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Filed pursuant to Rule 424(b)(3)
Registration No. 333-56633
CNET, INC.
113,354 SHARES
COMMON STOCK
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This Prospectus relates to an offering of up to 113,354 shares (the
"Shares") of common stock, par value $.0001 per share (the "Common Stock"),
of CNET, Inc., a Delaware corporation (the "Company"), issued pursuant to
that certain Agreement and Plan of Merger, dated as of May 7, 1998, by and
among the Company, CNET Acquisition Corp., U.Vision Inc. and the stockholders
of U.Vision Inc. (the stockholders of U.Vision Inc. are referred to herein
collectively as the "Selling Shareholders").
The Shares being registered are being offered for the account of the
Selling Shareholders. See "Selling Shareholders." The Company will not
receive any proceeds from the sale of the Shares offered hereby. The Shares
may be offered in transactions on the Nasdaq National Market, in negotiated
transactions, or through a combination of such methods of distribution, at
prices relating to the prevailing market prices or at negotiated prices. See
"Plan of Distribution."
Since inception, the Company has incurred significant losses and, as of
March 31, 1998, had an accumulated deficit of $59.7 million. The Company
anticipates that it will incur quarterly and annual losses in the future. See
"Risk Factors."
The Common Stock is quoted on the Nasdaq National Market under the
symbol "CNWK." On July 23, 1998, the last sale price of the Common Stock, as
reported on the Nasdaq National Market, was $70.375 per share.
--------------------
SEE "Risk Factors" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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No dealer, salesman, or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such
other information and representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to its date. This
Prospectus does not constitute an offer to sell, or a solicitation of any
offer to buy, any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy, such securities in any circumstances in
which such offer or solicitation is unlawful.
--------------------
The date of this Prospectus is July 24, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements, information
statements, and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements, information statements, and
other information filed by the Company with the Commission pursuant to the
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549-1004, at its Northeast
Regional Office located at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at its West Regional Office located at 5670 Wilshire Blvd.,
Los Angeles, California 90036. Copies of such material may be obtained from
the Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains
a Web site that contains reports, proxy statements, information statements
and other information regarding the Company. The Commission's Web site
address is http://www.sec.gov. The Company is a publicly held corporation
and its Common Stock is traded on the Nasdaq National Market under the symbol
"CNWK." Reports, proxy statements, information statements, and other
information can also be inspected at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as it
may determine to furnish or as may be required by law.
The Company has filed with the Commission a Registration Statement on
Form S-3 (referred to herein, together with all exhibits, as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Shares offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement. Certain parts of the Registration Statement have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement which can be
inspected at the public reference rooms at the offices of the Commission.
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DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the
written or oral request of such person, a copy of any or all of the documents
incorporated by reference herein (other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus incorporates). Requests should be directed
to:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Telephone: (415) 395-7800
Attention: Douglas N. Woodrum, Chief Financial Officer
The Company's (i) Annual Report on Form 10-K, which contains audited
financial statements for the fiscal year ended December 31, 1997, (ii)
Quarterly Report on Form 10-Q, which contains unaudited financial statements
for the fiscal quarter ended March 31, 1998, (iii) reports on Form 8-K dated
May 22, 1998 and July 15, 1998, (iv) all reports filed pursuant to Section
13(a) or 15(d) of the Exchange Act since the filing of such Form 10-Q and the
effective date of this Registration Statement on Form S-3, and (v) a
description of the Common Stock contained in the Company's registration
statement on Form SB-1, dated July 8, 1996 (Commission File Number
333-4752-LA) and the Company's registration statement on Form 8-A, dated June
17, 1996, including any amendment or reports filed for the purpose of
updating such description, are hereby incorporated by reference into this
Prospectus.
All documents filed with the Commission by the Company pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering relating
to this Prospectus will be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement incorporated or deemed to be incorporated by reference herein
will be deemed to be modified, replaced, or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement
so modified or superseded will be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
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THE COMPANY
CERTAIN INFORMATION IN THIS PROSPECTUS 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 OR OTHER FINANCIAL ITEMS, ANY
STATEMENTS OF THE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS,
ANY STATEMENTS CONCERNING PROPOSED NEW PRODUCTS OR SERVICES, ANY STATEMENTS
REGARDING FUTURE ECONOMIC CONDITIONS OR PERFORMANCE, AND ANY STATEMENT OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. IN SOME CASES, FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS "MAY," "WILL,"
"EXPECTS," "BELIEVES", "PLANS," "ANTICIPATES," "ESTIMATES," "POTENTIAL," OR
"CONTINUE," OR THE NEGATIVE THEREOF OR OTHER COMPARABLE TERMINOLOGY.
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, SOME OF WHICH ARE SUMMARIZED
IN THE SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 6.
CNET: The Computer Network is a media company focused on providing
original Internet content and television programming relating to information
technology and the Internet. The Company also operates SNAP!, a free online
service that aggregates Internet content and offers Internet directory and
searching capabilities.
The Company's technology publishing division is comprised of the
following eight technology-focused Internet sites: CNET.COM, NEWS.COM,
GAMECENTER.COM, SHAREWARE.COM, SEARCH.COM, BUILDER.COM, DOWNLOAD.COM AND
COMPUTERS.COM. The Company seeks to use its editorial, technical, and
programming expertise to create compelling content to engage
technology-oriented consumers and attract advertisers wishing to reach this
audience. The Company believes that its strategy of combining Internet and
television-based programming enhances its ability to promote the CNET brand,
improves its ability to create high quality content, and provides the Company
with a source of competitive advantage and differentiation. The Company is
focused on leveraging its market position, the awareness of its brand amonG
consumers and its relationship with advertisers to create new Internet sites
and services related to information technology and the Internet, and to
capitalize on new business opportunities such as Internet-based electronic
commerce. Based on the volume of traffic on its Internet sites and the size
of its television audience, the Company believes that it has established a
leadership position in its targeted content market. Nevertheless, because of
the substantial expenses incurred by the Company in developing, operating and
promoting its Internet sites, the Company has incurred significant operating
losses and net losses. As of March 31, 1998, the Company had an accumulated
deficit of $59.7 million. For the fiscal year ended December 31, 1997, the
Company reported a net loss of $24.7 million, and for the fiscal quarter
ended March 31, 1998, the Company reported a net loss of $5.7 million. The
Company anticipates that it will incur quarterly and annual losses in the
future.
SNAP! is a free online service built for the Internet consisting of two
complementary components - a robust Web site that provides a comprehensive
overview of the Internet organized by channel, and the SNAP! Starter Kit, a
CD-ROM designed to help new users learn how to use the Internet and get
online easily. The SNAP! Web site is organized into sixteen channels, which
are regularly infused with editorial content, news, headlines, and
customizable data from a range of well recognized brands on the Web. SNAP!
also features its own directory of Web sites for fast, efficient and
high-quality searches. The site is designed to make searching the Web easy
by organizing leading search engines into a consistent and powerful user
experience. As part of its distribution strategy for SNAP!, CNET builds
customized, co-branded versions of the service for Internet service
providers, computer hardware manufacturers, telecommunication companies and
others, helping them offer their customers a compelling Internet experience
and maintain a relationship with their customers online. Since the service
was first announced in June 1997, SNAP! has signed distribution agreements
with more than 35 companies, including 20 Internet service providers.
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Revenues attributable to the Company's Internet operations were $26.7
million for the year ended December 31, 1997 and were $8.9 million and $4.5
million for the three months ended March 31, 1998 and 1997, respectively.
Internet revenues for CNET Online were $8.0 million and $4.5 million for the
three months ended March 31, 1998 and 1997, respectively. Internet revenues
for Snap! were $906,000 for the three months ended March 31, 1998. Snap!
commenced operations in September 1997, and thus did not generate revenues
for the three month period ended March 31, 1997. Internet revenues consist
primarily of revenues derived from the sale of advertisements on pages
delivered to users of the Company's Internet sites. The delivery of an
advertisement is recognized by the Company as an "impression." Advertising
revenues are derived principally from arrangements with the Company's
advertising customers that provide for a guaranteed number of impressions.
Advertising rates vary depending primarily on the particular Internet site on
which advertisements are placed, the total number of impressions purchased
and the length of the advertiser's commitment. Advertising revenues are
recognized in the period in which the advertisements are delivered. The
Company's ability to sustain or increase revenues for Internet advertising
will depend on numerous factors, which include, but are not limited to, the
Company's ability to increase its inventory of delivered Internet pages on
which advertisements can be displayed and its ability to maintain or increase
its advertising rates.
The increase in revenues for CNET Online of $3.5 million from the first
quarter of 1997 to the first quarter of 1998 was attributable to increased
pages delivered and increased advertisements sold on each of its sites.
Average daily pages delivered on the Company's CNET Online sites during 1997
approximated 4.3 million pages and during the first quarter of 1998
approximated 6.5 million pages, an increase of 103% as compared to 3.2
million average daily pages during the first quarter of 1997. In addition,
Internet revenues include non-advertising revenues of $1.0 million and
$703,000 for the three months ended March 31, 1998 and 1997, respectively.
Non-advertising revenues include fees earned from Company sponsored trade
shows, electronic commerce revenues, content licensing revenues, technology
licensing and consulting.
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 $709,000 and $24,000 for the
three months ended March 31, 1998 and 1997, respectively.
The Company produces four television series. CNET CENTRAL launched in
April 1995 and is a half-hour magazine format program devoted to exploring
the world of information technology and the Internet. THE NEW EDGE launched
in July 1996 and is a half-hour magazine format program showcasing
technological breakthroughs and how they will change our lives. THE WEB also
launched in July 1996 and is a one hour program showing viewers the hottest
Web sites and technologies and includes interviews with industry leaders.
Based on Nielsen ratings, CNET CENTRAL, THE NEW EDGE and THE WEB reached an
average of 1.1 million viewers during the fourth quarter of 1997. TV.COM is
a syndicated program, which launched in September 1996 and showcases for a
broadcast audience the world of the Internet and digital technologies.
CNET's television shows are produced by the Company and, with the exception
of TV.COM, are carried nationally on the USA Network and the Sci-Fi Channel,
both of which are owned by USA Networks. TV.COM is produced in conjunction
with Trans World International ("TWI"), and is syndicated into over 115
markets nationally. During the fourth quarter of 1997, TV.COM achieved an
average weekly audience of approximately 800,000 viewers. Additionally, CNET
television has been licensed to broadcasters in Japan, Taiwan, Singapore,
Panama, Canada, Spain, Sweden and Argentina.
Television revenues were $6.9 million for the year ended December 31,
1997 and were $1.8 million for each of the three month periods ended March
31, 1998 and 1997, respectively. Pursuant to an amended agreement, effective
July 1, 1996, between the Company and USA Networks, USA Networks licensed the
right to carry the DIGITAL DOMAIN 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 Networks agreed to extend the
agreement for an additional year beginning July 1, 1997 and revenues are
again limited to the costs of producing such programs, subject to a maximum
amount of $5.5 million. In June 1998, the agreement was extended for an
additional year, ending June 30, 1999, and the maximum revenues during such
year will be $5.9 million.
During 1997, television operations accounted for 21% of total revenues and
Internet operations accounted for 79% of total revenues. Television operations
accounted for 16% and 28% of total revenues and Internet operations
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accounted for 84% and 72% of total revenues for the three month ended March
31, 1998 and 1997, respectively. The Company expects to experience
fluctuations in television and Internet revenues in the future that may be
dependent on many factors, including demand for the Company's Internet sites
and television programming, and the Company's ability to develop, market and
introduce new and enhanced Internet content and television programming.
RECENT DEVELOPMENTS. On June 9, 1998, the Company announced an agreement
with National Broadcasting Company, Inc. ("NBC") under which the Company and
an affiliate of NBC have formed a joint venture to operate the Company's
SNAP! Internet portal service. The transaction closed on June 30, 1998. NBC
acquired an initial interest of 19% in the joint venture and received an
option to increase its ownership percentage to 60%. Also on June 30, 1998,
NBC purchased 812,800 shares of the Company's common stock for an aggregate
purchase price of $26.2 million.
The Company is a Delaware corporation and was formed in 1992. The
Company's principal executive offices are located at 150 Chestnut Street, San
Francisco, California 94111, and its telephone number is (415) 395-7800.
RISK FACTORS
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT; ANTICIPATED LOSSES.
The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the television programming industry and in the
relatively new and rapidly evolving market for 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 operating history of the Company makes the
prediction of 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 March 31,
1998, had an accumulated deficit of $59.7 million. The Company may continue
to incur losses in the future.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS.
The Company's 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
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. If the cost of producing television
programs for USA Networks exceeds the maximum licensing fee payable by USA
Networks, or if production costs for TV.COM exceed distribution revenues, the
Company could incur a gross deficit with respect to its television
operations. Further, the size and demographic characteristics of the
Company's television 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
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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 may fall below the expectations of the Company, securities
analysts or investors in some future quarter. In such event, the trading
price of the Company's Common Stock would likely be materially adversely
affected.
UNCERTAIN ACCEPTANCE OF THE COMPANY'S INTERNET CONTENT.
The Company's future success depends upon its ability to deliver
original and compelling Internet content and services in order to attract and
retain users. There can be no assurance that the Company's content and
services will be attractive to a sufficient number of Internet users to
generate advertising revenues. There also can be no assurance that the
Company will be able to anticipate, monitor and successfully respond to
rapidly changing consumer tastes and preferences so as to attract a
sufficient number of users to its sites. Internet users can freely navigate
and instantly switch among a large number of Internet sites, many of which
offer competing content and services, making it difficult for the Company to
distinguish its content and services and to attract users. In addition, many
other Internet sites offer very specific, highly targeted content that could
have greater appeal than the Company's sites to particular subsets of the
Company's target audience. If the Company is unable to develop Internet
content and services that allow it to attract, retain and expand a loyal user
base possessing demographic characteristics attractive to advertisers, the
Company will be unable to generate advertising revenues, and its business,
financial condition and operating results will be materially adversely
affected.
UNCERTAIN ACCEPTANCE OF THE COMPANY'S TELEVISION PROGRAMMING.
There can be no assurance that the Company's television programming will
be accepted by television broadcasters, cable networks or their viewers. The
successful development and production of television programming is subject to
numerous uncertainties, including the ability to anticipate and successfully
respond to rapidly changing consumer tastes and preferences, obtain favorable
distribution rights, fund new program development and attract and retain
qualified producers, writers, technical personnel and television hosts. If
the Company is unable to develop television programming that allows it to
attract, retain and expand a loyal television audience, the Company will be
unable to achieve its strategic objectives, and its business, financial
condition and operating results will be materially adversely affected.
COMPETITION.
Competition among content providers is intense and is expected to
increase significantly in the future. The Company's Internet and television
operations compete against a variety of firms that provide content through
one or more media, such as print, broadcast, cable television and the
Internet. As with any other content provider, the Company competes generally
with other content providers for the time and attention of consumers and for
advertising revenues. To compete successfully, the Company must provide
sufficiently compelling and popular Internet content and television
programming to attract Internet users and television viewers and to support
advertising intended to reach such users and viewers. Within the content
niche of information technology and the Internet, the Company competes in
particular with the publishers of computer-oriented magazines, such as
Ziff-Davis Publishing Company, International Data Group and CMP Publications,
and with television companies that offer computer-related programming, such
as the Cable News Network, the Discovery Channel, Jones Computer Network,
Mind Extension University and MSNBC, a joint venture between Microsoft
Corporation and General Electric's NBC Television Network. Each of these
competitors also offers one or more Internet sites with content designed to
complement its magazines or television programming.
In the market for Internet content, the Company competes with other
Internet content and service providers, including Web directories, search
engines, shareware archives, sites that offer original editorial content,
commercial online services and sites maintained by Internet service
providers. These competitors include Excite,
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Inc., Infoseek Corporation, Lycos, Inc., Microsoft Corporation, Netscape
Communications Corporation, Time Warner, Inc., PointCast Incorporated,
SOFTBANK Corporation, Starwave Corporation and Yahoo! Inc., as well as
America Online, Inc., CompuServe, Inc. and Prodigy Services Co. The market
for Internet content and services is new, intensely competitive and rapidly
evolving. There are minimal barriers to entry, and current and new
competitors can launch new sites at relatively low cost. In addition, the
Company competes for the time and attention of Internet users with thousands
of non-profit Internet sites operated by individuals, government and
educational institutions. Existing and potential competitors also include
magazine and newspaper publishers, cable television companies and startup
ventures attracted to the Internet market. Accordingly, the Company expects
competition to persist and intensify and the number of competitors to
increase significantly in the future. As the Company expands the scope of its
Internet content and services, it will compete directly with a greater number
of Internet sites and other media companies. Because the operations and
strategic plans of existing and future competitors are undergoing rapid
change, it is extremely difficult for the Company to anticipate which
companies are likely to offer competitive services in the future. There can
be no assurance that the Company's Internet operations will compete
successfully.
With respect to its television operations, the Company competes directly
with established broadcast and cable television networks and with other
distributors and producers of programming about information technology and
the Internet. The Company also faces potential competition from a wide range
of existing broadcast and cable television companies, and from joint ventures
between television companies and computer-oriented magazine publishers or
computer hardware or software vendors, any of which could produce television
programming that competes directly with the Company's television programming.
For example, Ziff-Davis launched a 24 hour cable television network.
MANAGING POTENTIAL GROWTH.
The Company has rapidly and significantly expanded its operations and
anticipates that further expansion of its operations may be required in order
to address potential market opportunities. This rapid growth has placed, and
is expected to continue to place, a significant strain on the Company's
management, operational and financial resources. From January 1, 1997 to
December 31, 1997, the Company grew from 372 to 581 employees. The increase
in the number of employees and the Company's market diversification and
product development activities have resulted in increased responsibility for
the Company's management. The Company's management will be required to
successfully maintain relationships with various advertising customers,
advertising agencies, other Internet sites and services, Internet service
providers and other third parties and to maintain control over the strategic
direction of the Company in a rapidly changing environment. There can be no
assurance that the Company's current personnel, systems, procedures and
controls will be adequate to support the Company's future operations, that
management will be able to identify, hire, train, motivate or manage required
personnel or that management will be able to successfully identify and
exploit existing and potential market opportunities. If the Company is unable
to manage growth effectively, the Company's business, financial condition and
operating results will be materially adversely affected.
The launch of Snap! in 1997 represented a significant expansion of the
Company's business and has required a substantial investment of capital and
additional, substantial burdens on the Company's management personnel and its
financial and operational systems. Through March 31, 1998, the Company
incurred a total of approximately $16.6 million in operating losses in
connection with the SNAP! service. The expenditures required in connection
with Snap! significantly increased the Company's operating loss during 1997
and could result in large and prolonged operating losses for the Company in
the future. There can be no assurance that the Snap! service will achieve
market acceptance or reach profitability, and a failure by the Company to
recover the substantial investment required could have a material adverse
effect on the Company's business, financial condition and operating results.
DEPENDENCE ON ADVERTISING REVENUES; CUSTOMER CONCENTRATION.
The Company's revenues through December 31, 1997 were derived primarily
from the sale of advertising on its Internet sites and from advertising and
license fees from producing its television programs. Most of the
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Company's advertising contracts can be terminated by the customer at any time
on very short notice. Consequently, the Company's advertising customers may
move their advertising to competing Internet sites or from the Internet to
traditional media, quickly and at low cost, thereby increasing the Company's
exposure to competitive pressures and fluctuations in net revenues and
operating results. In selling Internet advertising, the Company also depends
to a significant extent on advertising agencies, which exercise substantial
control over the placement of advertising for the Company's existing and
potential advertising customers. If the Company loses advertising customers,
fails to attract new customers or is forced to reduce advertising rates in
order to retain or attract customers, the Company's business, financial
condition and operating results will be materially adversely affected.
UNCERTAIN ACCEPTANCE OF THE INTERNET AS AN ADVERTISING MEDIUM.
The Company's Internet advertising customers have only limited
experience with the Internet as an advertising medium and neither such
customers nor their advertising agencies have devoted a significant portion
of their advertising budgets to Internet-based advertising in the past. A
significant portion of the Company's potential customers have no experience
with the Internet as an advertising medium and have not devoted any
significant portion of their advertising budgets to Internet-based
advertising in the past. In order for the Company to generate advertising
revenues, advertisers and advertising agencies must direct a significant
portion of their budgets to the Internet and, specifically, to the Company's
Internet sites. There can be no assurance that advertisers or advertising
agencies will be persuaded to allocate or continue to allocate significant
portions of their budgets to Internet-based advertising, or, if so persuaded,
that they will find Internet-based advertising to be more effective than
advertising in traditional media such as print, broadcast and cable
television, or in any event decide to advertise or continue to advertise on
the Company's Internet sites. Acceptance of the Internet among advertisers
and advertising agencies will also depend to a large extent on the level of
use of the Internet by consumers, which is highly uncertain, and on the
acceptance of new methods of conducting business and exchanging information.
Advertisers and advertising agencies that have invested substantial resources
in traditional methods of advertising may be reluctant to modify their media
buying behavior or their systems and infrastructure to use Internet-based
advertising. Furthermore, no standards to measure the effectiveness of
Internet-based advertising have yet gained widespread acceptance, and there
can be no assurance that such standards will be adopted or adopted broadly
enough to support widespread acceptance of Internet-based advertising. If
Internet-based advertising is not widely accepted by advertisers and
advertising agencies, the Company's business, financial condition and
operating results will be materially adversely affected.
UNCERTAIN ACCEPTANCE AND MAINTENANCE OF BRANDS.
Promotion of the CNET and Snap! brands will depend largely on the
Company's success in providing high quality Internet and television
programming, which cannot be assured. If consumers do not perceive the
Company's existing Internet and television content to be of high quality, or
if the Company introduces new Internet sites or television programs or enters
into new business ventures that are not favorably received by consumers, the
Company will be unsuccessful in promoting and maintaining its brands. Any
expansion of the focus of the Company's operations beyond providing Internet
and television content related to information technology and the Internet,
including the expansion represented by the launch of Snap!, creates a risk of
diluting the Company's brands, confusing consumers and decreasing the
attractiveness of its audience to advertisers. Furthermore, in order to
attract and retain Internet users and television viewers, and to promote and
maintain the CNET and Snap! brands in response to competitive pressures, the
Company may find it necessary to increase its budgets for Internet content
and television programming or otherwise to increase substantially its
financial commitment to creating and maintaining a distinct brand loyalty
among consumers. If the Company is unable to provide high quality content or
otherwise fails to promote and maintain its brands, or if the Company incurs
excessive expenses in an attempt to improve its content or promote and
maintain its brands, the Company's business, financial condition and
operating results will be materially adversely affected.
There can be no assurance that any of the Company's recently developed
Internet sites or television programming will achieve market acceptance. The
Company's newly launched Internet sites could also divert users from the
Company's pre-existing sites and bring the Company into direct competition
with new competitors. In addition, any new Internet site or television
program launched by the Company that is not favorably received by
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consumers could damage the Company's reputation or its brands. Any effort by
the Company to launch new Internet sites or television programs will require
significant additional expenses and programming and editorial resources and
will strain the Company's management, financial and operational resources. A
failure by the Company to achieve and maintain market acceptance of existing
sites and television programs or an inability to generate revenues from new
sites or television programs sufficient to offset the associated costs could
have a material adverse effect on the Company's business, financial condition
or operating results.
DEPENDENCE ON KEY PERSONNEL.
The Company's performance is substantially dependent on the continued
services of Halsey M. Minor, Shelby W. Bonnie and the other members of its
senior management team, as well as on the Company's ability to retain and
motivate its other officers and key employees. The Company does not have "key
person" life insurance policies on any of its officers or other employees.
The Company's future success also depends on its continuing ability to
attract and retain highly qualified personnel. The production of content for
the Internet and television requires highly skilled writers and editors and
personnel with sophisticated technical expertise, and the number of such
personnel available is extremely limited. Competition for such personnel
among companies with operations involving computer technology, the Internet
and television production is intense, and there can be no assurance that the
Company will be able to retain its existing employees or that it will be able
to attract, assimilate or retain sufficiently qualified personnel in the
future. In particular, the Company has encountered difficulties in attracting
qualified software developers for its Internet sites and related
technologies, and there can be no assurance that the Company will be able to
attract and retain such developers. The inability to attract and retain the
necessary technical, managerial, editorial and sales personnel could have a
material adverse effect on the Company's business, financial condition or
operating results.
RISKS OF TELEVISION DISTRIBUTION; DEPENDENCE ON USA NETWORKS.
The Company's television programming is currently carried primarily on
the USA Network and the Sci-Fi Channel, both of which are owned by USA
Networks, pursuant to an agreement between the Company and USA Networks,
which expires on June 30, 1999. There can be no assurance that the Company
will be able to obtain distribution for its television programming after June
30, 1999.
RISKS OF TECHNOLOGICAL CHANGE.
The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that the Company continually improve the
performance, features and reliability of its Internet content, particularly
in response to competitive offerings. There can be no assurance that the
Company will be successful in responding quickly, cost effectively and
sufficiently to these developments. In addition, the widespread adoption of
new Internet technologies or standards could require substantial expenditures
by the Company to modify or adapt its Internet sites and services and could
fundamentally affect the character, viability and frequency of Internet-based
advertising, either of which could have a material adverse effect on the
Company's business, financial condition or operating results. New Internet
services or enhancements offered by the Company may contain design flaws or
other defects that could require costly modifications or result in a loss of
consumer confidence, either of which could have a material adverse effect on
the Company's business, financial condition or operating results. In
addition, failure of any equipment or software used by the Company to operate
properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could
have a material adverse effect on the Company's business results of
operations or financial condition.
DEPENDENCE ON THIRD PARTIES FOR INTERNET OPERATIONS.
The Company relies on the cooperation of owners and operators of other
Internet sites in connection with the operation of its Snap! service, which
aggregates content from a range of providers, as well as its software
downloading sites and its SEARCH.COM site. There can be no assurance that
such cooperation will be available
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on acceptable commercial terms or at all. The Company's ability to develop
original and compelling Internet content is also dependent on maintaining
relationships with and using products provided by third party vendors of
Internet development tools and technologies, such as Macromedia's Shockwave,
Microsoft's ActiveX, Progressive Networks' RealAudio and Sun Microsystems'
Java. The Company's ability to advertise on other Internet sites and the
willingness of the owners of such sites to direct users to the Company's
Internet sites through hypertext links are also critical to the success of
the Company's Internet operations. Other Internet sites, particularly search
engines, directories and other navigational tools managed by Internet service
providers and Web browser companies, significantly affect traffic to the
Company's technology sites. Developing and maintaining satisfactory
relationships with third parties could become more difficult and more
expensive as competition increases among Internet content providers. If the
Company is unable to develop and maintain satisfactory relationships with
such third parties on acceptable commercial terms, or if the Company's
competitors are better able to leverage such relationships, the Company's
business, financial condition and operating results will be materially
adversely affected.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS AND INVESTMENTS.
From time to time, the Company entertains new business opportunities and
ventures in a broad range of areas. Any decision by the Company to pursue a
significant business expansion or new business opportunity would likely
require a substantial investment of capital, which could have a material
adverse effect on the Company's financial condition and its ability to
implement its existing business strategy. Such an investment could also
result in large and prolonged operating losses for the Company. Further, the
pursuit of expansion or new business opportunities would place additional,
substantial burdens on the Company's management personnel and its financial
and operational systems. There can be no assurance that any new Internet site
or service or other new business venture would be developed in a cost
effective or timely manner or would achieve market acceptance. Any such
venture that is not favorably received by consumers could damage the
Company's reputation or the CNET and Snap! brands. There can be no assurance
that any significant business expansion or new business opportunity would
ever be profitable, and a failure by the Company to recover the substantial
investment required could have a material adverse effect on the Company's
business, financial condition and operating results.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT.
The Company's success and ability to compete is dependent in part on the
protection of its original content for the Internet and television and on the
goodwill associated with its trademarks, trade names, service marks and other
proprietary rights. The Company relies on copyright laws to protect the
original content that it develops for the Internet and television, including
its editorial features and the various databases of information that are
maintained by the Company and made available through its Internet sites. In
addition, the Company relies on federal trademark laws to provide additional
protection for the appearance of its Internet sites. A substantial amount of
uncertainty exists concerning the application of copyright and trademark laws
to the Internet, and there can be no assurance that existing laws will
provide adequate protection for the Company's original content or its
Internet domain names. In addition, because copyright laws do not prohibit
independent development of similar content, there can be no assurance that
copyright laws will provide any competitive advantage to the Company.
The Company owns two Federal trademark registrations for the name "CNET"
for use in connection with certain software applications and consulting
services that it acquired by assignment. The Company has filed applications
to register a number of its trademarks and service marks, including the name
"CNET" and the related logo and the names CNET.COM, SHAREWARE.COM, SEARCH.COM
and DOWNLOAD.COM, but no federal registrations have been granted for such
names or marks. The Company also asserts common law protection on certain
names and marks that it has used in connection with its business activities.
Two third parties objected to the Company's application to register the
service mark "c|net: the computer network," and, in connection with one of
these objections, the Company agreed not to use such mark for any real estate
or insurance related services. The Company is also a defendant in pending
litigation concerning its use of the name "Snap! Online". There can be no
assurance that the Company will be able to secure registration for any of its
marks. The Company has also invested significant resources in purchasing
Internet domain names for existing and potential Internet sites from the
registered owners of such names. There is a substantial degree of uncertainty
concerning the application of federal
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trademark law to the protection of Internet domain names, and there can be no
assurance that the Company will be entitled to use such domain names.
The Company relies on trade secret and copyright laws to protect the
proprietary technologies that it has developed to manage and improve its
Internet sites and advertising services, but there can be no assurance that
such laws will provide sufficient protection to the Company, that others will
not develop technologies that are similar or superior to the Company's, or
that third parties will not copy or otherwise obtain and use the Company's
technologies without authorization. The Company has filed patent applications
with respect to certain of its software systems, methods and related
technologies, but there can be no assurance that such applications will be
granted or that any future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a
competitive advantage for the Company. In addition, the Company relies on
certain technology licensed from third parties, and may be required to
license additional technology in the future, for use in managing its Internet
sites and providing related services to users and advertising customers. The
Company's ability to generate revenues from Internet commerce may also depend
on data encryption and authentication technologies that the Company may be
required to license from third parties. There can be no assurance that these
third party technology licenses will be available or will continue to be
available to the Company on acceptable commercial terms or at all. The
inability to enter into and maintain any of these technology licenses could
have a material adverse effect on the Company's business, financial condition
or operating results.
Policing unauthorized use of the Company's proprietary technology and
other intellectual property rights could entail significant expense and could
be difficult or impossible, particularly given the global nature of the
Internet and the fact that the laws of other countries may afford the Company
little or no effective protection of its intellectual property. In addition,
there can be no assurance that third parties will not bring claims of
copyright or trademark infringement against the Company or claim that the
Company's use of certain technologies violates a patent. The Company
anticipates an increase in patent infringement claims involving
Internet-related technologies as the number of products and competitors in
this market grows and as related patents are issued. Further, there can be no
assurance that third parties will not claim that the Company has
misappropriated their creative ideas or formats or otherwise infringed upon
their proprietary rights in connection with its Internet content or
television programming. Any claims of infringement, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management attention, require the Company to enter into costly royalty or
licensing arrangements or prevent the Company from using important
technologies or methods, any of which could have a material adverse effect on
the Company's business, financial condition or operating results.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTY.
Although there are currently few laws and regulations directly
applicable to the Internet, a range of new laws and regulations have been
proposed, and could be adopted, covering issues such as privacy, copyrights,
obscene or indecent communications and the pricing, characteristics and
quality of Internet products and services. During 1996, Congress enacted the
Communications Decency Act (the "CDA"), which, among other things, purported
to impose criminal penalties on anyone that distributes "obscene" or
"indecent" material over the Internet. A number of states have adopted or
proposed similar legislation. Although certain provisions of the CDA have
been held to be unconstitutional, the manner in which the CDA and similar
existing or future federal and state laws will ultimately be interpreted and
enforced and their effect on the Company's operations cannot yet be fully
determined, such laws could subject the Company to substantial liability. For
example, the Company does not and cannot practically screen the contents of
the various Internet sites that are indexed or accessible through the
Company's directories and search engines. Restrictive laws or regulations
could also dampen the growth of the Internet generally and decrease the
acceptance of the Internet as an advertising medium, and could, thereby, have
a material adverse effect on the Company's business, financial condition or
operating results. Application to the Internet of existing laws and
regulations governing issues such as property ownership, libel and personal
privacy is also subject to substantial uncertainty.
The television industry is subject to extensive regulation at the
federal, state and local levels. In addition, legislative and regulatory
proposals under consideration by Congress and federal agencies may materially
affect the industry and the Company's ability to obtain distribution for its
television programming.
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There can be no assurance that current or new government laws and
regulations, or the application of existing laws and regulations, will not
subject the Company to significant liabilities, significantly dampen growth
in Internet usage, prevent the Company from obtaining distribution for its
television programming, prevent the Company from offering certain Internet
content or services or otherwise cause a material adverse effect on the
Company's business, financial condition or operating results.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET.
Rapid growth in the use of and interest in the Internet is a recent
phenomenon, and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will
emerge to support the Company's business. Revenues from the Company's
Internet operations will depend largely on the widespread acceptance and use
of the Internet as a source of information and entertainment and as a vehicle
for commerce in goods and services. The Internet may not be accepted as a
viable commercial medium for a number of reasons, including potentially
inadequate development of the necessary network infrastructure, timely
development of enabling technologies or commercial support for Internet-based
advertising. To the extent that the Internet continues to experience an
increase in users, an increase in frequency of use or an increase in the
bandwidth requirements of users, there can be no assurance that the Internet
infrastructure will be able to support the demands placed upon it. In
addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet activity, or due to increased
government regulation. Changes in the pricing or quality of, or insufficient
availability of, telecommunications services to support the Internet also
could result in higher prices to end users or slower response times and could
adversely affect use of the Internet generally and of the Company's Internet
sites in particular. If use of the Internet does not continue to grow or
grows more slowly than expected, or if the Internet infrastructure does not
effectively support growth that may occur, the Company's business, financial
condition and operating results would be materially adversely affected.
CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS.
The satisfactory performance, reliability and availability of the
Company's Internet sites and its network infrastructure are critical to
attracting Internet users and maintaining relationships with advertising
customers. The Company's Internet advertising revenues are directly related
to the number of advertisements delivered by the Company to users. System
interruptions that result in the unavailability of the Company's Internet
sites or slower response times for users would reduce the number of
advertisements delivered and reduce the attractiveness of the Company's
Internet sites to users and advertisers. The Company has experienced periodic
system interruptions in the past and believes that such interruptions will
continue to occur from time to time in the future. Additionally, any
substantial increase in traffic on the Company's Internet sites may require
the Company to expand and adapt its network infrastructure. The Company's
inability to add additional software and hardware to accommodate increased
traffic on its Internet sites may cause unanticipated system disruptions and
result in slower response times. There can be no assurance that the Company
will be able to expand its network infrastructure on a timely basis to meet
increased demand. Any increase in system interruptions or slower response
times resulting from the foregoing factors could have a material adverse
effect on the Company's business, financial condition or operating results.
The Company's Internet and television operations are vulnerable to
interruption by fire, earthquake, power loss, telecommunications failure and
other events beyond the Company's control. All of the Company's servers and
television production equipment is currently located in San Francisco,
California, an area that is susceptible to earthquakes. Since launching its
first Internet site in June 1995, the Company has experienced system downtime
for limited periods of up to a few hours due to power loss and
telecommunications failures, and there can be no assurance that interruptions
in service will not materially adversely affect the Company's operations in
the future. The Company does not carry sufficient business interruption
insurance to compensate the Company for losses that may occur, and any losses
or damages incurred by the Company could have a material adverse effect on
its business, financial condition or operating results.
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LIABILITY FOR INTERNET AND TELEVISION CONTENT.
As a publisher and a distributor of content over the Internet and
television, the Company also faces potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims
based on the nature and content of the materials that it publishes or
distributes. Such claims have been brought, and sometimes successfully
pressed, against online services. In addition, the Company could be exposed
to liability with respect to material indexed in its Virtual Software Library
or its various search services. Although the Company carries general
liability insurance, the Company's insurance may not cover potential claims
of this type or may not be adequate to indemnify the Company for all
liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, financial condition or
operating results.
SECURITY RISKS.
A party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the
Company's Internet operations. The Company may be required to expend
significant capital and resources to protect against the threat of such
security breaches or to alleviate problems caused by such breaches. Concerns
over the security of Internet transactions and the privacy of users may also
inhibit the growth of the Internet generally, particularly as a means of
conducting commercial transactions. To the extent that activities of the
Company or third party contractors involve the storage and transmission of
proprietary information, such as computer software or credit card numbers,
security breaches could expose the Company to a risk of loss or litigation
and possible liability. There can be no assurance that contractual provisions
attempting to limit the Company's liability in such areas will be successful
or enforceable, or that other parties will accept such contractual provisions
as part of the Company's agreements.
DEPENDENCE ON LICENSED TECHNOLOGY.
The Company relies on certain technology licensed from third parties,
and there can be no assurance that these third party technology licenses will
be available or will continue to be available to the Company on acceptable
commercial terms or at all.
RECENT DEVELOPMENTS
On June 9, 1998, the Company announced an agreement with National
Broadcasting Company, Inc. ("NBC") under which the Company and an affiliate
of NBC have formed a joint venture to operate the Company's SNAP! Internet
portal service. The transaction closed on June 30, 1998. NBC acquired an
initial interest of 19% in the joint venture and received an option to
increase its ownership percentage to 60%. Also on June 30, 1998, NBC
purchased 812,800 shares of the Company's common stock for an aggregate
purchase price of $26.2 million.
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SELLING SHAREHOLDERS
The table below sets forth information with respect to the beneficial
ownership of the Company's Common Stock by the Selling Shareholders
immediately prior to this offering and as adjusted to reflect the sale of
shares of Common Stock pursuant to the offering. All information with
respect to the beneficial ownership has been furnished by the respective
Selling Shareholders. Percentages are based on the 15,477,292 shares of
Common Stock outstanding on May 31, 1998.
<TABLE>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
-------------------------------- --------------------
Number of Percent of Shares to Number of Percent of
Name of Beneficial Owner Shares Class be Sold Shares Class
- ------------------------ --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Tonny Yu 269,576 1.74% 53,952 215,624 1.39%
Nora Yeung 269,939 1.74% 53,952 215,987 1.39%
VLG Investments 1998 5,450 .04% 5,450 0 0%
</TABLE>
PLAN OF DISTRIBUTION
The sale of the Shares offered hereby may be effected from time to time
by the Selling Shareholders or by pledgees, donees, transferees or other
successors in interest of the Selling Shareholders, directly or by one or
more broker-dealers or agents in one or more transactions on the Nasdaq
National Market, in negotiated transactions, or through a combination of such
methods of distribution, at prices related to prevailing market prices or at
negotiated prices.
In the event one or more broker-dealers or agents agree to sell the
Shares, they may do so by purchasing the Shares as principals or by selling
the Shares as agent for the Selling Shareholders. Any such broker-dealers
may receive compensation in the form of discounts, concessions, or
commissions from the Selling Shareholders or the purchasers of the Shares for
which such broker-dealer may act as agent or to whom they sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess
of customary compensation). In connection with distributions of the Shares
or otherwise, the Selling Shareholders may enter into hedging transactions
with broker-dealers. In connection with such transactions, broker-dealers may
engage in short sales of the Shares in the course of hedging positions they
assume with the Selling Shareholders. The Selling Shareholders may also sell
shares short and redeliver the Shares to close out such short positions. The
Selling Shareholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares,
which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. The Selling Shareholders may also loan or pledge the Shares to a
broker-deal and the broker-dealer may sell the Shares so loaned and, upon a
default, the broker-dealer may effect sales of the pledged Shares pursuant to
this prospectus. In addition, any of the Shares covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold under Rule 144 rather than under this prospectus.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously engage
in market-making activities with respect to the Company's Common Stock for
the applicable period under Regulation M of the Exchange Act prior to the
commencement of such distribution. In addition and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M, which provisions may limit the timing of
purchases and sales of the Shares by the Selling Shareholders. All of the
foregoing may affect the marketability of the Shares.
In order to comply with certain states' securities laws, if applicable,
the Common Stock will be sold in such jurisdictions only through registered
or licensed brokers or dealers. In certain states, the Common Stock may not
be sold
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unless the Common Stock has been registered or qualified for sale in such
state or an exemption from registration or qualification is available and is
complied with.
USE OF PROCEEDS
The Company will not receive any proceeds from the offering.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by Hughes & Luce, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws provide that officers and directors who are made
a party to or are threatened to be made a party to or is otherwise involved
in any action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was an officer or a director of the Company or is or was serving
at the request of the Company as a director or an officer of another entity
shall be indemnified and held harmless by the Company to the fullest extent
authorized by the Delaware General Corporation Law ("DGCL") against all
expense, liability, and loss reasonably incurred or suffered by such person
in connection therewith. The right to indemnification includes the right to
be paid by the Company for expenses incurred in defending any such proceeding
in advance of its final disposition. Officers and directors are not entitled
to indemnification if such persons did not meet the applicable standard of
conduct set forth in the DGCL for officers and directors.
DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the Company) by reason of the
fact that he is or was a director, officer, agent or employee of the Company
or who serves or served at the Company's request as a director, officer,
agent, employee, partner or trustee of another corporation or of a
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding. The power to indemnify applies (a) if such person is successful
on the merits or otherwise in defense of any action, suit or proceeding, or
(b) if such person acted in good faith and in a manner he reasonably believed
to be in the best interest, or not opposed to the best interest, of the
Company and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in the right of the Company as well, but
only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his duties to the Company, unless the court believes that in
light of all the circumstances indemnification should apply.
The indemnification provisions contained in the Company's Certificate of
Incorporation are not exclusive of any other rights to which a person may be
entitled by law, agreement, vote of stockholders or disinterested directors
or otherwise. In addition, the Company maintains insurance on behalf of its
directors and executive officers insuring them against any liability asserted
against them in their capacities as directors or officers or arising out of
such status.
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Insofar as indemnification by the Company for liabilities arising under
the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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