===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to ________
COMMISSION FILE NUMBER: 0-20939
CNET, INC.
(Exact name of registrant as specified 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 October 31, 1999 there were 73,475,612 shares of the registrant's common
stock outstanding.
===============================================================================
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
CNET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's OMITTED)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $117,375 $51,538
Marketable securities . . . . . . . . . . . 121,965 -
Investments . . . . . . . . . . . . . . . . 118,893 -
Accounts receivable, net. . . . . . . . . . 22,772 15,075
Accounts receivable, related party. . . . . - 1,710
Other current assets. . . . . . . . . . . . 12,058 1,705
Restricted cash . . . . . . . . . . . . . . 645 945
------------- -------------
Total current assets . . . . . . . . . 393,708 70,973
Property and equipment, net. . . . . . . . . . . 23,694 15,325
Other assets . . . . . . . . . . . . . . . . . . 28,221 2,060
Goodwill . . . . . . . . . . . . . . . . . . . . 74,405 -
------------- -------------
$520,028 $88,358
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . $16,639 $3,477
Accrued liabilities . . . . . . . . . . . . 13,241 6,727
Current portion of long-term debt . . . . . 5,750 1,112
Income tax payable. . . . . . . . . . . . . 36,349 -
Deferred tax liability. . . . . . . . . . . 36,780 -
------------- -------------
Total current liabilities. . . . . . . 108,759 11,316
Long-term debt . . . . . . . . . . . . . . . . . 179,086 569
------------- -------------
Total liabilities. . . . . . . . . . . 287,845 11,885
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . 7 7
Additional paid in capital. . . . . . . . . 167,831 127,357
Other comprehensive income, net . . . . . . 55,161 -
Retained earnings (deficit) . . . . . . . . 9,184 (50,891)
------------- -------------
Total stockholders' equity . . . . . . 232,183 76,473
------------- -------------
$520,028 $88,358
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
CNET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000's OMITTED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Internet. . . . . . . . . . . . . $26,838 $12,930 $69,041 $32,442
Television. . . . . . . . . . . . 1,571 1,771 4,995 5,421
------------- ------------ ------------ -------------
Total revenues . . . . . . . . 28,409 14,701 74,036 37,863
Cost of revenues:
Internet. . . . . . . . . . . . . 9,155 5,484 23,611 16,677
Television. . . . . . . . . . . . 2,324 1,668 5,699 5,205
------------- ------------ ------------ -------------
Total cost of revenues . . . . 11,479 7,152 29,310 21,882
------------- ------------ ------------ -------------
Gross profit . . . . . . . . . . . . 16,930 7,549 44,726 15,981
Operating expenses:
Sales and marketing . . . . . . . 32,998 3,971 45,115 9,712
Development . . . . . . . . . . . 1,904 688 5,069 2,105
General and administrative. . . . 4,807 1,719 10,002 4,852
Amortization of goodwill. . . . . 5,224 - 6,461 -
------------- ------------ ------------ -------------
Total operating expenses . . . 44,933 6,378 66,647 16,669
------------- ------------ ------------ -------------
Operating income(loss) . . . . . . . (28,003) 1,171 (21,921) (688)
Other income (expense):
Equity losses . . . . . . . . . . - (3,126) - (11,773)
Gain on investment sales. . . . . 97,791 5,327 122,365 10,450
Interest income (expense), net. . (312) 495 112 647
------------- ------------ ------------ -------------
Total other income (expense). . . 97,479 2,696 122,477 (676)
------------- ------------ ------------ -------------
Net income (loss) before income taxes 69,476 3,867 100,556 (1,364)
Income taxes 40,222 - 40,222 -
------------- ------------ ------------ -------------
Net income (loss) after income taxes $29,254 $3,867 $60,334 ($1,364)
============= ============ ============ =============
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
arising during the period. . . . (4,627) - 55,161 -
------------- ------------ ------------ -------------
Comprehensive income (loss) $24,627 $3,867 $115,495 ($1,364)
============= ============ ============ =============
Basic net income (loss) per share. . $0.40 $0.06 $0.85 ($0.02)
============= ============ ============ =============
Diluted net income (loss) per share. $0.35 $0.05 $0.76 ($0.02)
============= ============ ============ =============
Shares used in calculating
basic per share data . . . . . . . 72,536 67,255 70,790 62,944
============= ============ ============ =============
Shares used in calculating
diluted per share data . . . . . . 86,105 72,634 79,096 62,944
============= ============ ============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's OMITTED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $60,334 ($1,364)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization. . . . . . . . . . 12,986 4,783
Amortization of program costs. . . . . . . . . . 5,616 3,888
Allowance for doubtful accounts. . . . . . . . . 204 742
Investments for services provided. . . . . . . . (3,383) -
Gain on investment sales . . . . . . . . . . . . (122,365) -
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . (6,057) (8,322)
Other current assets. . . . . . . . . . . . . (10,064) 470
Other assets. . . . . . . . . . . . . . . . . 260 1,979
Accounts payable. . . . . . . . . . . . . . . 13,157 (48)
Accrued liabilities . . . . . . . . . . . . . 6,490 (1,493)
Income tax liabilities. . . . . . . . . . . . 36,349 -
Benefit from exercises of stock options . . . 3,873 -
------------ -----------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . ( 2,600) 635
------------ -----------
Cash flows from investing activities:
Purchase of marketable securities . . . . . . . . . (136,482) -
Purchase of investments . . . . . . . . . . . . . . - (277)
Proceeds from sale of marketable securities . . . . 12,328 -
Proceeds from sale of investments . . . . . . . . . 101,729 -
Privately held companies. . . . . . . . . . . . . . (20,991) -
Acquisitions less cash acquired . . . . . . . . . . (39,113) -
Purchases of equipment, excluding capital leases. . (13,848) (3,452)
Purchases of programming assets . . . . . . . . . . (6,084) (3,899)
Deferred interest . . . . . . . . . . . . . . . . . (690) -
Loan to joint venture . . . . . . . . . . . . . . . - (63)
------------ -----------
Net cash used in investing activities. . . (103,151) (7,691)
------------ -----------
Cash flows from financing activities:
Net proceeds from issuance of convertible debt. . . 166,943 -
Net proceeds from issuance of stock . . . . . . . . - 25,983
Net proceeds from employee stock purchase plan. . . 661 825
Net proceeds from exercise of options and warrants 5,666 4,122
Principal payments on capital leases. . . . . . . . (42) (295)
Principal payments on equipment note. . . . . . . . (1,640) (1,671)
------------ -----------
Net cash provided by financing activities. 171,588 28,964
------------ -----------
Net increase (decrease) in cash and cash equivalents. 65,837 21,908
Cash and cash equivalents at beginning of period . . 51,538 22,591
------------ -----------
Cash and cash equivalents at end of period . . . . . $117,375 $44,499
============ ===========
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . $4,342 $245
============ ===========
Supplemental disclosure of noncash transactions:
Issuance of debt for acquisitions . . . . . . . . . $10,098 $3,066
============ ===========
Unrealized gain in marketable securities and
investments, net of deferred tax liability. . . . $55,161 $ -
============ ===========
Deferred tax liability. . . . . . . . . . . . . . . $36,780 $ -
============ ===========
Issuance of common stock for acquisitions . . . . . $30,253 $ -
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CNET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated 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 consolidated financial statements included in the
Company's most recent annual report on Form 10-K/A, 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 condensed consolidated results of operations for the three
and nine months ended September 30, 1999 are not necessarily indicative
of the results to be expected for the current year or any other period.
Net Income (Loss) Per Share
Basic net income per share is computed using the weighted average
number of shares of common stock outstanding during the period and diluted
net income per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
Diluted net income per share for the three months ended September 30, 1999
includes the effect of the potential conversion of convertible debt to
approximately 4,622,160 common shares because their effect is dilutive.
Diluted net income per share for the nine months ended September 30, 1999
does not include the effect of the potential conversion of convertible debt
to approximately 3,475,180 common shares because their effect is
anti-dilutive.
The following table sets forth the computation of net income
(loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) per share:
Basic net income (loss) per share $0.40 $0.06 $0.85 ($0.02)
============= ============= ============= =============
Diluted net income (loss) per share $0.35 $0.05 $0.76 ($0.02)
============= ============= ============= =============
Net income (loss) $29,254 $3,867 $60,334 ($1,364)
Interest from convertible note 1,312 - - -
------------- ------------- ------------- -------------
Net income (loss) for dilution $30,566 $3,867 $60,334 ($1,364)
------------- ------------- ------------- -------------
Basic and diluted shares:
Weighted average common shares outstanding
used in computing basic net income (loss)
per share 72,536 67,255 70,790 62,944
------------- ------------- ------------- -------------
Common stock equivalents:
Stock options, awards and shares from
convertible debt 13,569 5,379 8,306 -
------------- ------------- ------------- -------------
Weighted average common shares and common
stock equivalents outstanding used in
computing diluted net income (loss)
per share 86,105 72,634 79,096 62,944
------------- ------------- ------------- -------------
</TABLE>
Income Taxes
Income tax expense has been recorded based on an estimated
effective tax rate for the year ended December 31, 1999. The estimated
effective tax rate has taken into consideration the estimated gain to be
realized in the fourth quarter of 1999 from the pending transaction related
to the Company's investment in SNAP! LLC ("snap").
Marketable Securities
The Company adopted Statement of Financial SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The Company determines the appropriate classification of debt and
equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Investments classified
as available for sale are reported at market value, with the
unrealized gains and losses, net of tax, reported as a separate
component of other comprehensive income in stockholders' equity.
Realized gains and losses on sales of investments and declines in
value determined to be other than temporary are included in operating
results.
Recent Accounting Pronouncements
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No.
137 in June 1999, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position
and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the
derivative are recognized in earnings in the period of change. The Company
will be required to adopt SFAS No. 133 for the year ended December 31, 2001.
Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position or operations of the Company.
(2) Comprehensive Income
The Company has adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income," which established standards for
reporting and disclosures of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general
purpose financial statements. Financial statements for earlier
periods have been reclassified for comparative purposes.
During the nine month period ended September 30, 1999 the Company
reported unrealized holding gains arising from investments classified as
available for sale. As of September 30, 1999, the Company owns 944,471
shares in Vignette Corporation ("Vignette"), owns approximately 755,000
shares of beyond.com, and owns 1.7 million shares in Mail.com, Inc.
("Mail.com"), all public companies. The Company's investments in Vignette,
beyond.com, and Mail.com were recorded at market value based on the closing
price of each stock on September 30, 1999, and the net increase in value of
each stock was recorded as unrealized holding gains in comprehensive income,
net of deferred tax liability. The Company sold 1,311,000 shares of
Vignette and realized a gain of $97.8 million during the three months ended
September 30, 1999.
(3) Segment Information
The Company has adopted the provisions of SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting by public business enterprises
of information about operating segments, products and services,
geographic areas and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operating decisions and
assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenue and cost of revenue by operating segment for
purposes of making operating decisions and assessing financial performance.
The consolidated information reviewed by the CEO is identical to the
information presented in the accompanying financial statement of
operations. The Company operates in two segments, television and CNET
Online, the Company's Internet operation. Asset information regarding
television and CNET online operations is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
--------- ---------
<S> <C> <C>
Television 1,700 2,284
CNET Online 518,328 86,074
--------- ---------
Consolidated Total 520,028 88,358
========= =========
</TABLE>
(4) Acquisition
On July 27, 1999, the Company acquired GDT S.A., a Swiss Societe
Anonyme, ("GDT") through a merger of GDT into the Company. Pursuant
to the merger, the Company paid $30.0 million in cash and issued
429,185 shares of common stock to GDT shareholders in exchange for all of
the outstanding shares of GDT. GDT is based in Switzerland and has built a
multi-language, multi-market database of product information. GDT's database
of product information will be used to enhance CNET's Shopping services. The
acquisition was accounted for under the purchase method, resulting in goodwill
of $49.4 million, which is amortized over 3 years. The results of operations
of GDT and the estimated fair value of assets acquired and liabilities
assumed are included in the Company's financial statements from the date of
acquisition.
On July 29, 1999, the Company acquired Nordby International, Inc.,
a Colorado corporation, ("Nordby") through a merger of Nordby into the
the Company. Pursuant to the merger, the Company paid $5.0 million in
cash, issued a note payable due July 29, 2001 for $5.0 million and issued
230,017 shares of common stock to Nordby shareholders in exchange for all
outstanding shares of Nordby. Nordby is a provider of customized financial
information to online and print partners. Nordby's customized financial
information will be used to enhance the Company's coverage of technology
stock through its News and Investing channel. The acquisition was
accounted for under the purchase method, resulting in goodwill of $20.0
million, which is amortized over 3 years. The results of operations
of Nordby and the estimated fair value of assets acquired and liabilities
assumed are included in the Company's financial statements from the date of
acquisition.
(5) Subsequent Events
On October 7, 1999, the Company acquired SavvySearch Limited,
a Massachusetts corporation ("Savvy"), through a merger of Savvy into
the Company. Pursuant to the merger, the Company paid $4.4 million and
issued 307,409 shares of common stock to Savvy shareholders in exchange
for all outstanding shares of Savvy. Savvy is a provider of metasearch
services. Savvy's advanced internet search capabilities will bring the
Company's users access to more comprehensive product information and
tech-focused resources from around the Web.
On November 4, 1999, the Company acquired Manageable Software
Services Inc., a California corporation ("MSSI"), through a merger
of MSSI into the company. Pursuant to the merger, the Company issued
58,394 shares of common stock to MSSI shareholders in exchange for all
outstanding shares of MSSI. MSSI provides automated PC management services
to keep users' software and hardware up-to-date. MSSI services will
integrate and compliment the Help.com, Download.com and Computers.com sites.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
CNET, Inc. (the Company, which may be referred to as we, us or our) is
a leading media company that provides consumers with authoritative information
online and on television regarding computers, the Internet and digital
technologies. We seek to use our editorial, technical, product database and
programming expertise to engage consumers and attract advertisers. Based on
the volume of traffic over our branded online network, we believe that we have
an established leadership position in our market. We believe that our online
network is the most frequently used source of technology information online,
with an average of approximately 11.4 million pages viewed daily during the
third quarter of 1999.
Results of Operations
Revenues
Total Revenues
Total revenues were $28.4 million and $14.7 million for the three months
and $74.0 million and $37.9 million for the nine months ended September 30,
1999 and 1998, respectively.
Internet Revenues
Total Internet revenues were $26.8 million and $12.9 million for the
three months and $69.0 million and $32.4 million for the nine months ended
September 30, 1999 and 1998, respectively. Internet revenues consist primarily
of revenues derived from the sale of advertisements on pages delivered to users
of our Internet network. Advertising programs are generally delivered on
either an "impression" based program or a "performance" based program. An
impression based program earns revenues when an advertisement is delivered
to a user of our Internet network. A performance based program earns revenues
when a user of our Internet network responds to an advertisement by linking
to an advertiser's Internet network. Performance based programs include
revenues generated from lead-based compensation from our shopping services,
which commenced in the fourth quarter of 1998. Advertising rates vary
depending upon whether a program is impression or performance based, where
advertisements are placed, and the amount and length of the advertiser's
commitment. Advertising revenues are recognized in the period in which
the advertisements are delivered. Our ability to sustain or increase revenues
for Internet advertising will depend on numerous factors, which include,
but are not limited to, our ability to increase our inventory of delivered
Internet pages on which advertisements can be displayed and our ability
to maintain or increase advertising rates.
The increase in Internet revenues of $13.9 million for the three month and
$36.6 million for the nine month periods ended September 30, 1999 compared to
the same periods in 1998 were attributable to increased pages delivered,
increased advertisements sold on our network and an increase in our average
revenue yield per page delivered. Also contributing to our increased revenues
and increased revenue yield per page were performance-based advertising on our
shopping services. These lead-based programs which were offered during the
three and nine month periods ended September 30, 1999, were not offered during
the same periods in 1998. In addition, average daily pages delivered on our
network were approximately 11.4 million for the three month and 10.6 for the
nine month periods ended September 30, 1999 as compared to 6.8 million for the
three month and 6.5 million for the nine month periods ended September 30,
1998, or an increase of 68% and 63%, respectively. The increased traffic from
the three and nine month periods ended September 30, 1998 to the three and
nine month periods ended September 30, 1999 was primarily related to an
increase in the number of users of our network.
A portion of our Internet revenues were derived from barter
transactions whereby we delivered advertisements on our Internet channels in
exchange for advertisements on the Internet sites of other companies.
Revenues related to barter transactions were $1.5 million and $1.1 million for
the three months and $4.2 million and $2.2 million for the nine months ended
September 30, 1999 and 1998, respectively.
Television Revenues
Television revenues were $1.6 million and $1.8 million for the three
months and $5.0 million and $5.4 million for the nine months ended September
30, 1999 and 1998, respectively. Pursuant to our agreement with USA Networks,
USA Networks licensed the right to carry the two hour programming block,
Digital Domain, on its networks for a fee equal to the cost of production of
programs up to a maximum of $5.5 million from July 1, 1997 to June 30, 1998
and $5.9 million from July 1, 1998 to June 30, 1999. This agreement with USA
Networks, which was scheduled to expire on June 30, 1999, was extended through
September 30, 1999 and USA Networks paid a fee of $1.0 million to carry the
programming for the three month period. The agreement with USA Networks was
subsequently extended through December 31, 1999 and will decrease the number
of programs produced under the Digital Domain from four to two. USA Networks
will pay a fee of $500,000 to carry programming for the fourth quarter of
1999. The contract with USA Networks will not be extended beyond December
31, 1999.
In May 1999 we entered into an agreement with the National
Broadcasting Company ("NBC") whereby NBC granted certain rights
to CNBC, Inc. ("CNBC") to carry the sixty minute television program
we will produce called "CNET News.com". The term of the agreement is
from October 1, 1999 through September 30, 2002, subject to the completion
of the Plan of Merger between CNET, XOOM.com, Inc. and SNAP! LLC. CNBC
will pay us a annual fee based on the cost of production, not to exceed
exceed $2.5 million. We also have the right to sell certain commercial
commercial time available on the program.
We also produce a television program, TV.com, which is exclusively
distributed by Trans World International ("TWI"). We sell advertisements on
TV.com and pay a distribution fee to TWI.
Internet operations accounted for 94% and 88% of total revenues and
television operations accounted for 6% and 12% of total revenues for the three
months ended September 30, 1999 and 1998, respectively. Internet operations
accounted for 93% and 86% of total revenues and television operations accounted
for 7% and 14% of total revenues for the nine months ended September 30, 1999
and 1998, respectively. We expect to experience fluctuations in television and
Internet revenues in the future as a result of many factors, including demand
for the Company's Internet sites and television programming and our ability to
develop, market and introduce new and enhanced Internet content and television
programming.
Cost of Revenues
Total Cost of Revenues
Total cost of revenues were $11.5 million and $7.2 million for the
three months and $29.3 million and $21.9 million for the nine months ended
September 30, 1999 and 1998, respectively. Cost of revenues include costs
associated with the production and delivery of our Internet channels and our
television programming. The principal elements of cost of revenues for our
Internet operations have been payroll and related expenses for the editorial,
production and technology staff, and costs for facilities and equipment. The
principal elements of cost of revenues for our television operations have been
the production costs of our television programs, which primarily consist of
payroll and related expenses for the editorial and production staff and costs
for facilities and equipment.
Cost of Internet Revenues
Cost of Internet revenues were $9.2 million and $5.5 million for the
three months and $23.6 million and $16.7 million for the nine months ended
September 30, 1999 and 1998, respectively, representing 34%, 42%, 34% and 51%
of the related revenues, respectively. The increase of $3.7 million and $6.9
million for the three month and nine month periods ended September 30, 1999 as
compared to the same periods in 1998 was primarily attributable to increases in
personnel and personnel related costs. In addition, costs of approximately
$1.3 million and $2.5 million were recognized in the three month and nine month
periods ended September 30, 1999 which related to cost of revenues associated
with the acquisitions of Netventures, Inc., a California corporation,
AuctionGate Interactive, Inc., a California corporation, substantially all of
the assets of Jenesys LLC, a Washington limited liability company ("Winfiles"),
KillerApp corporation, a California corporation and Sumo, Inc., a Florida
corporation, GDT and Nordby.
Cost of Television Revenues
Cost of television revenues were $2.3 million and $1.7 million for the
three month periods and $5.7 million and $5.2 million for the nine months ended
September 30, 1999 and 1998, representing approximately 148%, 94%, 114% and 96%
of the related revenues. The increase of $656,000 and $494,000 for the three
month and nine month periods ended September 30, 1999 as compared to the same
periods in 1998 related primarily to costs associated with the cancellations of
two of the programs produced for USA Networks.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related
expenses, consulting fees and advertising expenses. Sales and marketing
expenses were $33.0 million and $4.0 million for the three months and $45.1
million and $9.7 million for the nine months ended September 30, 1999 and 1998,
respectively, representing 116%, 27%, 65% and 26% of total revenues for each of
the periods. Sales and marketing expenses increased $29.0 million and $35.4
million for the three month and nine month periods ended September 30, 1999
respectively, compared to the same periods in 1998.
Effective July 1, 1999 we launched a multi-media advertising campaign. We
expect to spend approximately $100.0 million over a nine to eighteen month
period beginning July 1, 1999, depending on the effectiveness of the campaign.
Expenses related to this advertising campaign were $24.4 million and $24.8
million for the three and nine month periods ended September 30, 1999,
respectively.
Other advertising expenses, including barter, increased by approximately $2.7
million and $5.5 million for the three and nine month periods ended September
30, 1999 as compared to the similar periods in 1998. The remaining increases
in sales and marketing expenses were primarily related to additional personnel
in marketing, sales and sales support roles and related costs.
Development
Development expenses include expenses for the development and
production of new Internet channels and for the research and development of
new or improved technologies to enhance the features and functionality of our
Internet network, including 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 channel are no longer
recognized as development expenses when the new channel begins generating
revenue.
Development expenses were $1.9 million and $688,000 for the three months
and $5.1 million and $2.1 million for the nine months ended September 30, 1999
and 1998, respectively, representing 7%, 5%, 7% and 6% of total revenues for
each of the periods. The increase in development expenses of $1.2 million for
the three months and $3.0 million for the nine months ended September 30, 1999
as compared to the same periods in 1998 were primarily attributable to
additional personnel costs related to the enhancement of the functionality of
our Internet network.
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
$4.9 million and $1.7 million for the three months and $10.0 million and $4.8
million for the nine months ended September 30, 1999 and 1998, respectively,
representing 17%, 12%, 14% and 13% of total revenues, respectively. General and
administrative expenses increased $3.1 million and $5.1 million for the three
month and nine month periods ended September 31, 1999, respectively, compared
to the same periods in 1998. The increase in general and administrative
expenses were primarily related to additional personnel costs and other costs
related to facilitating our growth.
Goodwill Amortization
During 1999, we acquired three companies for which we are using the
purchase method of accounting. On February 26, 1999 we acquired Winfiles.com
("Winfiles") for a total purchase price of $11.5 million, on July 27, 1999
we acquired GDT for a total purchase price of $50.0 million and on July 29,
1999 we acquired Nordby for a total purchase price of $20.0 million. Goodwill
attributable to each of the acquisitions was $11.0 million, $49.4 million,
and $20.0 million for Winfiles, GDT and Nordby, respectively. We are
amortizing the goodwill related to the purchase of these companies over
three years.
Other Income (Expense)
Total other income (expense) was $97.5 million and $2.7 million for the
three months and $122.5 million and $(676,000) for the nine months ended
September 30, 1999 and 1998, respectively. Other income (expense) consists of
equity losses, gain on investment sales and net interest income (expense).
Equity losses in 1998 included our interest in SNAP! LLC ("snap").
Pursuant to an agreement in June 1998 between NBC Multimedia and us, snap was
formed as a limited liability company. Based on the structure of the Board of
snap and considering that we have no obligation for future funding of snap, we
do not control snap and accordingly do not consolidate its results. We have
recorded snap's financial results using the equity method of accounting
effective January 1, 1998. We had no equity losses for the three and nine
months ended September 30, 1999, and equity losses were $3.1 million for the
three months and $11.8 million for the nine months ended September 30, 1998.
All of the equity losses in 1998 were related to snap.
Gain on investment sales were $97.8 million and $5.3 million for the
three months and $122.4 million and $10.5 million for the nine months ended
September 30, 1999 and 1998, respectively. The gain on investment sales of
$97.8 million for the three month period ended September 30, 1999 related to
the sale of a portion of our holdings of Vignette Corporation. The gain on
investment sales of $122.4 million for the nine month period ended September
30, 1999 included the gain related to the sale of the Vignette shares and a
gain of approximately $19.9 million related to the merger agreement between
beyond.com and BuyDirect.com, which resulted in our owning approximately
755,000 shares of beyond.com due to our ownership interest in BuyDirect.com.
We recorded a gain related to shares we received on the date of the
merger. Our investment in beyond.com is classified as available for sale and
fluctuations in the value of this investment are recorded as other
comprehensive income in the stockholders' equity section of our balance sheet,
net of taxes.
Income Taxes
Income taxes were $40.2 million and zero for both the three and nine
month periods ended September 30, 1999 and 1998, respectively. Income tax
was recorded based on an estimated effective tax rate of 40% for the year
ended December 31, 1999. The estimated effective tax rate has taken into
consideration the estimated gain to be realized in the fourth quarter of 1999
from the pending transaction relating to our ownership interest in snap.
Income (Loss)
We recorded net income of $29.3 million or $0.35 per diluted share and
$3.9 million or $0.05 per diluted share for the three months ended September
30, 1999 and 1998, respectively. We recorded net income of $60.3 million or
$0.76 per diluted share for the nine months ended September 30, 1999 compared
to a net loss of $1.4 million or 0.02 per share for the comparable period in
1998. Net income increased $25.4 million for the three months and $61.7
million for the nine months ended September 30, 1999 as compared to the
comparable periods in 1998, respectively.
Liquidity and Capital Resources
As of September 30, 1999, we had cash and cash equivalents of $117.4
million and investments and marketable securities of $240.9 million. Cash
used by operating activities of $2.6 million for the nine months ended
September 30, 1999 was primarily due to earnings of $60.3 million,
depreciation, goodwill amortization and the amortization of program costs
of $18.6 million, an investment for services provided of $3.4 million, a gain
on investments of $122.4 million, an increase in accounts receivable and
other current assets of $16.1 million and increases in accounts payable,
accrued liabilities, accrued income taxes and benefits from exercises of
stock options of $59.9 million. Cash provided by operating activities
of $635,000 for the nine months ended September 30, 1998 was primarily
attributable to net losses in the period of $1.4 million, depreciation
and amortization and the amortization of programming costs of $8.7 million
and an increase in accounts receivable of $8.3 million. Net cash used
in investing activities of $103.1 million for the nine months ended
September 30, 1999 was primarily attributable to purchases of marketable
securities of $136.5 million, proceeds from the sale of marketable securities
and investments of $12.3 million and $101.7 million, respectively, equity
investments of $21.0 million, cash paid related to the acquisitions of
Winfiles, GDT and Nordby of $39.1 million, and purchases of equipment and
and programming assets of $19.9 million. Net cash used in investing
activities of $7.7 million for the nine months ended September 30, 1998
were primarily attributable to purchases of equipment and programming
assets. Cash flows provided by financing activities of $171.6 million
in 1999 consisted primarily of the issuance of convertible debt with
net proceeds of $166.9 million. Cash flows provided by financing activities
in 1998 consisted primarily of proceeds from the issuance of common stock.
We believe that existing funds will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
12 months.
As of September 30, 1999 we had obligations outstanding under notes
payable totaling $184.8 million. Notes payable include $173 million of 5%
Convertible Subordinated Notes, due 2006. Such obligations were incurred to
obtain proceeds for general corporate purchases, to finance acquisitions and
increases in marketing expenditures.
Seasonality and Cyclicality
We believe 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.
Advertising expenditures account for substantially all of our revenues, and
seasonality and cyclicality in advertising expenditures generally, or with
respect to Internet-based advertising specifically, could therefore have a
material adverse effect on our business, financial condition or operating
results. We may also experience seasonality in connection with our shopping
services, which may reflect seasonal trends in the retail industry. The level
of consumer retail spending generally decreases in the first and third
calendar quarters.
Year 2000 Compliance
We are aware of the issues associated with the programming code and
embedded technology in existing systems as the year 2000 approaches. The "Year
2000 Issue" arises from the potential for computers to fail or operate
incorrectly because their programs incorrectly interpret the two digit date
fields "00" as 1900 or some other year, rather than the year 2000. The year
2000 issue creates risk for us from unforeseen problems in our computer systems
and from third parties, including our customers, vendors and manufacturers.
Failures of our and/or third parties' computer systems could result in an
interruption in, or a failure of, our normal business activities or
operations. Such failures could materially and adversely affect our
business prospects, financial condition and operating results.
To mitigate this risk, we have established a formal year 2000 program
to oversee and coordinate the assessment, remediation, testing and reporting
activities related to this issue. We are currently in the testing and
deployment phase of our year 2000 program. As part of this phase, we are
completing our testing of critical systems and will begin deploying upgrades
or other fixes as determined necessary.
We anticipate that we will complete both the testing and deployment
phase relating to critical systems by November 30, 1999. We have not made
estimates for the costs associated with completing our year 2000 program.
Costs incurred to date, including costs of personnel, have not been material.
We can offer no assurance that we will not experience serious unanticipated
negative consequences and/or additional material costs caused by undetected
errors or defects in the technology used in our internal systems, or by
failures of our vendors/partners to address their year 2000 issues in a
timely and effective manner.
Should miscalculations or other operational errors occur as a result
of the year 2000 issue, we or the parties on which we depend may be unable to
produce reliable information or to process routine transactions. Furthermore,
in the worst case, we or the parties on which we depend may be incapable of
conducting critical business activities which include, but are not limited to,
the production and delivery of our Internet channels, invoicing customers and
paying vendors, which could have a material adverse effect on our business,
prospects, financial condition and operating results.
Special Note Regarding Forward-Looking Statements and Risk Factors
Certain statements in this Quarterly Report on Form 10-Q contain
"forward-looking statements." Forward-looking statements are any statements
other than statements of historical fact. Examples of forward-looking
statements include projections of earnings, revenues or other financial items,
statements of the plans and objectives of management for future operations,
statements concerning proposed new products or services, statements regarding
future economic conditions or performance and any statement of assumptions
underlying any of the foregoing. In some cases, you can identify forward-
looking statements by the use of words such as "may," "will," "expects,"
"should", "believes", "plans," "anticipates," "estimates," "predicts",
"potential", or "continue", and any other words of similar meaning.
The risks, uncertainties and other factors to which forward-statements
are subject include, among others, those set forth under the caption "Risk
Factors" in our Annual Report on Form 10-K for the fiscal year ended December
31, 1998, which is available from us, from the Securities and Exchange
Commission at prescribed rates and at the web-site www.sec.gov. Such factors
include, without limitation, the following: limited operating history;
fluctuations in quarterly operating results; failure to compete; risks
associated with anticipated growth; risks related to potential Year 2000
problems; risks associated with technological change; availability of key
personnel and changes in governmental regulations. All subsequent written or
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by such factors.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in the discussion in this report will be
important in determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related
subjects in our reports to the SEC. Also note that we provide the following
cautionary discussion of risks, uncertainties and possibly inaccurate
assumptions relevant to our businesses. These are factors that we think
could cause our actual results to differ materially from expected and
historical results. Other factors besides those listed here could also
adversely affect us. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the impact of interest rate changes and changes in the
market values of our investments.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rate
relates primarily to our marketable securities portfolio. We invest our
excess cash in our marketable securities portfolio. We have not used
derivative financial instruments in our marketable securities portfolio.
We invest our excess cash in debt instruments of the U.S. Government and
its agencies, and in high-quality corporate issuers and, by policy, limits
the amount of credit exposure to any one issuer. We protect and preserve
our invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected
if interest rates fall. Due in part to these factors, our future income from
these marketable securities may fall short of expectations due to changes in
interest rates or we may suffer losses in principal if force to sell
securities which have declined in market value due to changes in interest
rates.
Investment Risk
We invest in equity instruments of publicly and privately-held,
information technology companies for business and strategic purposes.
Investments in publicly owned companies are included in investments,
which are part of current assets, and privately held investments are
included in long term assets. These investments are accounted for under
the cost method when ownership is less than 20%. For these non-quoted
investments, our policy is to regularly review the assumptions underlying
the operating performance and cash flow forecasts in assessing the carrying
values. We identify and record impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired.
In 1999, two of the privately held investments became marketable equity
securities when the investees completed an initial public offering. Such
investments in the Internet industry are subject to significant fluctuations
in fair market value due to the volatility of the stock market, and are
recorded as available-for-sale securities.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1998, Snap Technologies commenced an action against the
Company in the U.S. District Court for the Northern District of California
alleging trademark infringement and related claims arising from the name of
the snap portal service. The lawsuit was settled on July l5, 1999 at an
immaterial cost to the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective July 23, 1999, we acquired GDT S.A., a Swiss Societe Anonyme, for
approximately $50 million in cash and stock. In connection with this
acquisition, we issued 429,185 shares of our common stock to certain
shareholders of GDT. No underwriters were involved in the transaction, and
we did not pay any underwriting discounts or commissions. The issuance of
shares in this transaction was exempt from the registration requirements
of the Securities Act of 1993 pursuant to Section 4(2) thereof.
Effective July 29, 1999, we acquired Nordby International, Inc., a Colorado
corporation ("Nordby") for a total purchase price of approximately $20
million, through a merger of Nordby into the Company (the "Merger"). In
connection with the Merger, the Company issued 230,017 shares, or
approximately $10 million of its common stock to the sole shareholder
of Nordby. No underwriters were involved in the transaction, and we did
did not pay any underwriting discounts or commissions. The issuance of
shares in this transaction was exempt from the registration requirements
of the Securities Act of 1933 pursuant to Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1* Amended and Restated 1997 Stock Option Plan
10.2* Amended and Restated 1996 Employee Stock Purchase Plan
27.1* Financial Data Schedule
____________________
*Filed herewith
(b) Reports on Form 8-K
On August 1, 1999, the Company filed a Current Report on Form 8-K
with respect to its acquisitions of GDT and Nordby.
On September 2, 1999, the Company filed a Current Report on Form 8-K
with respect to its agreement with USA Networks to effectively extend
broadcast of The New Edge and CNET Central television programming
on the USA Network/Sci-Fi Channel.
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/ Douglas N. Woodrum
________________________
Douglas N. Woodrum
Executive Vice President,
Chief Financial Officer
November 15, 1999
Date
Exhibit 10.1
CNET, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
Amended and Restated as of July 21, 1999
1.Purpose of the Plan. This Plan shall be known as the CNET, Inc. 1997 Stock
Option Plan. The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility and to provide
incentives to such personnel to promote the success of the business of CNET,
Inc. and its subsidiaries.
Certain options granted under this Plan are intended to qualify as "incentive
stock options" pursuant to Section 422 of the Internal Revenue Code of 1986,
as amended from time to time, while certain other options granted under the
Plan will constitute nonqualified options.
2.Definitions. As used herein, the following definitions shall apply:
"Board" means the Board of Directors of the Corporation.
"Common Stock" means the Common Stock, $.0001 par value per share, of the
Corporation. Except as otherwise provided herein, all Common Stock issued
pursuant to the Plan shall have the same rights as all other issued and
outstanding shares of Common Stock, including, but not limited to, voting
rights, the right to dividends, if declared and paid, and the right to
pro-rata distributions of the Corporation's assets in the event of
liquidation.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the committee described in Section 18 that administers the
Plan or, if no such committee has been appointed, the full Board.
"Consultant" means any consultant or advisor who renders bona fide services
to the Corporation or one of its Subsidiaries, which services are not in
connection with the offer or sale of securities in a capital raising
transaction.
"Corporation" means CNET, Inc., a Delaware corporation.
"Date of Grant" means the date on which an Option is granted pursuant to this
Plan or, if the Board or the Committee so determines, the date specified by
the Board or the Committee as the date the award is to be effective.
"Employee" means any officer or other employee of the Corporation or one of
its Subsidiaries (including any director who is also an officer or employee
of the Corporation or one of its Subsidiaries).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the option price for a share of Common Stock subject to
an Option.
"Fair Market Value" means the closing sale price (or average of the quoted
closing bid and asked prices if there is no closing sale price reported) of
the Common Stock on the trading day immediately prior to the date specified as
reported by the principal national exchange or trading system on which the
Common Stock is then listed or traded. If there is no reported price
information for the Common Stock, the Fair Market Value will be determined by
the Board or the Committee, in its sole discretion. In making such
determination, the Board or the Committee may, but shall not be obligated to,
commission and rely upon an independent appraisal of the Common Stock.
"Insider" means any officer, director, or 10% stockholder of the Corporation.
"Non-Employee Director" means an individual who is a "non-employee director"
as defined in Rule16b3 under the Exchange Act.
"Nonqualified Option" means any Option that is not a Qualified Option.
"Option" means a stock option granted pursuant to Section 6 of this Plan.
"Optionee" means any Employee, Consultant or director who receives an Option.
"Outside Director" means an individual who is an "outside director" within
the meaning of Treasury Regulation Section 1.16227(e)(3).
"Plan" means this CNET, Inc. Amended and Restated 1997 Stock Option Plan, as
amended from time to time.
"Qualified Option" means any Option that is intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Rule 16b3" means Rule 16b3 of the rules and regulations under the Exchange
Act, as Rule 16b3 may be amended from time to time, and any successor
provisions to Rule 16b3 under the Exchange Act.
"Subsidiary" means any now existing or hereinafter organized or acquired
company of which at least fifty percent (50%) of the issued and outstanding
voting stock is owned or controlled directly or indirectly by the Corporation
or through one or more Subsidiaries of the Corporation.
3.Term of Plan. The Plan has been adopted by the Board effective as of April
16, 1997. To permit the granting of Qualified Options under the Code, and to
qualify awards of Options hereunder as "performance based" under Section162(m)
of the Code, the Plan will be submitted for approval by the stockholders of the
Corporation by the affirmative votes of the holders of a majority of the shares
of Common Stock then issued and outstanding, for approval no later than the
next annual meeting of stockholders. If the Plan is not so approved by the
stockholders of the Corporation, then any Options previously granted under the
Plan will be Nonqualified Options, regardless of whether the option agreements
relating thereto purport to grant Qualified Options. The Plan shall continue
in effect until terminated pursuant to Section 18.
4.Shares Subject to the Plan. Except as otherwise provided in Section 17
hereof, the aggregate number of shares of Common Stock issuable upon the
exercise of Options granted pursuant to this Plan shall be 6,200,000 shares.
Such shares may either be authorized but unissued shares or treasury shares.
The Corporation shall, during the term of this Plan, reserve and keep available
a number of shares of Common Stock sufficient to satisfy the requirements of
the Plan. If an Option should expire or become unexercisable for any reason
without having been exercised in full, then the shares that were subject
thereto shall, unless the Plan has terminated, be available for the grant
of additional Options under this Plan, subject to the limitations set
forth above.
5.Eligibility. Qualified Options may be granted under Section 6 of the Plan
to such Employees of the Corporation or its Subsidiaries as may be determined
by the Board or the Committee. Nonqualified Options may be granted under
Section 6 of the Plan to such Employees, Consultants and directors of the
Corporation or its Subsidiaries as may be determined by the Board or the
Committee. Subject to the limitations and qualifications set forth in this
Plan, the Board or the Committee shall also determine the number of Options
to be granted, the number of shares subject to each Option grant, the
exercise price or prices of each Option, the vesting and exercise period
of each Option, whether an Option may be exercised as to less than all
of the Common Stock subject thereto, and such other terms and conditions
of each Option, if any, as are consistent with the provisions of this Plan.
In connection with the granting of Qualified Options, the aggregate
Fair Market Value (determined at the Date of Grant of a Qualified Option)
of the shares with respect to which Qualified Options are exercisable for the
first time by an Optionee during any calendar year (under all such plans of
the Optionee's employer corporation and its parent and subsidiary
corporations as defined in Section 424(e) and (f) of the Code, or a
corporation or a parent or subsidiary corporation of such corporation issuing
or assuming an Option in a transaction to which Section 424(a) of the Code
applies (collectively, such corporations described in this sentence are
hereinafter referred to as "Related Corporations")) shall not exceed $100,000
or such other amount as from time to time provided in Section 422(d) of the
Code or any successor provision.
6.Grant of Options. Except as provided in Section 18, the Board or the
Committee shall determine the number of shares of Common Stock to be offered
from time to time pursuant to Options granted hereunder and shall grant Options
under the Plan. The grant of Options shall be evidenced by Option agreements
containing such terms and provisions as are approved by the Board or the
Committee and executed on behalf of the Corporation by an appropriate officer.
The aggregate number of shares of Common Stock with respect to which Options
may be granted to any single Participant during a calendar year shall not
exceed the number of shares subject to the Plan referred to in Section 4.
Any Options that are granted and subsequently lapse or are canceled or
forfeited will nonetheless count against this limit. For this purpose,
repricing of an Option shall be considered as the cancellation of the Option
and the grant of a new Option.
7.Time of Grant of Options. The Date of Grant of an Option under the Plan
shall be the date on which the Board or the Committee awards the Option or,
if the Board or the Committee so determines, the date specified by the Board
or the Committee as the date the award is to be effective. Notice of the
grant shall be given to each Optionee promptly after the date of such grant.
8.Price. The Exercise Price for each share of Common Stock subject to an
Option granted pursuant to Section 6 of the Plan shall be determined by the
Board or the Committee at the Date of Grant; provided, however, that (a) the
Exercise Price for any Option shall not be less than 100% of the Fair Market
Value of the Common Stock at the Date of Grant, and (b) if the Optionee owns
on the Date of Grant more than 10 percent of the total combined voting power
of all classes of stock of the Corporation or its parent or any of its
subsidiaries, as more fully described in Section 422(b)(6) of the Code or any
successor provision (such stockholder is referred to herein as a
"10-Percent Stockholder"), the Exercise Price for any Qualified Option
granted to such Optionee shall not be less than 110% of the Fair Market
Value of the Common Stock at the Date of Grant.
9.Vesting. Subject to Section 11 of this Plan, each Option shall vest or be
subject to forfeiture in accordance with the provisions set forth in the
applicable Option agreement. The Board or the Committee may, but shall not
be required to, permit acceleration of vesting or termination of forfeiture
provisions upon any sale of the Corporation or similar transaction. An Option
agreement may contain such additional provisions with respect to vesting as
the Board or the Committee may specify.
10.Exercise. An Optionee may pay the Exercise Price of the shares of Common
Stock as to which an Option is being exercised by the delivery of cash, check
or, at the Corporation's option, by the delivery of shares of Common Stock
having a Fair Market Value on the exercise date equal to the Exercise Price.
A Subsidiary may, but is not required to, act as agent for the Corporation
for the purpose of accepting the Exercise Price.
If the shares to be purchased are covered by an effective registration
statement under the Securities Act of 1933, as amended, any Option granted
under the Plan may be exercised by a broker-dealer acting on behalf of an
Optionee if (a) the broker-dealer has received from the Optionee or the
Corporation a fully and duly-endorsed agreement evidencing such Option,
together with instructions signed by the Optionee requesting the
Corporation to deliver the shares of Common Stock subject to such Option
to the broker-dealer on behalf of the Optionee and specifying the
account into which such shares should be deposited, (b) adequate
provision has been made with respect to the payment of any withholding
taxes due upon such exercise, and (c) the broker-dealer and the Optionee
have otherwise complied with Section 220.3(e)(4) of Regulation T, 12
CFR Part 220, or any successor provision.
11.When Qualified Options May be Exercised.
(a)No Qualified Option shall be exercisable at any time after the expiration
of ten (10) years from the Date of Grant; provided, however, that if the
Optionee with respect to a Qualified Option is a 10-Percent Stockholder on
the Date of Grant of such Qualified Option, then such Option shall not be
exercisable after the expiration of five (5) years from its Date of Grant.
In addition, if an Optionee of a Qualified Option ceases to be an employee
of the Corporation or any related corporation for any reason, such Optionee's
vested Qualified Options shall not be exercisable after (a) 90 days following
the date such Optionee ceases to be an employee of the Corporation or any
related corporation, if such cessation of service is not due to the death or
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) of the Optionee, or (b) twelve months following the date such Optionee
ceases to be an employee of the Corporation or any related corporation, if
such cessation of service is due to the death or permanent and total
disability (as defined above) of the Optionee. Upon the death of an Optionee,
any vested Qualified Option exercisable on the date of death may be
exercised by the Optionee's estate or by a person who acquires the right
to exercise such Qualified Option by bequest or inheritance or by reason
of the death of the Optionee, provided that such exercise occurs within
both the remaining option term of the Qualified Option and twelve months
after the date of the Optionee's death. This Section 11 only provides the
outer limits of allowable exercise dates with respect to Qualified Options;
the Board or the Committee may determine that the exercise period for a
Qualified Option shall have a shorter duration than as specified above.
(b)Nonqualified Options granted to employees of CNET Data Services, a
Subsidiary, shall be exercisable for a period of at least twelve (12) years
from the Date of Grant;
(c)Any Options not covered by Section 11(a) or Section 11(b) shall be
exercisable as determined by the Board of the Committee and set forth in the
Option Agreement by and between the Employee and the Corporation.
12.Option Financing. Upon the exercise of any Option granted under the Plan,
the Corporation may, but shall not be required to, make financing available
to the Optionee for the purchase of shares of Common Stock pursuant to such
Option on such terms as the Board or the Committee may specify.
13.Withholding of Taxes. The Board or the Committee shall make such
provisions and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Corporation or any Subsidiary is required by
any law or regulation of any governmental authority to withhold in connection
with any Option including, but not limited to, withholding the issuance of all
or any portion of the shares of Common Stock subject to such Option until the
Optionee reimburses the Corporation or its Subsidiary for the amount it is
required to withhold with respect to such taxes, canceling any portion of such
issuance in an amount sufficient to reimburse the Corporation or its Subsidiary
for the minimum mandatory amount it is required to withhold or taking any other
action reasonably required to satisfy the Corporation's or its Subsidiary's
withholding obligation.
14.Conditions Upon Issuance of Shares. The Corporation shall not be obligated
to sell or issue any shares upon the exercise of any Option granted under the
Plan unless the issuance and delivery of shares complies with all provisions of
applicable federal and state securities laws and the requirements of any
national exchange or trading system on which the Common Stock is then listed
or traded.
As a condition to the exercise of an Option, the Corporation may require the
person exercising the Option or receiving the grant to make such
representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of applicable
federal and state securities laws.
The Corporation shall not be liable for refusing to sell or issue any shares
covered by any Option if the Corporation cannot obtain authority from the
appropriate regulatory bodies deemed by the Corporation to be necessary to sell
or issue such shares in compliance with all applicable federal and state
securities laws and the requirements of any national exchange or trading system
on which the Common Stock is then listed or traded. In addition, the
Corporation shall have no obligation to any Optionee, express or implied, to
list, register or otherwise qualify the shares of Common Stock covered by any
Option.
No Optionee will be, or will be deemed to be, a holder of any Common Stock
subject to an Option unless and until such Optionee has exercised his or her
Option and paid the purchase price for the subject shares of Common Stock.
Each Qualified Option under this Plan shall be transferable only by will or
of descent and distribution and shall be exercisable during the Optionee's
lifetime only by such Optionee. Each Nonqualified Option under this Plan shall
be transferable only by will, the laws of descent and distribution, pursuant to
a domestic relations order issued by a court of competent jurisdiction, or to a
trust established by the Optionee for estate planning purposes.
15.Restrictions on Shares. Shares of Common Stock issued pursuant to the Plan
may be subject to restrictions on transfer under applicable federal and state
securities laws. The Board may impose such additional restrictions on the
ownership and transfer of shares of Common Stock issued pursuant to the Plan as
it deems desirable; any such restrictions shall be set forth in any Option
agreement entered into hereunder.
16.Modification of Options. Except as provided in Section 18 of this Plan, at
any time and from time to time, the Board or the Committee may execute an
instrument providing for modification, extension or renewal of any outstanding
Option, provided that no such modification, extension or renewal shall impair
the Option without the consent of the holder of the Option. Notwithstanding
the foregoing, in the event of such a modification, substitution, extension
or renewal of a Qualified Option, the Board or the Committee may increase the
exercise price of such Option if necessary to retain the qualified status of
such Option.
17.Effect of Change in Stock Subject to the Plan. In the event that each of
the outstanding shares of Common Stock (other than shares held by dissenting
stockholders) shall be changed into or exchanged for a different number or kind
of shares of stock of the Corporation or of another corporation (whether by
reason of merger, consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise), or in the event a stock split or stock
dividend occurs, then there shall be substituted for each share of Common Stock
then subject to Options or available for Options the number and kind of shares
of stock into which each outstanding share of Common Stock (other than shares
held by dissenting stockholders) shall be so changed or exchanged, or the
number of shares of Common Stock as is equitably required in the event of a
stock split or stock dividend, together with an appropriate adjustment
of the Exercise Price. The Board may, but shall not be required to, provide
additional anti-dilution protection to an Optionee under the terms of the
individual's Option agreement.
18.Administration.
(a)The Plan shall be administered by the Board or by a committee of the Board
comprised solely of two or more Outside Directors appointed by the Board (the
Committee). Options may be granted under Section 6, only (i) by the Board as a
whole, or (ii) by majority agreement of the members of the Committee; provided
that, if the Committee does not consist entirely of Non-Employee Directors,
then Options may be granted to Insiders under Section 6 only by the Board as
a whole. Option agreements, in the forms as approved by the Board or the
Committee, and containing such terms and conditions consistent with the
Provisions of this plan as are determined by the Board or the Committee,
may be executed on behalf of the Corporation by the Chairman of the Board,
the President or any Vice President of the Corporation. The Board or the
Committee shall have complete authority to construe, interpret and administer
the provisions of this Plan and the provisions of the Option agreements.
granted hereunder; to prescribe, amend and rescind rules and regulations
pertaining to this Plan; to suspend or discontinue this Plan; and to make
all other determinations necessary or deemed advisable in the administration
of the Plan. The determinations, interpretations and constructions
made by the Board or the Committee shall be final and conclusive. No member
of the Board or the Committee shall be liable for any action taken, or
failed to be taken, made in good faith relating to the Plan or any award
thereunder, and the members of the Board or the Committee shall be entitled
to indemnification and reimbursement by the Corporation in respect
of any claim, loss, damage or expense (including attorneys' fees) arising
therefrom to the fullest extent permitted by law.
(b)Although the Board or the Committee may suspend or discontinue the Plan at
any time, all Qualified Options must be granted within ten (10) years from the
effective date of the Plan or the date the Plan is approved by the stockholders
of the Corporation, whichever is earlier.
(c)Each Outside Director will be eligible to receive automatic grants of
Options as follows:
(i)Each Outside Director will automatically be granted Nonqualified Options
to purchase 80,000 shares of Common Stock (the "Initial Grant") on the date
such Outside Director is first elected to the Board.
(ii)On June 30 of each year, each Outside Director then serving on the Board
will automatically be granted Nonqualified Options to purchase 20,000 shares
of Common Stock (each, an "Annual Grant"). The number of shares subject to
Initial Grants and Annual Grants will be adjusted in accordance with Section
17.
(iii)The purchase price for Common Stock subject to Initial Grants and Annual
Grants will be 100% of the Fair Market Value of the Common Stock on the Date
of Grant.
(iv)All Options granted under this Section 18(c) will be evidenced by Option
agreements substantially in the form of Exhibit A hereto.
(v)All Options granted under this Section 18(c) will be exercisable on and
after the Date of Grant until the earlier of (A) ten years after the Date of
Grant, or (B) 90 days after the date such Outside Director is no longer a
director of the Corporation or an officer or employee of the Corporation or a
Related Corporation; provided that Common Stock issuable upon exercise of such
Options will be subject to a repurchase option in favor of the Corporation, as
set forth in the applicable Option agreement, until such shares vest, which
will occur in equal monthly installments during the 48 months following the
Date of Grant.
(vi)This Section 18(c) may not be amended more than once every six months,
other than to comport with changes in the Code or in the Employee Retirement
Income Security Act of 1974, as amended, or changes in the rules promulgated
thereunder, or other applicable law, unless, at the time of amendment, such
limitation on amendments is not necessary in order for the Plan to comply with
the requirements of Rule 16b3 or the Corporation is not then subject to the
provisions of Section 16 of the Exchange Act.
(vii)Notwithstanding the foregoing, to the extent an Outside Director receives
an automatic grant of Nonqualified Options under Section18(c) of the
Corporation's 1994 Stock Option Plan, as amended, such director is not eligible
to receive a duplicate grant of Nonqualified Options under this Section 18(c).
(d)Subject to any applicable requirements of Rule 16b3 or of any national
exchange or trading system on which the Common Stock is then listed or traded,
and subject to the stockholder approval requirements of Sections 422 and
162(m)(4)(C) of the Code, the Board may amend any provision of this Plan in any
respect in its discretion.
19.Continued Employment Not Presumed. Nothing in this Plan or any document
describing it nor the grant of any Option shall give any Optionee the right to
continue in the employment of the Corporation or affect the right of the
Corporation to terminate the employment of any such person with or without
cause.
20.Liability of the Corporation. Neither the Corporation, its directors,
officers or employees or the Committee, nor any Subsidiary which is in
existence or hereafter comes into existence, shall be liable to any Optionee
or other person if it is determined for any reason by the Internal Revenue
Service or any court having jurisdiction that any Qualified Option granted
hereunder does not qualify for tax treatment as an incentive stock option
under Section 422 of the Code.
21.Governing Law. The Plan shall be governed by and construed in accordance
with the laws of State of Delaware and the United States, as applicable,
without reference to the conflict of laws provisions thereof.
22.Severability of Provisions. If any provision of this Plan is determined to
be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable,
and the Plan shall be construed and enforced as if such provision had never
been inserted herein.
Exhibit 10.3
AMENDED AND RESTATED
1996 EMPLOYEE STOCK PURCHASE
PLAN
OF
C|NET, INC.
Amended and Restated as of September 1, 1999
TABLE OF CONTENTS
I.INTRODUCTION 1
II. DEFINITIONS 1
III. PARTICIPATION 3
IV.OPTIONS TO PURCHASE; MAXIMUM SHARES AVAILABLE 4
V.PURCHASE OF STOCK PURSUANT TO OPTIONS 5
VI.ADMINISTRATION OF PLAN 7
VII.ADJUSTMENT UPON CHANGES IN COMMON STOCK 8
VIII.AMENDMENT; TERMINATION OF PLAN 9
IX.MISCELLANEOUS 9
1996 EMPLOYEE STOCK PURCHASE PLAN
OF
C|NET, INC.
I. INTRODUCTION
The purpose of the 1996 Employee Stock Purchase Plan is to make
available to eligible employees of C|NET, Inc. ("C|NET"), and certain
related companies a means of purchasing shares of C|NET Common Stock
through voluntary, regular payroll deductions. The Plan is not subject to
the provisions of the Employee Retirement Income Security Act of 1974,
but is intended to qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Plan shall be administered, interpreted and construed in
accordance with Section 423 of the Code.
Participation in the Plan is entirely voluntary, and the Company makes no
recommendations to employees as to whether they should or should not
participate.
II. DEFINITIONS
2.1.Definitions. The following words and phrases shall have the
following meanings:
"Administrator" means the entity or person designated to act as
Administrator of the Plan pursuant to Section 6.1.
"Base Compensation" means gross compensation for the relevant pay
period, including overtime pay, but excluding all bonuses, severance pay,
any extraordinary pay, expense allowances/reimbursements, moving
expenses and income from restricted stock or stock option awards. For
these purposes, gross compensation includes any amount that would be
included in taxable income but for the fact that it was contributed to a
qualified plan pursuant to an elective deferral under Section 401(k) of the
Code or contributed under a salary reduction agreement pursuant to
Section 125 of the Code.
"Board" means the Board of Directors of C|NET.
"Broker" means a duly licensed securities dealer, broker or agent
designated to act as Broker of the Plan pursuant to Section 6.2.
"C|NET Company" means C|NET or a Related Corporation.
"Committee" means the Compensation Committee of the Board, which,
to the extent required by Rule 16b3, shall consist entirely of disinterested
directors (as defined in Rule 16b3).
"Common Stock" means C|NETs Common Stock, par value $.01 per
share.
"Eligible Employee" means any employee of any C|NET Company,
excluding any employee (a) whose customary employment with the
employees Employer is 20 hours or less per week, (b) whose customary
employment with the employees Employer is not for more than five
months in any calendar year, or (c) who immediately after the grant of an
option under this Plan to the employee would (in accordance with the
provisions of Sections 423 and 424(d) of the Code) own stock possessing
5% or more of the total combined voting power or value of all classes of
stock of the "employer corporation" or of its "parent corporations" or
"subsidiary corporations," as defined in Section 424 of the Code.
"Employer" means, with respect to any Participant, the C|NET Company
of which the Participant is an Eligible Employee.
"Fair Market Value" means, with respect to a share of Common Stock,
the last sales price of a share of Common Stock as reported on the Nasdaq
National Market (or other exchange on which the Common Stock is then
listed) on the date of valuation, if such date is a business day, or the
immediately preceding business day, if such date is not a business day;
provided, however, that for purposes of this Plan, the Fair Market Value of
a share of Common Stock for the first day of the Initial Option Period shall
be the offering price to the public in the Companys initial public offering.
"Initial Option Period" means the Option Period commencing the Plan
Start Date and ending on September 30, 1996.
"1933 Act" means the Securities Act of 1933, as amended.
"Option" means an option granted pursuant to this Plan at the beginning
of each Option Period to acquire Common Stock.
"Option Exercise Date" means the last day of each Option Period.
"Option Period" means the period beginning on the first day of each fiscal
quarter and ending on the last day of each fiscal quarter; provided,
however, that the Initial Option Period shall commence on the Plan Start
Date and shall end on the September 30, 1996.
"Payroll Deduction Account" means, with respect to each Participant, the
amounts credited to the Participants account from the payroll deductions
made by the Participant under this Plan, less any amounts withdrawn from
such account (for payment of Common Stock, payment to the Participant,
payment of withholding and other taxes or amounts or payment of other
obligations or amounts).
"Participant" has the meaning set forth in Section 3.2.
"Plan" means the 1996 Employee Stock Purchase Plan of C|NET, Inc., as
the same may be amended from time to time.
"Plan Start Date" means the first day on which the Common Stock is
publicly traded on the Nasdaq National Market.
"Related Corporation" means any present or future corporation which (i)
would be a "subsidiary corporation" or "parent corporation" of C|NET, as
such terms are defined in Section 424 of the Code, and (ii) is designated as
a participating employer in this Plan by the Board.
"Rule 16b3" means Rule 16b3 under the 1933 Act.
"Stock Account" means, with respect to each Participant, the number of
whole shares of Common Stock credited under this Plan to the
Participants account. Dividends with respect to shares of Common Stock
credited to a Participants Stock Account shall be paid to the Participant
and shall not be held in either the Participants Stock Account or Payroll
Deduction Account.
III. PARTICIPATION
3.1.Eligible Employees. Subject to Article VIII, all Eligible Employees
as of the beginning of each Option Period may participate in the Plan for
such Option Period at their election.
3.2.Participation Procedures. If an Eligible Employee does not
otherwise have an election to become a Participant in effect, each Eligible
Employee choosing to participate in the Plan (herein called a
"Participant") during an Option Period shall enroll as a Participant in the
Plan by filing with the Participants Employer a completed enrollment
form (authorized by the Administrator) no later than (a) 7 days prior to the
beginning of any Option Period other than the Initial Option Period, and
(b) 3 days prior to the Initial Option Period.
3.3.Employee Contributions. Subject to other limitations provided in
this Plan, a Participant may contribute under the Plan a minimum of one
percent (1%) and a maximum of ten percent (10%) of the Participants
Base Compensation up to a maximum of $25,000 per calendar year.
Contributions may be made only through regular payroll deductions, net of
any tax or other withholdings.
An enrollment form and payroll deduction authorization will remain
effective for each Option Period until terminated in writing by a
Participant or until the Participant is no longer eligible to participate in the
Plan. The payroll deduction authorization may be reduced or terminated at
any time by the Participants written request submitted to the Participants
Employer: provided, however, that a Participant may not recommence or
increase payroll deductions until the beginning of the next Option Period,
nor may a Participant make more than one revision of the Participants
payroll deduction authorization in any Option Period. Termination of
deductions shall constitute withdrawal from the Plan as set forth in Section
3.5 and cancellation of any outstanding Options of the Participant.
Reduction or termination of deductions will become effective as soon as
practicable after a Participants written request is received by the
Participants Employer.
3.4.Participant Restriction. Notwithstanding any provisions of this
Plan to the contrary, no Participant will be granted an option under this
Plan which would permit (a) the Participants rights to purchase shares of
stock under all employee stock purchase plans of C|NET and "parent
corporations" and "subsidiary corporations" (within the meaning of
Section 424 of the Code) to accrue at a rate which exceeds $25,000 in Fair
Market Value of such stock (determined at the time each Option is
granted) for each calendar year during which any Option granted to such
Participant is outstanding at any time, as provided in Sections 423 and
424(d) of the Code; and (b) the Participant to acquire Common Stock as a
result of the exercise of such Option having a Fair Market Value
(determined at the time the Option is granted) of more than $5,000.
3.5.Withdrawal from Plan. A Participant may withdraw from the Plan
(thereby canceling all Options then in existence) at any time by giving
written notice to the Participants Employer and to the Administrator. The
Administrator shall, as soon as practicable after receiving written notice of
a Participants withdrawal from the Plan, cause to be delivered to the
Participant (i) a certificate issued in the name of the Participant
representing the number of full shares of Common Stock held in the
Participants Stock Account and (ii) a check representing any funds held to
the credit of the Participants Payroll Deduction Account. A Participant
who has withdrawn from the Plan may thereafter reenter the Plan by
following the procedure described under Section 3.2, but not sooner than
the beginning of the next Option Period after the Participant has
withdrawn from participation.
3.6.Termination of Participants Employment. Upon termination of a
Participants employment from the C|NET Companies for any reason,
including death or disability, the Participants Stock Account and Payroll
Deduction Account in the Plan shall be closed, and all existing Options
held by the Participant shall be canceled. The Administrator shall, as soon
as practicable after termination of a Participants employment, cause to be
delivered to the Participant or the Participants estate or the Participants
designated beneficiary as provided below, as applicable, (i) a certificate
issued in the name of the Participant representing the number of full shares
of Common Stock in the Participants Stock Account, and (ii) a check
representing any funds held to the credit of the Participants Payroll
Deduction Account. In the event of a Participants death, the Participants
Common Stock and Payroll Deduction Account shall be delivered and
paid to the estate of such Participant or to a beneficiary designated by the
Participant in writing on a form approved by the Administrator.
IV. OPTIONS TO PURCHASE STOCK; MAXIMUM SHARES
AVAILABLE
4.1.Maximum Shares. The maximum number of shares which shall be
issued under the Plan, subject to adjustment upon changes in Common
Stock under Article VII, shall be 350,000 shares.
4.2.Offerings. Subject to Article XIII, the Company shall make
consecutive offerings on the beginning of each Option Period to
Participants to purchase Common Stock as long as shares authorized
remain available for issuance. Each offering as of the beginning of each
Option Period shall be the total number of shares authorized under
Section 4.1, less the number of shares issued by purchases of Common
Stock under Section 5.5 in prior Option Periods.
V. PURCHASE OF STOCK PURSUANT TO OPTIONS
5.1.Payroll Deduction Accounts. Each C|NET Company will deduct
from its Participants paychecks such amounts as have been authorized by
the Participants and, promptly after the end of each month, remit to the
Administrator all amounts so deducted during the month, together with a
report showing each Participant and the amounts allocable to the Payroll
Deduction Account of each Participant. The Administrator shall credit
each Participants Payroll Deduction Account with the amount of such
deposits, and shall reduce the Participants Payroll Deduction Account by
the purchase price of all Common Stock purchased by the Participant
under this Plan and by any other withdrawals from the Participants
Payroll Deduction Account. The Plan, through its Administrator, shall
purchase for the Stock Accounts of the Participants shares of Common
Stock with funds received under the Plan.
5.2.Stock Accounts. The Administrator will open and maintain a Stock
Account in the name of each Participant to which will be credited all
shares of Common Stock purchased for the Participants benefit. All
shares held under the Plan will be registered in the name of the Plan, the
Administrator or the Administrators nominee, and will remain so
registered until the shares are delivered to the Participant. The Participant
shall have the right to sell all or any part of the shares held in the
Participants Stock Account, pursuant to procedures established by the
Administrator.
5.3Grant of Options and Purchase. Subject to Article VIII, each
person who is a Participant on the first day of an Option Period will as of
the first day of such Option Period be granted an Option for such period.
Such Option will be for the number of whole shares (not in excess of the
share maximum as hereinafter defined) of Common Stock to be
determined by dividing (a) the balance in the Participants Payroll
Deduction Account on the Option Exercise Date, by (b) the purchase price
per share of Common Stock determined under Section 5.4 below. For
purposes of the immediately preceding sentence, the share maximum with
respect to any Option for any Option Period shall be the quotient of (c)
$5,000, divided by (d) the Fair Market Value of a share of Common Stock
at the beginning of the Option Period; provided, however, that the
quotients in this Section 5.3 shall be rounded down to a whole number.
The number of shares of Common Stock receivable by each Participant
upon exercise of an Option for an Option Period shall be reduced, on a
substantially proportionate basis, in the event that the number of shares
then available under the Plan is otherwise insufficient.
5.4Purchase Price. The purchase price of each share of Common Stock
sold pursuant to the exercise of an Option shall be equal to the product of
(a) 0.90 multiplied by (b) the lesser of (i) the Fair Market Value of the
Common Stock on the first day of the Option Period, or (ii) the Fair
Market Value of the Common Stock on the last day of the Option Period.
5.5Exercise of Options. Each person who is a Participant in the Plan on
the Option Exercise Date will be deemed to have exercised on the Option
Exercise Date the Option granted to the Participant for that Option Period.
Upon such exercise, the balance of the Participants Payroll Deduction
Account shall be applied to the purchase of the number of whole shares of
Common Stock determined under Section 5.3, and the amount of shares of
Common Stock purchased shall be credited to the Participants Stock
Account. In the event that the balance of the Participants Payroll
Deduction Account following an Option Period is in excess of the total
purchase price of the shares of Common Stock so sold, the balance of the
Payroll Deduction Account shall be returned to the Participant; provided,
however, that if the balance in the Payroll Deduction Account consists
solely of an amount equal to the value of a fractional share it will be
retained in the Payroll Deduction Account and carried over to the next
Option Period. No fractional shares shall be issued hereunder.
Notwithstanding anything herein to the contrary, C|NETs obligation to
sell and deliver shares of Common Stock under the Plan is subject to the
approval required of any governmental authority in connection with the
authorization, issuance, sale or transfer of such shares, to any requirements
of the Nasdaq National Market or any national securities exchange
applicable thereto, and to compliance by C|NET with other applicable
legal requirements in effect from time to time, including without limitation
any applicable tax withholding requirements.
5.6.No Assignment of Participants Interest in Plan. A Participant
may not assign, sell, transfer, pledge, hypothecate or alienate any Options
or other interests in or rights under the Plan. Options under the Plan are
exercisable by a Participant during the Participants lifetime only by the
Participant. All employees shall have the same rights and privileges under
the Plan.
5.7.Vesting. Each Participant will immediately acquire full ownership
of all shares of Common Stock at the time such shares are credited to the
Participants Stock Account.
5.8.Delivery of Stock. A Participant may instruct the Administrator, in
writing, at any time to deliver to the Participant a certificate, issued in the
name of the Participant, representing any or all of the full shares of
Common Stock held in the Participants Stock Account. As soon as
practicable after receiving such instructions, the Administrator shall cause
the certificate to be mailed to the Participant. Such instruction to the
Administrator, requesting delivery of a certificate, will not affect the
Participants status under the Plan unless the Participant also terminates
the payroll deduction authorization. To the extent required by Rule 16b3
at the time, any Participant who is subject to the reporting requirements of
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and who requests delivery of a certificate must either (i)
cease participation in the Plan for at least six months, or (ii) hold the
Common Stock represented by the certificate for a period of six months
prior to disposition of that stock.
5.9.Dividends, Splits and Distributions. Any stock dividends or stock
splits in respect of shares held in the Participants Stock Account will be
credited to the Participants account without charge. Any distributions to
holders of Common Stock of other securities or rights to subscribe for
additional shares will be sold and the proceeds will be handled in the same
manner as a cash dividend, unless the Participant instructs the
Administrator to the contrary.
5.10.Voting Rights. The Administrator will deliver to each Participant
as promptly as practicable, by mail or otherwise, all notices of meetings,
proxy statements and other material distributed by C|NET to its
stockholders. The full shares of Common Stock in each Participants Stock
Account will be voted in accordance with the Participants signed proxy
instructions duly delivered to the Administrator. There will be no charge to
the Participant for the Administrators retention or delivery of stock
certificates, or in connection with notices, proxies or other such material.
5.11.No Interest to be Paid. No interest will be paid to or credited to the
Payroll Deduction Accounts or Stock Accounts of the Participants.
VI. ADMINISTRATION OF PLAN
6.1.The Administrator and the Committee. To carry out the purposes
of the Plan, the Committee shall appoint an Administrator. The
Administrator may be any company or individual that the Committee
deems qualified, including C|NET. The Administrator shall be responsible
for the implementation of the Plan, including allocation of funds and stock
to the Payroll Deduction Accounts and Stock Accounts and keeping
adequate and accurate records for the Participants.
The Committee shall be entitled to adopt and apply guidelines and
procedures consistent with the purposes of the Plan. In order to effectuate
the purposes of the Plan, the Committee shall have the discretionary
authority to construe and interpret the Plan, to supply any omissions
therein, to reconcile and correct any errors or inconsistencies, to decide
any questions in the administration and application of the Plan, and to
make equitable adjustments for any mistakes or errors made in the
administration of the Plan, and all such actions or determinations made by
the Committee, and the application of rules and regulations to a particular
case or issue by the Committee, in good faith, shall not be subject to
review by anyone, but shall be final, binding and conclusive on all persons
ever interested hereunder.
6.2.Broker. The Administrator may, in its discretion, with the consent
and approval of the Committee, appoint a Broker. The Broker may be any
company or individual that the Committee deems qualified; provided,
however, that the Broker shall be a licensed security dealer, broker, or
agent authorized to make purchases and sales of Common Stock.
6.3.Reporting to Participants. The Administrator will send to each
Participant a statement at the end of each calendar quarter (or such other
period as determined by the Committee in its sole discretion). Each such
statement shall contain information concerning transactions in the
Participants Payroll Deduction Account and Stock Account during the
relevant period and reflect the balance in the Participants Payroll
Deduction Account and Stock Account at the end of such period.
VII. ADJUSTMENT UPON CHANGES IN COMMON STOCK
7.1.Changes in Common Stock. If any change is made in the Common
Stock (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or otherwise), the Administrator may make appropriate
adjustments in the number of shares and price per share of Common Stock
subject to the Plan or to any Option granted under the Plan.
7.2.Dissolution; Merger; Capital Reorganization; Etc. In the event of
(i) a dissolution or liquidation of C|NET; (ii) a merger or consolidation in
which C|NET is not the surviving corporation, or a reverse merger in
which C|NET is the surviving corporation but the shares of Common
Stock by virtue of the merger are converted into other property, whether in
the form of securities, cash or otherwise; or (iii) any other capital
reorganization in which more than 50 percent of the shares of Common
Stock entitled to vote are exchanged, the Plan shall terminate, unless
another corporation assumes the responsibility of continuing the operation
of the Plan or the Committee determines in its discretion that the Plan
shall nevertheless continue in full force and effect. If the Committee elects
to terminate the Plan, the Administrator shall send to each Participant a
stock certificate representing the number of whole shares to which the
Participant is entitled. In addition, the Administrator shall send checks
drawn on the Plans account to each Participant in an amount equal to the
funds held to the credit of such Participants Payroll Deduction Account.
7.3.Companys Right to Restructure, Etc. The grant of any right to a
Participant pursuant to the Plan shall not affect in any way the right or
power of C|NET to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or
to dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
VIII. AMENDMENT; TERMINATION OF PLAN
8.1.Amendment and Termination. C|NET, acting through the
Committee, reserves the right to amend or terminate the Plan at any time
or times; provided that, to the extent required under Rule 16b3, any
amendment (a) increasing or decreasing the number of shares to be
reserved under the Plan (other than as required pursuant to Section 7.1) or
(b) altering the eligibility criteria of Eligible Employees for participation
in the Plan, will have no force or effect unless it is approved by the
stockholders of C|NET within twelve months before or after its adoption.
In addition, the Plan shall terminate automatically on January 1, 2006, or
on any Option Exercise Date when Participants become entitled to
purchase a number of shares greater than the number of reserved shares
remaining available for purchase, subject to the allocation of remaining
shares pursuant to the last sentence of Section 5.3. Upon termination of
the Plan, all amounts held in the Payroll Deduction Accounts shall, to the
extent not used to purchase shares of Common Stock, be refunded to the
Participants entitled thereto.
8.2.Satisfaction of Requirements Under the 1933 Act.
Notwithstanding any provisions of this Plan to the contrary, no purchase
rights granted under this Plan shall be exercised, and no shares of
Common Stock shall be issued hereunder, until C|NET has complied with
all the applicable requirements of the 1933 Act, all applicable listing
requirements of the Nasdaq National Market or any other stock exchange
on which the Common Stock is listed for trading, and all other applicable
requirements established by law or regulation. In the event such
compliance is not effected by the end of the Initial Option Period, then this
Plan shall terminate and have no further force or effect, and all sums
collected from the Participants during the Initial Option Period hereunder
shall be refunded without interest.
IX. MISCELLANEOUS
9.1.Expenses of Plan. The Brokers brokerage commissions, if any,
incurred in connection with transactions in Common Stock under the Plan,
and the Administrators administrative charges for maintaining
Participants accounts relating to purchases of securities and all other
expenses of administering or maintaining the Plan will be paid by the
Company. If the Company is acting as Administrator, no expenses will be
charged to the Participants.
9.2.Indemnification. In the event and to the extent not insured against
under any contract of insurance with an insurance company, C|NET shall
indemnify and hold harmless each "Indemnified Person," as defined
below, against any and all claims, demands, suits, proceedings, losses,
damages, interest, penalties, expenses (specifically including, but not
limited to, counsel fees to the extent approved by the Board or otherwise
provided by law, court costs and other reasonable expenses of litigation),
and liability of every kind, including amounts paid in settlement, with the
approval of the Board, arising from any action or cause of action related to
the Indemnified Persons act or acts or failure to act. Such indemnity shall
apply regardless of whether such claims, demands, suits, proceedings,
losses, damages, interest, penalties, expenses and liability arise in whole or
in part from (a) the negligence or other fault of the Indemnified Person, or
(b) from the imposition on such Indemnified Person of any civil penalties
or excise taxes pursuant to the Code or any other applicable laws; except
when the same is judicially determined to be due to gross negligence,
fraud, recklessness, or willful or intentional misconduct of such
Indemnified Person. "Indemnified Person" shall mean each member of the
Board, the Administrator, each member of the Committee and each other
employee of any C|NET Company who is allocated fiduciary responsibility
hereunder.
9.3.No Contract of Employment Intended. The granting of any rights
to an Eligible Employee under this Plan shall not constitute an agreement
or understanding, express or implied, on the part of any C|NET Company,
to employ such Eligible Employee for any specified period.
9.4.Governing Law. The construction, validity and operation of this
Plan shall be governed by the laws of the State of Delaware.
9.5.Exempt Transactions. With respect to reporting persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b3 or its successors, as
in effect from time to time. To the extent any provision of the Plan or
action by the Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
9.6.Severability of Provisions. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforcability shall not affect the remaining provisions of
this Plan, but such invalid, illegal or unenforceable provisions shall be
fully severable, and the Plan shall be construed and enforced as if such
provision had never been inserted herein.
9.7.No Liability of C|NET. Neither C|NET, its directors, officers or
employees of the Committee, nor any Related Corporation which is in
existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that the Plan does not
qualify under Section 423 of the Code.
IN WITNESS WHEREOF, the Company has caused this Plan to be
adopted effective as of the Plan Start Date.
C|NET, INC.
By:
Name:
Title:
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<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 117,375 44,500
<SECURITIES> 0 0
<RECEIVABLES> 22,772 12,619
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 393,708 62,802
<PP&E> 23,694 15,495
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 520,028 83,357
<CURRENT-LIABILITIES> 108,759 12,254
<BONDS> 0 0
0 0
0 0
<COMMON> 7 7
<OTHER-SE> 232,176 70,133
<TOTAL-LIABILITY-AND-EQUITY> 520,028 83,358
<SALES> 74,036 37,863
<TOTAL-REVENUES> 74,036 37,863
<CGS> 29,310 21,882
<TOTAL-COSTS> 29,310 21,882
<OTHER-EXPENSES> 66,647 16,669
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 100,556 (1,364)
<INCOME-TAX> 40,222 0
<INCOME-CONTINUING> 60,334 (1,364)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 60,334 (1,364)
<EPS-BASIC> $0.85 ($0.02)
<EPS-DILUTED> $0.76 ($0.02)
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