
In January 1997 the Company incurred a one-time, non-cash expense of
$7.0 million related to an amendment to the warrant agreement with USA
Networks whereby the Company agreed that the warrants held by USA Networks
will vest in full on December 31, 2006, to the extent that they have not
previously vested. Additionally, USA Networks exercised its option to extend
its agreement with the Company to carry the Company's three television
programs through June 30, 1998.
<PAGE>
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and interest expense
and gains (losses) from the Company's joint venture with E! Entertainment.
The joint venture, which was owned 50% by the Company and 50% by E!
Entertainment, was formed in January 1996 to launch an Internet site called
E! ONLINE. The Company provided approximately $3.0 million in debt financing
to the joint venture through June 30, 1997, which was the venture's sole
source of financing. As a result of the Company's financing commitment to
the joint venture, the Company recognized 100% of any losses incurred by the
joint venture. In June 1997 the Company sold its 50% equity position and
certain technology licenses and marketing and consulting services to its
joint venture partner for a $10.0 million, (which amount was subsequently
received by the Company on July 11, 1997), a $3.2 million note receivable,
which is included in other assets, and certain additional payments for up to
three years.
Total other income (expense) was $10.1 million and $(414,000) for the
three months and $9.6 million and $(524,000) for the six months ended June
30, 1997 and 1996, respectively. Included in other income (expense) were
gains of $10.0 million and $9.2 million for the three month and six month
periods ended June 30, 1997 primarily related to the sale of the Company's
equity interest in the joint venture as compared to losses of $(259,000) and
$(275,000) for the comparable periods in 1996 primarily related to the
recognition of 100% of the losses by the joint venture.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $5.4 million and $4.6 million
for the six months ended June 30, 1997 and 1996, respectively, was primarily
attributable to net losses in such periods. Net cash used in investing
activities of $10.5 million and $4.6 million for the six months ended June
30, 1997 and 1996 respectively, was primarily attributable to purchases of
equipment and programming assets. Cash flows provided by financing
activities for the six months ended June 30, 1997 consisted primarily of
proceeds from the issuance of common stock and for the six months ended June
30, 1996 consisted primarily of proceeds from the issuance of preferred stock
and the issuance debt.
The Company currently has obligations under notes payable and capital
leases of $714,000. Such obligations were incurred to finance equipment
purchases and are payable through June 2001.
As of June 30, 1997, the Company's principal source of liquidity was
approximately $5.0 million in cash and cash equivalents. In July 1997, the
Company had proceeds of approximately $15.3 million, consisting of payment of
the $10.0 million from E! Entertainment and proceeds of $5.3 million for the
sale of common stock to Intel Corporation. (See "Other Income (Expense)" and
"Notes to Condensed Financial Statements-Subsequent Event") The Company
believes that these funds, together with other sources of capital expected to
be available to the Company, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for at least the next 12
months. However, any projections of future cash needs and cash flows is
subject to substantial uncertainty. See "Additional Factors That May Affect
Future Results" below. If currently available cash and cash generated by
operations is insufficient to satisfy the Company's liquidity requirements,
the Company may be required to sell additional equity or debt securities.
The sale of additional equity or convertible debt securities would result in
additional dilution to the Company's stockholders. There can be no assurance
that financing will be available to the Company in amounts or on terms
acceptable to the Company.
<PAGE>
SEASONALITY AND CYCLICALITY
The Company believes that advertising sales in traditional media, such
as television, are generally lower in the first and third calendar quarters
of each year than in the respective preceding quarters 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 advertising expenditures
generally could become more pronounced for Internet advertising. Seasonality
and cyclicality in advertising expenditures generally, or with respect to
Internet-based advertising specifically, could have a material adverse effect
on the Company's business, financial condition or operating results.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's financial condition and quarterly operating results may
fluctuate significantly in the future as a result of a variety of factors,
many of which are outside the Company's control. Factors that may adversely
affect the Company's quarterly operating results attributable to its Internet
operations include the level of use of the Internet, demand for Internet
advertising, seasonal trends in both Internet use and advertising placements,
the addition or loss of advertisers, advertising budgeting cycles of
individual advertisers, the level of traffic on the Company's Internet sites,
the amount and timing of development costs, capital expenditures and other
costs relating to the expansion of the Company's Internet operations, the
introduction of new sites and services by the Company or its competitors,
price competition or pricing changes in the industry, technical difficulties
or system downtime, general economic conditions and economic conditions
specific to the Internet and Internet media. Quarterly operating results
attributable to the Company's television operations are generally dependent
on the costs incurred by the Company in producing its television programming.
Further, the size and demographic characteristics of the Company's viewing
audience may be adversely affected by the popularity of competing television
programs, including special events, the time slots chosen for the Company's
programs by the cable network carrying such programs and the popularity of
programs immediately preceding the Company's programs. As a result of the
Company's strategy to cross market its television and Internet operations,
the Company believes that any decrease in the number of viewers of its
television programs will have a negative effect on the usage of its Internet
sites. Accordingly, a decrease in viewership of the Company's television
programs could have a material adverse effect on the Company's business,
financial condition or operating results.
Due to all of the foregoing factors, it is likely that the Company's
operating results will fall below the expectations of the Company, securities
analysts or investors in some future quarter. In such event, the trading
price of the Common Stock would likely be materially and adversely affected.
Certain information in this Quarterly Report may contain
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes
of these provisions, including any projections of earnings, revenues,
expenses or other financial items, any statements of the plans and objectives
of management for future operations, any statements concerning proposed new
services, any statements regarding future economic conditions or performance,
and any statement of assumptions underlying any of the foregoing. Although
the Company believes that the expectations reflected in its forward-looking
statements are reasonable, it can give no assurance that such expectations or
any of its forward-looking statements will prove to be correct, and actual
results could differ materially from those projected or assumed in the
Company's forward-looking statements. The Company's future financial
condition and results, as well as any forward-looking statements, are subject
to inherent risks and uncertainties, including those summarized in this
section. Additional information concerning these and other risk factors is
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, a copy of which may be obtained from the Company
upon request.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) On June 4, 1997, the Company entered into an agreement with
Intel Corporation ("Intel"), pursuant to which Intel agreed to purchase
201,253 shares of the Company's common stock for an aggregate purchase price
of $5,300,000. The transaction was completed and proceeds from the sale were
received by the Company on July 21, 1997. As a result of this transaction,
Intel's ownership position in the Company increased to 6.0 percent. The sale
of common stock to Intel in this transaction was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on May 22, 1997, and the following
matters were submitted to the Company's stockholders for approval: (i) the
election of three Class I directors for a three year term; (ii) the adoption
of the CNET, Inc. 1997 Stock Option Plan (the "1997 Plan"); and (iii) the
ratification of KPMG Peat Marwick LLP as the Company's independent auditors
for fiscal 1997. At the meeting, the three nominees for director were
elected, the 1997 Plan was adopted and the selection of independent auditors
was ratified. The vote of the stockholders with respect to each such matter
was as follows:
Election of Class I Directors:
Shelby W. Bonnie 7,920,631 votes for; 24,300 votes withheld
Douglas Hamilton 7,920,631 votes for; 24,300 votes withheld
Eric Robison 7,920,631 votes for; 24,300 votes withheld
Adoption of 1997 Plan 6,892,148 votes for
364,592 votes against
12,506 abstentions
675,685 broker non-votes
Ratification of Auditors 7,938,384 votes for
1,675 votes against
4,872 abstentions
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
10.1 Stock Purchase Agreement, dated as of June 4, 1997, between Intel
Corporation and CNET, Inc.
11.1 Statement of Computation of Net Income (Loss) per Share
27. Financial Data Schedule
(2) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CNET, INC.
(Registrant)
/s/ SHELBY W. BONNIE
____________________
Shelby W. Bonnie
CHIEF OPERATING OFFICER/
CHIEF FINANCIAL OFFICER
August 14, 1997
Date
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
June 4, 1997 by and between Intel Corporation, a Delaware corporation
("Intel"), and CNET, Inc., a Delaware corporation (the "Company"). The
Company desires to sell, and Intel desires to purchase, shares of the
Company's common stock, $.0001 par value per share (the "Common Stock"), for
an aggregate purchase price of $5,300,000. Accordingly, Intel and the
Company hereby agree as follows:
1. AGREEMENT TO PURCHASE. At the Closing (as defined below), and
subject to the terms and conditions set forth in this Agreement, Intel will
purchase from the Company, and the Company will issue and sell to Intel,
201,253 shares of Common Stock (the "Shares") for an aggregate purchase price
of $5,300,000.
2. CLOSING. The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the principal offices of the Company (or such
other place as the parties may agree) as soon as reasonably practicable (but
not later than five business days) after satisfaction of the conditions
specified in SECTION 5.5 and SECTION 6.4 (the "HSR Conditions"). Upon
payment of the purchase price for the Shares in full in immediately available
funds by Intel to the Company (to an account specified in writing by the
Company to Intel prior to the Closing), the Company will deliver to Intel a
certificate or certificates representing the Shares, in such denominations
and registered in such names as Intel shall request.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Intel that the statements in this SECTION 3 are
true and correct, except as set forth in the Disclosure Letter from the
Company to Intel, dated as of the date hereof (the "Disclosure Letter").
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority
required to (a) carry on its business as presently conducted and (b) enter
into this Agreement and consummate the transactions contemplated hereby. The
Company is qualified to do business and is in good standing in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means a
material adverse effect on, or a material adverse change in, or a group of
such effects on or changes in, the business, operations, financial condition,
results of operations, assets or liabilities of the Company.
3.2 CAPITALIZATION. As of the date of this Agreement, the
capitalization of the Company is as follows:
(a) PREFERRED STOCK. A total of 5,000,000 authorized shares
of preferred stock, $.01 par value per share (the "Preferred Stock"), none of
which is issued or outstanding.
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(b) COMMON STOCK. A total of 25,000,000 authorized shares of
Common Stock, of which 13,333,847 shares were issued and outstanding as of
the close of business on June 3, 1997. All of such outstanding shares are
validly issued, fully paid and nonassessable. No such outstanding shares
were issued in violation of any preemptive rights.
(c) OPTIONS, WARRANTS, RESERVED SHARES. Except as set forth
in the Disclosure Letter, there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable
for any shares of the Company's capital stock. Except for any stock
repurchase rights of the Company under its stock option and employee stock
purchase plans, no shares of the Company's outstanding capital stock, or
stock issuable upon exercise, conversion or exchange of any outstanding
options, warrants or rights, or other stock issuable by the Company, are
subject to any rights of first refusal or other rights to purchase such stock
(whether in favor of the Company or any other person), pursuant to any
agreement, commitment or other obligation of the Company.
3.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association or other entity.
3.4 DUE AUTHORIZATION. All corporate action on the part of the
Company and its officers, directors and stockholders necessary for the
authorization, execution, delivery of and performance of all obligations of
the Company under this Agreement, and the authorization, issuance,
reservation for issuance and delivery of all of the Shares being sold under
this Agreement, has been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as may be limited by (a) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally and (b) the effect of rules of law governing the
availability of equitable remedies.
3.5 VALID ISSUANCE OF STOCK. The Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the
consideration provided for herein, will be duly and validly issued, fully
paid and nonassessable.
3.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except (a) as required in
connection with the Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (b) the filing of any qualifications or filings
under the Securities Act of 1933, as amended (the "Securities Act"), and the
regulations thereunder and all applicable state securities laws that may be
required in connection with the transactions contemplated by this Agreement.
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<PAGE>
All such qualifications and filings will, in the case of qualifications, be
effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.
3.7 NON-CONTRAVENTION. The execution, delivery and performance of
this Agreement, and the consummation by the Company of the transactions
contemplated hereby, do not and will not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of the Company; (ii) constitute a
violation of any provision of any federal, state, local or foreign law
binding upon or applicable to the Company; or (iii) constitute a default or
require any consent under, give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which the
Company is entitled under, or result in the creation or imposition of any
lien, claim or encumbrance on any assets of the Company under, any contract
to which the Company is a party or any permit, license or similar right
relating to the Company or by which the Company may be bound or affected in
such a manner as, together with all other such matters, would have Material
Adverse Effect.
3.8 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending: (a) against the Company,
its activities, properties or assets or, to the best of the Company's
knowledge, against any officer, director or employee of the Company in
connection with such officer's, director's or employee's relationship with,
or actions taken on behalf of, the Company or (b) that seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement.
There is no Action pending or, to the best of the Company's knowledge,
threatened or for which any reasonable basis exists, relating to the current
or prior employment of any of the Company's current or former employees or
consultants, their use in connection with the Company's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. No
Action by the Company is currently pending nor does the Company intend to
initiate any Action which is reasonably likely to have a Material Adverse
Effect.
3.9 INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT. To the
best knowledge of the Company, each employee and consultant or independent
contractor of the Company whose duties include the development of products or
Intellectual Property (as defined below), and each former employee and
consultant or independent contractor whose duties included the development of
products or Intellectual Property, has entered into and executed an invention
assignment and confidentiality agreement in customary form or an employment
or consulting agreement containing substantially similar terms.
3.10 INTELLECTUAL PROPERTY.
(a) OWNERSHIP OR RIGHT TO USE. The Company has sole title to
and owns, or is licensed or otherwise possesses legally enforceable rights to
use, all patents or patent applications, software, know-how, registered or
unregistered trademarks and service marks and any applications therefor,
registered or unregistered copyrights, trade names, and any
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applications therefor, trade secrets or other confidential or proprietary
information ("Intellectual Property") necessary to enable the Company to
carry on its business as currently conducted, except where any deficiency
therein would not have a Material Adverse Effect. The Company represents and
warrants that it will, where the Company, in the exercise of reasonable
judgment deems it appropriate, use reasonable business efforts to seek
copyright and patent registration, and other appropriate intellectual
property protection, for Intellectual Property of the Company.
(b) LICENSES; OTHER AGREEMENTS. The Company is not currently
subject to any exclusive licenses (whether such exclusivity is temporary or
permanent) to any material portion of the Intellectual Property of the
Company. To the best of the Company's knowledge, there are not outstanding
any licenses or agreements of any kind relating to any Intellectual Property
of the Company, except for agreements with customers of the Company entered
into in the ordinary course of the Company's business. The Company is not
obligated to pay any royalties or other payments to third parties with
respect to the marketing, sale, distribution, manufacture, license or use of
any Intellectual Property, except as the Company may be so obligated in the
ordinary course of its business or as disclosed in the Company's SEC
Documents (as defined below).
(c) NO INFRINGEMENT. The Company has not violated or
infringed and is not currently violating or infringing, and the Company has
not received any communications alleging that the Company (or any of its
employees or consultants) has violated or infringed, any Intellectual
Property of any other person or entity, to the extent that any such violation
or infringement, either individually or together with all other such
violations and infringements, would have a Material Adverse Effect.
(d) EMPLOYEES AND CONSULTANTS. To the best of the Company's
knowledge, no employee of or consultant to the Company is in default under
any term of any employment contract, agreement or arrangement relating to
Intellectual Property of the Company or any non-competition arrangement,
other contract, or any restrictive covenant relating to the Intellectual
Property of the Company. The Intellectual Property of the Company (other
than any Intellectual Property duly acquired or licensed from third parties)
was developed entirely by the employees of or consultants to the Company
during the time they were employed or retained by the Company, and to the
best knowledge of the Company, at no time during conception or reduction to
practice of such Intellectual Property of the Company were any such employees
or consultants operating under any grant from a government entity or agency
or subject to any employment agreement or invention assignment or
non-disclosure agreement or any other obligation with a third party that
would materially and adversely affect the Company's rights in the
Intellectual Property of the Company. Such Intellectual Property of the
Company does not, to the best knowledge of the Company, include any invention
or other intellectual property of such employees or consultants made prior to
the time such employees or consultants were employed or retained by the
Company nor any intellectual property of any previous employer of such
employees or consultants nor the intellectual property of any other person or
entity.
3.11 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. The Company is not
in violation or default of any provisions of its Certificate of Incorporation
or Bylaws, both as
4
<PAGE>
amended, except for any violations that would not, either individually or in
the aggregate, have a Material Adverse Effect. The Company has complied and
is in compliance with all applicable statutes, laws, and regulations and
executive orders of the United States of America and all states, foreign
counties and over governmental bodies and agencies having jurisdiction over
the Company's business or properties.
3.12 REGISTRATION RIGHTS. Except as provided herein, the Company
is not currently subject to any grant or agreement to grant to any person or
entity any rights (including piggyback registration rights) to have any
securities of the Company registered with the United States Securities and
Exchange Commission ("SEC") or any other governmental authority.
3.13 TITLE TO PROPERTY AND ASSETS. The properties and assets of
the Company are owned by the Company free and clear of all mortgages, deeds
of trust liens, charges, encumbrances and security interests except for
statutory liens for the payment of current taxes that are not yet delinquent
and liens, encumbrances and security interests that arise in the ordinary
course of business and do not affect material properties and assets of the
Company. With respect to the property and assets it leases, the Company is in
compliance with such leases in all material respects.
3.14 SEC DOCUMENTS.
(a) The Company has furnished to Intel prior to the date
hereof copies of the prospectus included in the Company's registration
statement on Form SB-2 (Registration No. 333-4752-LA), the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996 and the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997
(collectively, the "SEC Documents"). Each of the SEC Documents, as of the
respective date thereof, did not, and each of the registration statements,
reports and proxy statements filed by the Company with the SEC after the date
hereof and prior to the Closing will not, as of the date thereof, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading. The Company is not
a party to any material contract, agreement or other arrangement which was
required to have been filed as an exhibit to the SEC Documents that is not so
filed.
(b) The SEC Documents include the Company's audited financial
statements (the "Audited Financial Statements") for the year ended December
31, 1996 and its unaudited financial statements for the three-month period
ended March 31, 1997 (the "Balance Sheet Date"). Since the Balance Sheet
Date, the Company has duly filed with the SEC all registration statements,
reports and proxy statements required to be filed by it under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the 1933 Act. The
audited and unaudited consolidated financial statements of the Company
included in the SEC Documents filed prior to the date hereof fairly present,
in conformity with generally accepted accounting principles ("GAAP") (except
as permitted by Form 10-Q) applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries as at the date thereof and the
consolidated results of
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their operations and cash flows for the periods then ended (subject to normal
year and audit adjustments in the case of unaudited interim financial
statements).
(c) Except as and to the extent reflected or reserved against
in the Company's Audited Financial Statements (including the notes thereto),
the Company has no material liabilities (whether accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, executory, determined or determinable) other
than: (i) liabilities incurred in the ordinary course of business since the
Balance Sheet Date, (ii) liabilities with respect to agreements to which the
Company is a party, and (iii) other liabilities that either individually or
in the aggregate, would not result in a Material Adverse Effect.
3.15 ABSENCE OF CERTAIN CHANGES SINCE BALANCE SHEET DATE. Since
the Balance Sheet Date, the business and operations of the Company have been
conducted in the ordinary course consistent with past practice, and there has
not been:
(a) any declaration, setting aside or payment of any dividend
or other distribution of the assets of the Company with respect to any shares
of capital stock of the Company, or any repurchase, redemption or other
acquisition by the Company or any subsidiary of the Company of any
outstanding shares of the Company's capital stock;
(b) any damage, destruction or loss, whether or not covered
by insurance, except for such occurrences that have not resulted, and are not
expected to result, in a Material Adverse Effect;
(c) any waiver by the Company of a valuable right or of a
material debt owed to it, except for such waivers that have not resulted, and
are not expected to result, in a Material Adverse Effect;
(d) any material change or amendment to, or any waiver of any
material rights under, a material contract or arrangement by which the
Company or any of its assets or properties is bound or subject, except for
changes, amendments, or waivers that are expressly provided for or disclosed
in this Agreement or that have not resulted, and are not expected to result,
in a Material Adverse Effect;
(e) any change by the Company in its accounting principles,
methods or practices or in the manner in which it keeps its accounting books
and records, except any such change required by a change in GAAP; and
(f) any other event or condition of any character, except for
such events and conditions that have not resulted, and are not expected to
result, either individually or collectively, in a Material Adverse Effect.
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3.16 EMPLOYEE BENEFITS.
(a) As used in this SECTION 3.16 the following terms have the
following meanings: (1) "BENEFIT ARRANGEMENT" means any material benefit
arrangement that is not an Employee Benefit Plan, including (i) each material
employment or consulting agreement, (ii) each material arrangement providing
for insurance coverage or workers' compensation benefits, (iii) each material
bonus or deferred bonus arrangement, (iv) each material arrangement providing
any termination allowance, severance or similar benefits, (v) each equity
compensation plan, (vi) each deferred compensation plan and (vii) each
material compensation policy and practice maintained by the Company covering
the employees, former employees, officers, former officers, directors and
former directors of the Company, and the beneficiaries of any of them; (2)
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit Arrangement; (3)
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, as set forth in Section 4980B of the Internal Revenue Code of 1986,
as amended (the "Code"), and Part 6 of Title I of ERISA; (4) "EMPLOYEE
BENEFIT PLAN" means any employee benefit plan, as defined in Section 3(3) of
ERISA that is sponsored or contributed to by the Company or any ERISA
Affiliate covering employees or former employees of the Company; (5)
"EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA, that is regulated under Title IV of ERISA,
other than a Multiemployer Plan; (6) "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended; (7) "ERISA AFFILIATE" of the Company
means any other person or entity that, together with the Company as of the
relevant measuring date under ERISA, was or is required to be treated as a
single employer under Section 4.14 of the Code; (8) "GROUP HEALTH PLAN" means
any group health plan, as defined in Section 5000(b)(1) of the Code; (9)
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section 3(37)
and 4001(a)(3) of ERISA; and (10) "PROHIBITED TRANSACTION" means a
transaction that is prohibited under Section 4975 of the Code or Section 406
of ERISA and not exempt under Section 4975 of the Code or Section 408 of
ERISA, respectively.
(b) Neither the Company nor any of its ERISA Affiliates
sponsors or has sponsored, maintained, contributed to, or incurred an
obligation to contribute to, any Employee Pension Benefit Plan (whether or
not terminated). Neither the Company nor any of its ERISA Affiliates sponsors
or has sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Multiemployer Plan (whether or not terminated).
(c) No Employee Benefit Plan has participated in, engaged in
or been a party to any Prohibited Transaction, and neither the Company nor
any of its ERISA Affiliates has had asserted against it any claim for any
material tax or material penalty imposed under ERISA or the Code with respect
to any Employee Benefit Plan nor, to the best of the Company's knowledge, is
there a basis for any such claim. To the best of the Company's knowledge, no
officer, director or employee of the Company has committed a material breach
of any responsibility or obligation imposed upon fiduciaries by Title I of
ERISA with respect to any Employee Benefit Plan, with respect to which breach
the Company is directly or indirectly liable.
(d) Other than routine claims for benefits, there is no
material claim pending involving any Benefit Plan by any Person against such
plan or the Company or any
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ERISA Affiliate, nor, to the best of the Company's knowledge, is any such
material claim threatened. There is no pending, or to the best of the
Company's knowledge, threatened proceeding involving any Employee Benefit
Plan before the IRS, the United States Department of Labor or any other
governmental authority.
(e) No material violation of any reporting or disclosure
requirement imposed by ERISA or the Code exists with respect to any Employee
Benefit Plan.
(f) Each Benefit Plan has been maintained in all material
respects, by its terms and in operation, in accordance with ERISA (if
applicable), the Code and all other applicable federal, state, local and
foreign laws. The Company and its ERISA Affiliates have made full and timely
payment of all amounts required to be (i) contributed under the terms of each
Benefit Plan and such laws, or (ii) required to be paid as expenses under
such Benefit Plan. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code either has received a favorable
determination letter with respect to such qualified status from the IRS or
has filed a request for such a determination letter with the IRS within the
remedial amendment period such that such determination of qualified status
will apply from and after the effective date of any such Employee Benefit
Plan.
(g) With respect to any Group Health Plans maintained by the
Company or its ERISA Affiliates, whether or not for the benefit of the
Company's employees, the Company and its ERISA Affiliates have complied in
all material respects with the provisions of COBRA.
(h) Except pursuant to the provisions of COBRA, neither the
Company nor any ERISA Affiliate maintains any Employee Benefit Plan that
provides benefits described in Section 3(1) of ERISA for any former employees
or retirees, or the beneficiaries of any of them, of the Company or its ERISA
Affiliates.
3.17 TAX MATTERS.
(a) All deficiencies asserted or assessments made as a result
of any examinations by the Internal Revenue Service or any state, local or
foreign taxing authority have been fully paid, or are fully reflected as a
liability in the Audited Financial Statements. The Company has filed on a
timely basis all Tax Returns required to have been filed by it and has paid
on a timely basis all Taxes required to be shown thereon as due. All such
Tax Returns are true, complete and correct in all material respects. The
provisions for taxes in the Audited Financial Statements have been determined
in accordance with GAAP. No liability for Taxes has been incurred by the
Company since the Balance Sheet Date other than in the ordinary course of its
business. No director, officer or employee of the Company having
responsibility for Tax matters has reason to believe that any Taxing
authority has valid grounds to claim or assess any additional Tax with
respect to the Company in excess of the amounts shown in the Audited
Financial Statements for the periods covered thereby. As used in this
Agreement, (l) "TAXES" means (x) all federal, state, local and other net
income, gross income, gross receipts, sales, use, ad valorem, value added,
intangible, unitary, capital gain, transfer, franchise, profits, license,
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lease, service, service use, withholding, backup withholding, payroll,
employment, estimated, excise, severance, stamp, occupation, premium,
property, prohibited transactions, windfall or excess profits, customs,
duties or other taxes, fees, assessments or charges of any kind whatsoever
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto, (y) any liability for payment of amounts
described in clause (x) whether as a result of transferee liability, of being
a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law and (z) any liability for the
payment of amounts described in clauses (x) or (y) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person for Taxes; and the term "TAX"
means any one of the foregoing Taxes; and (2) "TAX RETURNS" means all
returns, reports, forms or other information required to be filed with
respect to any Tax.
(b) With respect to all amounts in respect of Taxes imposed
upon the Company or for which the Company is or could be liable, whether to
taxing authorities (as, for example, under law) or to other persons or
entities (as, for example, under tax allocation agreements), and with respect
to all taxable periods or portions of periods ending on or before the Closing
Date, all applicable Tax laws and agreements have been fully complied with,
and all such amounts required to be paid by the Company to taxing authorities
or others have been paid.
(c) The Company has not received notice that the Internal
Revenue Service or any other taxing authority has asserted against the
Company any deficiency or claim for additional Taxes in connection with any
Tax Return, and no issues have been raised (and are currently pending) by any
taxing authority in connection with any Tax Return. The Company has not
received notice that it is or may be subject to Tax in a jurisdiction in
which it has not filed or does not currently file Tax Returns.
3.18 LABOR AGREEMENTS AND ACTIONS.
(a) No collective bargaining agreement exists that is binding
on the Company, and no petition has been filed or proceedings instituted by
an employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. To the best of the Company's
knowledge, no organizational effort is currently being made or threatened by
or on behalf of any labor union to organize any employees of the Company.
(b) There is no labor strike, dispute, slow down or stoppage
pending or threatened against or directly affecting the Company. No
grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is pending, and no claims therefor exist. The Company
has not received any notice, and has no knowledge of any threatened labor or
civil rights dispute, controversy or grievance or any other unfair labor
practice proceeding or breach of contract claim or action with respect to
claims of, or obligations to, any employee or group of employees of the
Company.
(c) All individuals who are performing or have performed
services for the Company and are or were classified by the Company as
"independent contractors" qualify for
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such classification under Section 5.30 of the Revenue Act of 1978 or Section
17.06 of the Tax Reform Act of 1986, as applicable, except for such instances
which would not, in the aggregate, have a Material Adverse Effect.
3.19 REAL PROPERTY HOLDING CORPORATION STATUS. Since its inception
the Company has not been a "United States real property holding corporation",
as defined in Section 897(c)(2) of the U.S. Internal Revenue Code of 1986, as
amended, and in Section 1.897-2(b) of the Treasury Regulations issued
thereunder (the "REGULATIONS"), and the Company has filed with the Internal
Revenue Service all statements, if any, with its United States income tax
returns which are required under Section l.897-2(h) of the Regulations.
3.20 FULL DISCLOSURE. The representations and warranties contained
in this Agreement, as modified or qualified by the Disclosure Letter, are
true and complete in all material respects and do not omit to state any
materiel fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF INTEL. Intel represents and
warrants, as of the date hereof and as of the Closing, as follows:
4.1 INVESTMENT INTENT. Intel is acquiring the Shares for its own
account for investment purposes and not with a view to the distribution
thereof within the meaning of the Securities Act.
4.2 RESTRICTED SECURITIES. Intel understands that the Shares
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act and may not be sold, pledged or otherwise disposed of unless
they are subsequently registered under the Securities Act and applicable
state securities laws or unless an exemption from registration is available.
4.3 ACCREDITED INVESTOR. Intel is an "accredited investor" within
the meaning of Rule 501 under the Securities Act.
4.4 DUE AUTHORIZATION. All corporate action on the part of Intel
and its officers and directors necessary for the authorization, execution,
delivery of and performance of all obligations of Intel under this Agreement
has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of Intel, enforceable
against Intel in accordance with its terms, except as may be limited by (a)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (b) the effect of rules of law governing the availability of
equitable remedies.
4.5 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part
of Intel is required in connection with the consummation of
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the transactions contemplated by this Agreement, except as required in
connection with the HSR Act.
5. CONDITIONS TO INTEL'S OBLIGATIONS AT CLOSING. The obligations of
Intel under SECTIONS 1 and 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE. Except as set forth in
the Disclosure Letter, the representations and warranties of the Company
contained in SECTION 3 will be true and correct in all material respects on
and as of the date hereof and on and as of the date of the Closing, with the
same effect as though such representations and warranties had been made as of
the Closing, except with respect to representations and warranties that are
made expressly as of a particular date, which will be true and correct in all
material respects on and as of such date only.
5.2 PERFORMANCE. The Company will have performed and complied in
all material respects with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by it on or before the Closing and will have obtained all approvals,
consents and qualifications necessary to complete the purchase and sale
described herein.
5.3 COMPLIANCE CERTIFICATE. The Company will have delivered to
Intel at the Closing a certificate signed on its behalf by its Chief
Executive Officer or Chief Financial Officer certifying that the conditions
specified in SECTIONS 5.1 and 5.2 hereof have been fulfilled.
5.4 SECURITIES EXEMPTIONS. The offer and sale of the Shares to
Intel pursuant to this Agreement will be exempt from the registration
requirements of the Securities Act and the registration or qualification
requirements of all applicable state securities laws.
5.5 HSR ACT. The required waiting period under the HSR Act shall
have expired or been terminated without any threat or commencement of
antitrust proceedings with respect to the transactions contemplated by this
Agreement.
5.6 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto will be reasonably satisfactory in form
and substance to Intel, and Intel will have received all such counterpart
originals and certified or other copies of such documents as it may
reasonably request. Such documents shall include (but not be limited to) the
following:
(a) CERTIFIED CHARTER DOCUMENTS. A copy of (i) the
Certificate of Incorporation of the Company certified as of a recent date by
the Secretary of State of Delaware as a complete and correct copy thereof,
and (ii) the Bylaws of the Company (as amended through the date of the
Closing) certified by the Secretary of the Company as true and correct copy
thereof as of the Closing.
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(b) BOARD RESOLUTIONS. A copy, certified by the Secretary of
the Company, of the resolutions of the Board of Directors of the Company
providing for the approval of this Agreement and the issuance of the Shares
contemplated hereby.
5.7 OPINION OF COMPANY COUNSEL. Intel will have received an
opinion on behalf of the Company, dated as of the date of the Closing, from
Hughes & Luce, L.L.P., in form and substance reasonably satisfactory to Intel.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company under SECTIONS 1 and 2 of this Agreement are
subject to the fulfillment or waiver, on or before the Closing, of each of
the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Intel contained in SECTION 4 will be true and correct in all
material respects on and as of the date hereof and on and as of the date of
the Closing, with the same effect as though such representations and
warranties had been made as of the Closing, except with respect to
representations and warranties that are made expressly as of a particular
date, which will be true and correct in all material respects on and as of
such date only.
6.2 PERFORMANCE. Intel will have performed and complied in all
material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on
or before the Closing, including without limitation the payment of the
purchase price as specified in SECTION 1.
6.3 SECURITIES EXEMPTIONS. The offer and sale of the Shares to
Intel pursuant to this Agreement will be exempt from the registration
requirements of the Securities Act and the registration or qualification
requirements of all applicable state securities laws.
6.4 HSR ACT. The required waiting period under the HSR Act shall
have expired or been terminated without any threat or commencement of
antitrust proceedings with respect to the transactions contemplated by this
Agreement.
6.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto will be reasonably satisfactory in form
and substance to the Company and to the Company's legal counsel, and the
Company will have received all such counterpart originals and certified or
other copies of such documents as it may reasonably request.
7. COVENANTS.
7.1 HSR ACT. Promptly after the execution hereof, the Company and
Intel shall each complete and file their respective premerger notification
report forms under the HSR Act, and the Company and Intel will use reasonable
efforts to complete and file such forms as soon as practicable after the date
of this Agreement. After the filing thereof, the Company and Intel shall use
all reasonable efforts to satisfy the HSR Conditions; provided, however, that
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neither the Company nor Intel shall be under any obligation to comply with
any request or requirement imposed by the Federal Trade Commission (the
"FTC"), the Department of Justice (the "DOJ") or any other governmental
authority in connection with the satisfaction of the HSR Conditions if the
Company or Intel, in the exercise of such entity's reasonable discretion,
elects not to do so. Without limiting the generality of the foregoing,
neither the Company nor Intel shall be obligated to comply with any request
by, or any requirement of, the FTC, the DOJ or any other governmental
authority: (i) to disclose confidential information the Company or Intel, as
the case may be, desires to keep confidential; (ii) to dispose of any assets
or operations; or (iii) to comply with any restriction on the manner in which
they conduct their respective operations.
7.2 LOCK-UP AGREEMENT. Intel hereby agrees that, without the
prior written consent of the Company, Intel will not, during the one year
period commencing on the date hereof: (a) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any of the Shares,
or (b) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
Shares, whether or not any such transaction described in clause (a) or (b)
above is to be settled by delivery of such Shares, in cash or otherwise. The
undersigned agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Shares except
in compliance with the terms and conditions of this Agreement.
8. REGISTRATION RIGHTS.
8.1 PRIOR AGREEMENT. The parties agree that the provisions of
this SECTION 8 will supersede and replace the provisions of Section 8 of the
Stock Purchase Agreement, dated as of July 1, 1996, between Intel and the
Company (the "1996 Agreement").
8.2 DEFINITIONS. For purposes of this SECTION 8, the following
terms have the meanings indicated:
"Commission" means the Securities and Exchange Commission.
"Registrable Securities" means the Shares and the 600,000
shares of Common Stock purchased by Intel pursuant to the 1996 Agreement
(as adjusted to reflect any stock dividend or stock split); provided, that
any such shares will cease to be Registrable Securities when (i) a
registration statement covering such shares has been declared effective by
the Commission and such shares have been disposed of pursuant to such
effective registration statement, (ii) such shares are sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provision then in force) under the Securities Act are met or (iii)
such shares have been otherwise transferred and the Company has delivered a
new certificate in substitution for such shares, which new certificate does
not bear a restrictive legend and which shares may be freely resold without
subsequent registration under the Securities Act.
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"Underwriter" means a securities dealer that purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
8.3 SHELF REGISTRATION RIGHTS. At any time beginning six months
after the date of the Closing, Intel may request in writing that the Company
effect a shelf registration on Form S-3 (or any successor to such form) of
all or any portion of the Registrable Securities. Upon receipt of such a
request, the Company will use its best efforts to effect, as soon as
practicable, the registration of such Registrable Securities on such form
(the "Shelf Registration Statement"). The Company will file in a timely
manner all reports required to be filed by the Company under the Securities
Act and the Exchange Act and will otherwise use its best efforts to qualify
and maintain its qualification for eligibility to use Form S-3 to register
the sale of the Registrable Securities by Intel. If the Company fails to
qualify or maintain such qualification to use Form S-3, then, at any time
beginning six months after the date of the Closing that the Company is not
eligible to use Form S-3 for such purposes, Intel may, on a single occasion,
request in writing that the Company effect the registration of all or any
portion of the Registrable Securities for sale in an underwritten offering by
Intel, and upon receipt of such a request, the Company will, as soon as
practicable, use its best efforts to effect the registration of such
Registrable Securities, on the applicable form for which the Company is
eligible, as necessary to permit the disposition of such Registration
Securities in accordance with the intended method of disposition.
8.4 INCIDENTAL REGISTRATION RIGHTS. If the Company at any time
proposes to file on its behalf or on behalf of any of any of its stockholders
a registration statement under the Securities Act relating to the Common
Stock, the Company will give written notice to Intel setting forth the terms
of the proposed offering and offer to include in such filing any Registrable
Securities that Intel may request; provided that such incidental registration
rights will not apply to any registration statement (i) on Form S-4 or S-8 or
any successor form, (ii) for a transaction covered by Rule 145 under the
Securities Act or (iii) covering only securities to be issued in connection
with a dividend reinvestment and stock purchase plan. If Intel desires to
include Registrable Securities in any such registration, it must advise the
Company in writing within 15 business days after receipt of such notice,
indicating the number of Registrable Securities for which registration is
requested. Subject to SECTION 8.5, the Company will include in such filing
the number of Registrable Securities for which registration is so requested
and will use its best efforts to effect the registration thereof under the
Securities Act.
8.5 PRIORITY. If the lead managing Underwriter of an underwritten
offering governed by SECTION 8.4 notifies the Company in writing that, in its
opinion, the number of shares requested to be included in such offering is
sufficiently large to materially and adversely affect the success of such
offering, then the number of shares to be sold in such offering will be
reduced to the maximum number that can be sold without any such material
adverse effect, and the Registrable Securities and other shares proposed to
be included in such offering will be included in the following priority: (i)
shares to be offered by the Company will have priority over shares to be
offered by selling stockholders and (ii) Registrable Securities to be offered
by Intel and any shares to be offered by other selling stockholders will be
treated equally, with any
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reduction being applied to all such selling stockholders in proportion to the
number of shares requested by such stockholders to be included in such
offering.
8.6 LIMITATIONS. The Company's obligations under this SECTION 8
are qualified and limited by the following provisions:
(a) With respect to an offering in which Intel is exercising its
incidental registration rights under SECTION 8.4 above, the Company will
have the right to select the managing Underwriter(s) for such offering.
(b) If, during the period that a Shelf Registration Statement is
effective, the Company commences an underwritten offering of Common Stock
on its own behalf or on behalf of selling stockholders, Intel will refrain
from selling Registrable Securities pursuant to such Shelf Registration
Statement for a period of time beginning ten days before the anticipated
effective date of the Company's offering (as disclosed by the Company to
Intel in writing) and ending 120 days after such effective date (or, if
later, the expiration of any lock-up agreement executed by Intel in
connection with such offering); provided that Intel is given the
opportunity to sell Registrable Securities in such offering on an
equivalent basis with any other selling stockholders pursuant to SECTION
8(d) above; and provided further that this limitation will terminate if the
Company ceases to diligently pursue such offering.
(c) Intel's registration rights under this SECTION 8 will
terminate at the first time at which Intel is entitled to sell all of the
Registrable Securities in a single three month period pursuant to Rule 144
under the Securities Act.
(d) Intel will notify the Company two business days prior to
selling any Registrable Securities pursuant to a Shelf Registration
Statement. During the time that a Shelf Registration Statement is
effective, Intel will refrain from selling stock pursuant to such Shelf
Registration Statement, if requested in writing by the Company, during one
or more time periods totaling not more than 30 days in the aggregate during
any calendar year.
(e) In connection with any underwritten offering pursuant to
these provisions in which Intel desires to participate, Intel will complete
and execute all questionnaires, custody agreements, powers of attorney,
indemnities, underwriting agreements, lock-up agreements and other
documents reasonably required by the Underwriters in connection with such
offering.
(f) Intel will furnish to the Company such information regarding
the Registrable Securities and the intended method of disposition thereof
by Intel as is legally required in connection with any action required to
be taken by the Company hereunder in connection with the registration of
the Registrable Securities.
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8.7 REGISTRATION PROCEDURES. In connection with any registration of
Registrable Securities under this SECTION 8, the Company will:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective, including by preparing and filing with the Commission any
necessary amendments and supplements to such registration statement and the
prospectus used in connection therewith, until the earlier of (A) such time
as all Registrable Securities subject to such registration statement have
been disposed of or (B) the expiration of 90 days after the effective date
of such registration statement; provided that such 90 day limitation shall
not apply to any Shelf Registration Statement;
(b) furnish to Intel such number of copies of the registration
statement and prospectus (including any preliminary prospectus and any
amendments or supplements) as may be reasonably requested by Intel;
(c) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
blue sky laws of such jurisdictions within the United States and Puerto
Rico as Intel reasonably requests, and take such other actions as may be
reasonably required of it to enable Intel to consummate the disposition in
such jurisdictions of the Registrable Securities covered by such
registration statement; provided that the Company will not be required to
(A) qualify to transact business as a foreign corporation in any
jurisdiction in which it would not otherwise be required to be so
qualified; (B) take any action that would subject it to general service of
process in any such jurisdictions where it is not then so subject, or (C)
subject itself to any type of taxation in any jurisdiction in which it is
not then so subject;
(d) use its best efforts to cause all such Registrable
Securities to be listed or quoted on each securities exchange or automated
quotation system on which the Common Stock is then listed or quoted;
(e) if requested by the Underwriters for any underwritten
offering of Registrable Securities, enter into an underwriting agreement
with such Underwriters containing such representations and warranties by
the Company and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary
distributions, including without limitation provisions with respect to
indemnities and contribution as are reasonably satisfactory to the Company,
such Underwriters and Intel;
(f) during the period when the registration statement is
required to be effective, notify Intel of any event as a result of which
the prospectus included in the registration statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will
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not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading; and
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission with respect to such offering and
take all such actions as may be reasonably requested by Intel to facilitate
the sale by Intel of such Registrable Securities pursuant to such
registration statement.
8.8 EXPENSES. Except as provided in the following sentence, the
Company will bear all expenses arising or incurred in connection with any
registration of Registrable Securities pursuant to this SECTION 8, including
without limitation (a) registration fees; (b) filing fees charged by the
National Association of Securities Dealers, Inc.; (c) printing expenses; (d)
the Company's accounting and legal fees and expenses; (e) expenses of any
special audits or comfort letters incident to or required by such
registration or qualification; and (f) expenses of complying with the
securities or blue sky laws of any jurisdictions in connection with such
registration or qualification. Intel will bear the expense of all
underwriting fees, discounts or commissions applicable to its sale of
Registrable Securities and the fees and expenses of any separate legal
counsel or accounting firm engaged by Intel.
8.9 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Intel and
each person who controls Intel within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection
with defending or investigating any such action or claim) arising out of or
based upon based on any untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable
Securities or in any amendment or supplement thereto, or arising out of or
based on any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages or
liabilities are caused by (i) any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
Intel furnished to the Company in writing by Intel or on Intel's behalf
expressly for use therein or (ii) with respect to any offering that is not
underwritten, any failure by Intel to deliver or cause to be delivered a
copy of the final prospectus relating to such offering (as then amended or
supplemented) to the person asserting such claim if such final prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
(b) Intel agrees to indemnify and hold harmless the Company and
its directors and officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to Intel, but only with respect to the matters
specified in clauses (i) and (ii) of the preceding paragraph.
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(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any of the two preceding paragraphs,
such person (the "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party, upon request of the Indemnified Party,
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is
understood that the Indemnifying Party shall not, in respect of the legal
expenses of any Indemnified Party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel),
and that all such fees and expenses shall be reimbursed as they are
incurred. The Indemnifying Party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by this paragraph,
the Indemnifying Party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (A) such settlement
is entered into more than 30 days after receipt by such Indemnifying Party
of the aforesaid request and (B) such Indemnifying Party shall not have
reimbursed the Indemnified Party in accordance with such request prior to
the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from any liability on
claims that are the subject matter of such proceeding.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. The terms and conditions of this Agreement
represent the entire agreement between the parties with respect to the subject
matter hereof and supersede any prior agreements or understandings, whether
written or oral, between the parties respecting such subject matter. This
Agreement may be modified only in writing and with the consent of both parties.
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9.2 ASSIGNMENT. Neither party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
9.3 CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the state of Delaware applicable to agreements
between residents of Delaware wholly executed and wholly performed therein.
9.4 CONFIDENTIALITY. Each party shall maintain the confidentiality
of this Agreement and the transactions contemplated hereby, and neither party
shall make any press release or other public disclosure concerning this
Agreement or the transactions contemplated hereby, except as required by law or
as agreed upon by the parties. In the case of any disclosure required by law,
the disclosing party will provide the other party a reasonable opportunity to
review any disclosure and a reasonable opportunity to comment upon such
disclosure or to request confidential treatment.
9.5 TERMINATION. If the Closing has not occurred within 120 days
after the date of this Agreement, then either party may terminate this Agreement
by written notice to the other party.
IN WITNESSES WHEREOF, the parties have entered into this Agreement as of
the date first set forth above.
INTEL CORPORATION
By: /s/ Noel Lazo
------------------------------
Name: Noel Lazo
Title: Assistant Treasurer
CNET, INC.
By: /s/ Shelby W. Bonnie
------------------------------
Name: Shelby W. Bonnie
Title: Chief Operating Officer
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EXHIBIT 11.1
CNET, INC.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . . . $5,016,050 $(4,320,477) $(7,872,153) $(8,019,000)
---------- ----------- ----------- -----------
Primary shares outstanding:
Weighted average shares outstanding
during the period:
Preferred. . . . . . . . . . . . . . . . . . . - 5,707,204 - 5,707,204
Common . . . . . . . . . . . . . . . . . . . . 13,368,429 2,700,000 13,368,429 2,700,000
Shares issued and stock option and warrants
granted in accordance with SAB No. 83. . . . . - 808,841 - 808,841
Common stock equivalent shares. . . . . . . . . . 1,578,786 - - -
---------- ----------- ----------- -----------
Shares used in calculating per share data. . . 14,947,215 9,216,045 13,368,429 9,216,045
---------- ----------- ----------- -----------
Primary net income (loss) per common stock
and common stock equivalent shares. . . . $0.34 $(0.47) $(0.59) $(0.87)
---------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,996,354
<SECURITIES> 0
<RECEIVABLES> 7,176,307
<ALLOWANCES> 256,338
<INVENTORY> 0
<CURRENT-ASSETS> 23,196,778
<PP&E> 19,704,235
<DEPRECIATION> 4,370,033
<TOTAL-ASSETS> 43,349,941
<CURRENT-LIABILITIES> 9,821,817
<BONDS> 0
0
0
<COMMON> 1,357
<OTHER-SE> 70,286,925
<TOTAL-LIABILITY-AND-EQUITY> 33,087,962
<SALES> 14,632,167
<TOTAL-REVENUES> 14,632,167
<CGS> 11,058,139
<TOTAL-COSTS> 21,026,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 201,891
<INTEREST-EXPENSE> 101,715
<INCOME-PRETAX> (7,872,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,872,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,872,153)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
