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As filed with the Securities and Exchange Commission on May 4, 1999.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CNET, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3696170
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
150 CHESTNUT STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 395-7800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Halsey M. Minor COPIES TO:
Chairman of the Board, President and R. Clayton Mulford
Chief Executive Officer Hughes & Luce, L.L.P.
150 Chestnut Street 1717 Main Street, Suite 2800
San Francisco, California 94111 Dallas, Texas 75201
(415) 395-7800 (214) 939-5500
(Name, address, and telephone number,
including area code, of agent for service)
---------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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5% Convertible Subordinated
notes due March 1, 2006....... 172,915,000 100% $172,915,000 $48,070.37
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Common Stock, par value $0.0001
per share, of CNET, Inc....... 2,311,312(2) (2) (2) (2)
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(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 of the Securities Act.
(2) The notes are convertible into common stock, $0.0001 par value per share,
of CNET, Inc. Each note is initially convertible into shares of common
stock at a conversion price of $74.8125 per share, subject to adjustment
under certain circumstances. This registration statement includes such
additional shares of common stock as may be issuable pursuant to such
adjustments. The shares of common stock issued upon conversion of the notes
will be issued for no additional consideration, and therefore no
registration fee is required pursuant to Rule 457(i).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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We will amend and complete the information in this prospectus. This prospectus
is not an offer to sell these securities or our solicitation of your offer to
buy these securities, nor will we sell them or accept your offer to buy them, in
any state or other jurisdiction where that would not be permitted or legal prior
to registration or qualification in that state or other jurisdiction. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective.
SUBJECT TO COMPLETION, DATED , 1999
PROSPECTUS
$172,915,000
CNET, INC.
5% CONVERTIBLE SUBORDINATED NOTES DUE 2006
(AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES)
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o Maturity Date
The notes are due on March 1, 2006.
o Interest
Interest on the notes is payable on March 1 and September 1 of each year at
the rate of 5% per year, commencing on September 1, 1999.
o Conversion into common stock
You may convert the notes into shares of our common stock at any time
beginning June 7, 1999, in whole or in part, at a conversion price of
$74.8125 per share, subject to adjustment.
o Redemption
We may redeem the notes on or after March 6, 2002.
o Mandatory Offer to Repurchase
If we sell all or substantially all of our assets or experience specific
kinds of changes in control, we must offer to repurchase the notes.
o Ranking
The notes are general, unsecured obligations, junior to all of our existing
and future senior debt and all existing and future liabilities of our
subsidiaries.
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o Markets for our notes and our common stock
Our notes trade on the Portal market. Our common stock trades on The Nasdaq
National Market under the symbol "CNET". On May 3, 1999, the last reported
sales price for our common stock was $ 122.19 per share.
o Selling Securityholders
The notes and common stock are being offered for resale by the selling
securityholders listed on page 48. We will not receive any proceeds from
these resales.
------------------------------------
THIS INVESTMENT INVOLVES RISK. YOU SHOULD PURCHASE ONLY IF YOU CAN AFFORD A
COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 1999.
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TABLE OF CONTENTS
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Page
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Prospectus Summary............................................. 3
Risk Factors................................................... 5
Incorporation of Documents By Reference........................ 15
Where You Can Get More Information............................. 15
Use of Proceeds................................................ 16
Ratio of Earnings to Fixed Charges............................. 16
Description of the Notes....................................... 17
Description of Capital Stock................................... 38
Certain United States Federal Income Tax Considerations........ 42
Selling Securityholders........................................ 48
Plan of Distribution........................................... 49
Legal Matters.................................................. 49
Experts........................................................ 50
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, the notes and shares of common stock issuable upon conversion of the notes
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or the date of any sale of
the notes and shares of common stock issuable upon conversion of the notes.
----------------------------
Information contained on our Internet network will not be deemed to be part
of this prospectus.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our financial statements and notes appearing elsewhere in, or incorporated
by reference in, this prospectus. You should carefully consider, among other
things, the matters set forth in "Risk Factors" beginning on page 5.
THE COMPANY
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 earn revenues from a
combination of:
o banner and sponsorship advertising on our online network
o advertising and sales lead-based compensation from our online
shopping services
o advertising sales and licensing fees from our television programming
CNET Online
Through CNET Online, we produce a network of information and services
offered under the CNET brand through CNET.com, our gateway for consumers
interested in information technology and technology products and services.
The primary channels accessible through CNET.com are:
o Search.com
o Computers.com
o Shopper.com
o News.com
o Builder.com
o Gamecenter.com
o Download.com
CNET Television
Through CNET Television, we seek to strengthen the CNET brand and
complement CNET Online. CNET Television includes the Digital Domain, which is a
two-hour programming block broadcast on the USA Network and the Sci-Fi Channel.
The Digital Domain includes:
o CNET Central (technology news)
o The Web (Internet and online services)
o Cool Tech (consumer-oriented technology products)
o The New Edge (future technologies)
We also produce TV.com (technology products and news) and Tech Reports
(90-second technology inserts for local news programs).
We are a Delaware corporation. Our principal executive offices are located
at 150 Chestnut Street, San Francisco, California, 94111. Our phone number is
(415) 395-7800.
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THE OFFERING
Securities Offered............... $172,915,000 aggregate principal amount of
our 5% convertible subordinated notes due
March 1, 2006 and shares of our common stock
issuable upon conversion of the notes.
Maturity Date of Notes........... March 1, 2006, unless earlier redeemed,
repurchased or converted.
Interest Payment Dates of Notes.. March 1 and September 1 of each year,
commencing on September 1, 1999.
Conversion of Notes.............. You may convert your notes, unless you have
previously redeemed or repurchased them, at
any time beginning June 7, 1999 and prior to
March 1, 2006 into shares of our common stock
at a conversion price of $74.8125 per share,
subject to adjustment in some events. You
should read the information under the heading
"Description of the Notes-- Conversion" on
page 24 for more information on the
conversion of the notes. Your right to
convert your notes after we have called your
notes for redemption will terminate at the
close of business on the business day
immediately before the day you were to redeem
your notes.
Mandatory Redemption of Notes.... None.
Optional Redemption of Notes..... We may redeem the notes in whole or from time
to time in part, at any time on or after
March 6, 2002, in cash at the prices set
forth in this prospectus, plus accrued and
unpaid interest and liquidated damages, if
any, to the date of redemption. Liquidated
damages is additional interest that we are
required to pay for our failure to comply
with the requirements of the registration
agreement associated with the notes. You
should read the information under the heading
"Description of the Notes-- Optional
Redemption," on page 18 for more information
on the redemption of the notes.
Repurchase of Notes at Holders'
Option........................... If we sell all or substantially all of our
assets or experience specific kinds of
changes in control, we will be required to
offer to repurchase the notes at a purchase
price equal to 100% of the principal amount
thereof, together with accrued and unpaid
interest and liquidated damages, if any, to
the date of the purchase. You should read the
information under the heading "Description of
the Notes-- Repurchase at the Option of
Holders" on page 18 and "Risk Factors-- We
May Be Unable to Repurchase the Notes When We
Are Required to Do So, Which Would Be a
Default Under the Notes and Our Credit
Facilities" on page 13 for more information
on our obligation to repurchase the notes.
Ranking of Notes................. The notes are general unsecured obligations
and are junior in right of payment to all of
our existing and future senior debt. The
notes are also junior to all existing and
future indebtedness and other liabilities of
our subsidiaries. The indenture related to
the notes contains no limitation on the
incurrence of senior debt or other
indebtedness and other liabilities by us or
our subsidiaries. You should read the
information under the heading "Description of
the Notes-- Subordination of Notes" on page
26 for more information on the ranking of the
notes.
Use of Proceeds.................. We will receive none of the proceeds from the
sale of the notes and the common stock
offered in this prospectus.
Trading.......................... The notes are traded in the Portal Market.
However, any notes sold under this prospectus
will no longer trade in the Portal Market.
Our common stock is traded on The Nasdaq
National Market under the symbol "CNET." You
should read the information under the heading
"Risk Factors - You May Not Be Able to Sell
Your Notes" on page 14 for more information
on the trading of the Notes.
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RISK FACTORS
Before investing in the notes or common stock offered by this prospectus,
you should carefully consider the following risk factors and warnings, in
addition to all of the other information we have provided to you in this
prospectus. Also, you should be aware that the risks described below are not the
only ones facing us. Additional risks that we do not yet know of or that we
currently think are immaterial may also impair our business operations. If any
of those risks or any of the risks described below actually occur, our business,
financial condition, prospects or results of operations could be materially and
adversely affected. In that case, the trading price of the notes and common
stock offered in this prospectus could decline, and you may lose all or part of
your investment.
This prospectus contains or incorporates by reference statements about our
future that are not statements of historical fact. In some cases, you can
identify these statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of such terms and other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined below. These factors may
cause our actual results to differ materially and adversely from any
forward-looking statement.
We Have a Limited Operating History and an Accumulated Deficit, Which Makes
Your Evaluation of Us Difficult and Affects Many Aspects of Our Business. We
have a limited operating history upon which you can evaluate us. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in developing industries, particularly companies in the
relatively new and rapidly evolving market for Internet products, content and
services. Such risks for us include, but are not limited to:
o an evolving and unpredictable business model
o uncertain acceptance of new services including CNET Shopper.com
o competition
o management of growth
We cannot assure you that we will succeed in addressing such risks. If we fail
to do so, our revenues and operating results could be materially reduced.
Additionally, our limited operating history and the emerging nature of the
markets in which we compete makes the prediction of future operating results
difficult or impossible. We cannot assure you that our revenues will increase or
even continue at their current level or that we will maintain profitability or
generate cash from operations in future periods. In addition, interest that we
pay on our notes and costs of our acquisitions, including amortization of
goodwill and other purchased intangibles and ongoing operating expenses, will or
may further affect our operating results. From our inception until the third
quarter of 1998, we incurred significant losses. As of December 31, 1998 we had
an accumulated deficit of $51.2 million. We may continue to incur losses in the
future. For example, if we were to increase significantly our marketing
expenses, which we are considering, it is possible that we would incur losses as
a result. In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied upon as
indicating what our future performance will be.
If currently available cash and cash generated by operations is
insufficient to satisfy our liquidity requirements, we may be required to sell
additional equity or debt securities. The sale of additional
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equity or debt securities that are convertible into equity would result in
additional dilution to our stockholders. There can be no assurance that
financing will be available in amounts or on terms that we find acceptable.
We May Experience Fluctuations in Our Quarterly Operating Results, Which
Could Adversely Affect Our Financial Results. Our quarterly operating results
may fluctuate significantly in the future as a result of a variety of factors,
many of which are outside our control. Factors that may adversely affect our
quarterly operating results attributable to our Internet operations include,
among others:
o demand for Internet advertising
o the addition or loss of advertisers, and the advertising budgeting
cycles of individual advertisers
o the level of traffic on our network of Internet channels
o the amount and timing of capital expenditures and other costs,
including marketing costs, relating to the expansion of our Internet
operations
o competition
o our ability to manage effectively our development of new business
segments and markets
o our ability to successfully mange the integration of operations and
technology of acquisitions and other business combinations
o our ability to upgrade and develop our systems and infrastructure
o technical difficulties, system downtime or Internet brownouts
o governmental regulation and taxation policies
o general economic conditions and economic conditions specific to the
Internet and Internet media
We may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in revenues
in relation to our planned expenditures could materially reduce our operating
results and adversely affect our financial condition.
Quarterly operating results attributable to our television operations are
generally dependent on the costs we incur in producing our television
programming. If the costs of producing television programs exceed licensing and
distribution revenues, we could incur losses with respect to our television
operations. As a result of our strategy to cross market our television and
Internet operations, a decrease in the number of viewers of our television
programs may lead to a reduction in the usage of our Internet channels which
would materially reduce our revenues and adversely affect our financial
condition.
Due to all of the foregoing factors, it is likely that our operating
results may fall below our expectations or the expectations of securities
analysts or investors in some future quarter. If this happens, the trading price
of our common stock and the trading price of our notes would likely be
materially adversely affected.
Our Internet Content and Services May Not be Accepted, Which Could
Adversely Affect Our Profitability. Our future success depends upon our ability
to deliver original and compelling Internet content and services that attract
and retain users. We cannot assure you that our content and services will be
attractive to a sufficient number of Internet users to generate revenues
sufficient for us to sustain operations. If we are unable to develop Internet
content and services that allow us to attract, retain and expand a loyal user
base that is attractive to advertisers and sellers of technology products, we
will be unable to generate revenue.
Our Television Programming May Not Be Successful, Which Could Adversely
Affect Our Profitability. We cannot assure you that television broadcasters,
cable networks or their viewers will accept
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our television programming. The successful development and production of
television programming is subject to numerous uncertainties, including the
ability to:
o anticipate and successfully respond to rapidly changing consumer
tastes and preferences
o obtain favorable distribution rights
o fund new program development
o attract and retain qualified producers, writers, technical personnel
and television hosts
We may be unable to increase or sustain our revenues if we fail to develop
television programming that allows us to attract, retain and expand a loyal
television audience, or if we fail to retain or develop distribution channels
for our television programming.
Our Failure to Compete Successfully Could Adversely Affect Our Prospects
and Financial Results. The market for Internet content and services is new,
intensely competitive and rapidly evolving. It is not difficult to enter this
market and current and new competitors can launch new Internet sites at
relatively low cost. There can be no assurance that we will compete successfully
with current or future competitors.
If We Fail to Effectively Manage Our Growth, Our Business Could be
Adversely Affected. We have rapidly and significantly expanded our operations
and anticipate that further expansion of our operations may be required in order
to address potential market opportunities. This rapid growth has placed, and we
expect it to continue to place, a significant strain on our management,
operational and financial resources. We cannot assure you that:
o our current personnel, systems, procedures and controls will be
adequate to support our future operations
o management will be able to identify, hire, train, motivate or manage
required personnel
o management will be able to successfully identify and exploit
existing and potential market opportunities
If We Experience Difficulties With Our System Development and Operations,
Our Business Could be Adversely Affected. Our Internet revenues consist
primarily of revenues derived from the sale of advertisements and other fees
from sellers of technology products on our Internet channels, in particular from
arrangements with our advertising customers that provide for a guaranteed number
of impressions. If our Internet channels are unavailable as a result of a system
interruption we may be unable to deliver the number of impressions guaranteed by
these agreements. During 1998, we experienced two power interruptions that
resulted in the unavailability of our Internet channels and services for
portions of two days. We cannot assure you that we will be able to accurately
project the rate or timing of increases, if any, in the use of our Internet
channels or will be able to, in a timely manner, effectively upgrade and expand
our systems.
Our Financial Results Will Be Adversely Affected If We Fail to Sustain
Our Advertising Revenues. Our revenues through December 31, 1998 were derived
primarily from the sale of advertising and other fees from sellers of technology
products on our Internet channels and from advertising and license fees from
producing our television programs. Most of our advertising contracts can be
terminated by the customer at any time on very short notice. If we lose
advertising customers, fail to attract new customers or are forced to reduce
advertising rates in order to retain or attract customers, our revenues and
financial condition will be materially adversely affected.
If the Internet Is Not Accepted as an Advertising Medium Our Business Could
Be Adversely Affected. Our Internet advertising customers have only limited
experience with the Internet as an advertising medium
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and neither these customers nor their advertising agencies have devoted a
significant portion of their advertising budgets to Internet-based advertising
in the past. Some of our potential customers have little or no experience with
the Internet as an advertising medium and have not devoted significant portions
of their advertising budgets to Internet-based advertising in the past. In order
for us to generate advertising revenues, advertisers and advertising agencies
must direct a significant portion of their budgets to the Internet and,
specifically, to our Internet sites. Acceptance of the Internet among
advertisers and advertising agencies also depends to a large extent on the
growth of use of the Internet by consumers, which is very uncertain, and on the
acceptance of new methods of conducting business and exchanging information. If
Internet-based advertising is not widely accepted by advertisers and advertising
agencies, our revenues and financial condition will be materially adversely
affected. In addition, users can purchase software that is designed to block
banner advertisements from appearing on their computer screens as the user
navigates on the Internet. This software is intended to increase the navigation
speed for the user. Our revenues could be materially reduced if this software or
other ad-blocking technology becomes widely-used.
If Our Brand Is Not Accepted or Maintained, Our Financial Results Could Be
Adversely Affected. Promotion of the CNET brand will depend largely on our
success in providing high quality Internet and television programming. If
consumers do not perceive our existing Internet and television content to be of
high quality, or if we introduce new Internet channels or television programs or
enter into new business ventures that are not favorably received by consumers,
we will not be successful in promoting and maintaining our brand. If we are
unable to provide high quality content and services or otherwise fail to promote
and maintain our brand, or if we incur excessive expenses in an attempt to or
promote and maintain our brand, our revenues and financial condition will be
materially adversely affected.
Loss of Key Personnel Could Adversely Affect Our Business. Our success
depends to a large extent on the continued services of Halsey M. Minor, Shelby
W. Bonnie and the other members of our senior management team. Our success is
also dependent on our ability to attract, retain and motivate other officers,
key employees and personnel. We do not have "key person" life insurance policies
on any of our officers or other employees. The production of content and
services for the Internet and television requires highly skilled writers and
editors and personnel with sophisticated technical expertise. We have
encountered difficulties in attracting qualified software developers for our
Internet channels and related technologies. If we do not attract, retain and
motivate the necessary technical, managerial, editorial and sales personnel,
there could be a material adverse effect on our business and operating results.
We Have Risks Associated With Television Distribution and We Are Dependent
on USA Networks, Which Could Adversely Affect Our Financial Condition. Our
television programming is currently carried primarily on the USA Network and the
Sci-Fi Channel, both of which are owned by USA Networks, pursuant to an
agreement that expires on June 30, 1999. We cannot assure you that we will be
able to obtain distribution for our television programming after June 30, 1999.
In such event, our brand, revenues and financial condition may be materially and
adversely affected.
Risks Associated With Technological Change Could Adversely Affect Many
Aspects of Our Business. Characteristics of the market for Internet products and
services include:
o rapid technological developments
o frequent new product introductions
o evolving industry standards
The emerging character of these products and services and their rapid evolution
requires that we continually improve the performance, features and reliability
of our Internet content, particularly in response to competitive offerings. We
cannot assure you that we will be successful in responding quickly, cost
effectively and sufficiently to these developments. In addition, the widespread
adoption of
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new Internet technologies or standards could require us to make substantial
expenditures to modify or adapt our Internet channels and services and could
fundamentally affect the character, viability and frequency of Internet-based
advertising. Any of these events could have a material adverse effect on our
financial condition and operating results.
Our Failure to Develop and Maintain Relationships With Third Parties Could
Adversely Affect Our Financial Condition. We rely on the cooperation of owners
and operators of other Internet sites in connection with the operation of our
Internet channels and services. We cannot assure you that this cooperation will
be available on acceptable commercial terms or at all. Our ability to develop
original and compelling Internet content and service is also dependent on
maintaining relationships with and using products provided by third party
vendors of Internet development tools and technologies, such as:
o Macromedia's Shockwave
o Microsoft's ActiveX
o Progressive Networks' RealAudio
o Sun Microsystems' Java
Our ability to advertise on other Internet sites and the willingness of the
owners of such sites to direct users to our Internet channels through hypertext
links are also critical to the success of our Internet operations. If we are
unable to develop and maintain satisfactory relationships with such third
parties on acceptable commercial terms, or if our competitors are better able to
capitalize on these relationships, our financial condition and operating results
will be materially adversely affected.
We May Have Difficulties With Our Acquisitions and Investments, Which Could
Adversely Affect Our Growth and Financial Condition. From time to time, we
consider new business opportunities and ventures, including acquisitions, in a
broad range of areas. Any decision by us to pursue a significant business
expansion or new business opportunity could:
o require a substantial investment of capital, which could have a
material adverse effect on our financial condition and our ability
to implement our existing business strategy
o require the issuance of additional equity interests, which would be
dilutive to our current stockholders
o result in operating losses
o place additional, substantial burdens on our management personnel
and our financial and operational systems
We can offer no assurance that we will have sufficient capital to pursue any
investment or acquisition. We can offer no assurance that we will be able to
develop any new Internet channel or service or other new business venture in a
cost effective or timely manner or that it would be profitable.
We May Have Difficulties With Our Business Combinations and Strategic
Alliances, Which Could Adversely Affect Our Growth and Financial Condition. We
may choose to expand our operations or market presence by entering into:
o agreements
o business combinations
o investments
o joint ventures
o other strategic alliances with third parties
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Examples of this include our agreement with America Online and our joint venture
with an affiliate of NBC to operate the snap. Internet portal service. Any
transaction will be accompanied by risks, which include, among others:
o the difficulty of assimilating the operations, technology and
personnel of the combined companies
o the potential disruption of our ongoing business
o the possible inability to retain key technical and managerial
personnel
o additional expenses associated with amortization of goodwill and
other purchased intangible assets
o additional operating losses and expenses associated with the
activities and expansion of acquired businesses
o the possible impairment of relationships with existing employees and
advertising customers
We can offer no assurance that we will be successful in overcoming these risks
or any other problems encountered in connection with any transaction or that any
transaction will be profitable.
We Depend on Intellectual Property Rights, and Others May Infringe Upon
Those Rights. We rely on trade secret and copyright laws to protect our
proprietary technologies. We cannot assure you that:
o these laws will provide sufficient protection
o that others will not develop technologies that are similar or
superior to ours
o that third parties will not copy or otherwise obtain and use our
technologies without authorization
Any of these events could have a material adverse effect on our business.
We May Not Be Able to Acquire or Maintain Our Domain Names, Which Could
Adversely Affect Many Aspects of Our Business. We currently hold various Web
domain names relating to our brand and Internet channels. Governmental agencies
and their designees generally regulate the acquisition and maintenance of domain
names. For example, in the United States, the National Science Foundation has
appointed Network Solutions, Inc. as the current exclusive registrar for the
".com," ".net" and ".org" generic top-level domains. The regulation of domain
names in the United States and in foreign countries is subject to change. We
cannot assure you that we will be able to acquire or maintain relevant domain
names in all countries in which we conduct business. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. We, therefore, may be
unable to prevent third parties from acquiring domain names that are similar to,
or infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights. Any inability to acquire or maintain domain names could have
a material adverse effect on our business.
Changes in Regulations Could Adversely Affect Many Aspects of Our Business.
Although there are currently few laws and regulations directly applicable to the
Internet, it is possible that new laws and regulations will be adopted covering
issues such as:
o privacy
o copyrights
o obscene or indecent communications
o pricing, characteristics and quality of Internet products and
services
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The adoption of restrictive laws or regulations could:
o decrease the growth of the Internet
o reduce our revenues
o expose us to significant liabilities
We cannot be certain what effect any future material noncompliance by us with
these laws and regulations or any material changes in these laws and regulations
could have on our business.
We Depend on the Continued Growth in Use of the Internet, Which Could
Affect Many Aspects of Our Business. The rapid growth in the use of and interest
in the Internet is a recent phenomenon. We can offer no assurance that
acceptance and use of the Internet will continue to develop or that a sufficient
base of users will develop to support our business.
We can offer no assurance that the Internet infrastructure will be able to
support the demands placed upon it by:
o increases in the number of users
o an increase in frequency of use
o an increase in the bandwidth requirements of users
In addition, the Internet could lose its viability as a commercial medium due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity, or due to increased government
regulation. If use of the Internet does not continue to grow or grows more
slowly than expected, or if the Internet infrastructure does not effectively
support growth that may occur, our revenues and financial condition would be
materially adversely affected.
We Have Capacity Constraints and May Be Subject to System Disruptions,
Which Could Adversely Affect Our Revenues. Our ability to attract Internet users
and maintain relationships with advertising customers depends on the
satisfactory performance, reliability and availability of our Internet channels
and our network infrastructure. Our Internet advertising revenues directly
relate to the number of advertisements delivered by us to users. System
interruptions that result in the unavailability of our Internet channels or
slower response times for users would reduce the number of advertisements
delivered and reduce the attractiveness of our Internet channels to users and
advertisers. We have experienced periodic system interruptions in the past and
believe that such interruptions will continue to occur from time to time in the
future. Any increase in system interruptions or slower response times resulting
from these factors could have a material adverse effect on our revenues and
financial condition.
Our Internet and television operations are vulnerable to interruption by
fire, earthquake, power loss, telecommunications failure and other events beyond
our control. All of our servers and television production equipment is currently
located in San Francisco, California, an area that is susceptible to
earthquakes. Since launching our first Internet site in June 1995, we have
experienced system downtime for limited periods due to power loss and
telecommunications failures, and there can be no assurance that interruptions in
service will not materially adversely affect our operations in the future. We do
not carry sufficient business interruption insurance and do not carry earthquake
insurance to compensate us for losses that may occur. Any losses or damages that
we incur could have a material adverse effect on our financial condition.
Our Business Involves Risks of Liability Claims for Our Internet and
Television Content, Which Could Result in Significant Costs. As a publisher and
a distributor of content over the Internet and television, we face potential
liability for:
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<PAGE> 14
o defamation
o negligence
o copyright
o patent or trademark infringement
o other claims based on the nature and content of the materials that
we publish or distribute
These types of claims have been brought, and sometimes successfully pressed,
against online services. In addition, we could be exposed to liability in
connection with material indexed or offered on our sites. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type or may not be adequate to reimburse us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
financial condition.
Our Security Risks Could Adversely Affect Our Business. A party who is able
to circumvent our security measures could misappropriate proprietary information
or cause interruptions in our Internet operations. We may be required to expend
significant capital and resources to protect against the threat of security
breaches or to alleviate problems caused by breaches in security. For example,
so-called "spiders" have and can be used in efforts to copy our databases,
including our database of technology products and prices.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet, particularly as a means of
conducting commercial transactions. To the extent that activities of us or third
party contractors involve the storage and transmission of proprietary
information, such as computer software or credit card numbers, security breaches
could expose us to a risk of loss or litigation and possible liability. We can
offer no assurance that contractual provisions attempting to limit our liability
in these areas will be successful or enforceable, or that other parties will
accept such contractual provisions as part of our agreements.
We Depend on Licensed Technology. We rely on certain technology licensed
from third parties. We cannot assure you that these third party technology
licenses will be available or will continue to be available to us on acceptable
commercial terms or at all.
Our Substantial Debt Exposes Us to Risks That Could Adversely Affect Our
Financial Condition. As a result of the sale of our 5% convertible subordinated
notes in March 1999, we incurred $172.9 million of additional debt. Along with
the notes, we may incur substantial additional debt in the future. The level of
our indebtedness, among other things, could:
o make it difficult for us to make payments on the notes
o make it difficult for us to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes
o limit our flexibility in planning for, or reacting to changes in,
our business
o make us more vulnerable in the event of a downturn in our business
We cannot assure that we will be able to meet our debt service obligations,
including our obligations under the notes.
The Notes are Subordinated to Our Other Indebtedness, Which May Affect Our
Ability to Pay Our Obligations on the Notes. The notes are unsecured and
subordinated in right of payment in full to all of our and our subsidiaries'
existing and future senior debt. Upon certain events, such as the bankruptcy of
12
<PAGE> 15
our company or the acceleration of the notes, our assets will be available to
pay obligations on the notes only after all senior debt has been paid in full or
satisfied. We may not have sufficient assets remaining to pay amounts due on the
notes outstanding at that time. The notes also are subordinated to the
liabilities, including ordinary trade payables, of our subsidiaries. The notes
do not prohibit or limit our ability, or the ability of our subsidiaries, to
incur senior debt or other indebtedness and liabilities. If we, or our
subsidiaries, incur additional indebtedness or other liabilities, we may be
unable to pay our obligations on the notes. As a result, you could lose some or
all of your investment in the notes.
We May Be Unable To Pay Our Debt Service and Other Obligations, Which Could
Affect Our Financial Condition. Our operating income and cash flow generated
during 1998 would have been insufficient to pay the amount of interest payable
annually on our indebtedness, including our notes. We cannot assure you that we
will be able to pay interest and other amounts due on the notes or our other
indebtedness. If we are unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if we fail to comply with
the various requirements of our indebtedness, we would be in default under the
terms thereof, which would permit the holders of our indebtedness to accelerate
the maturity of the indebtedness and could cause defaults under our other
indebtedness. Any default under our indebtedness could have a material adverse
effect on our financial condition.
We May be Unable to Repurchase the Notes When We Are Required To Do So,
Which Would Be a Default Under the Notes and Our Credit Facilities. We are
required to offer to repurchase the notes if certain events occur, including a
change of control or if we sell all or substantially all of our assets. Our
ability to repurchase the notes may be limited. We cannot assure you that we
would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for the notes if we are required to
repurchase them. For example, our subsidiaries may be parties in the future to
agreements that restrict the transfer of funds to us if we intend to use the
funds to repurchase the notes. In addition, we may enter into future agreements
that may prohibit or restrict our ability to repurchase the notes. If we are
required to repurchase the notes at a time when prohibitions or restrictions of
this type are in effect, we could seek the consent of appropriate third parties
to enable us to repurchase notes or we could attempt to refinance any borrowings
that contain these prohibitions or restrictions. If we are unable to obtain
consents or refinance or repay borrowings that contain those prohibitions or
restrictions, we will be unable to repurchase the notes. Our failure to
repurchase the notes would constitute a default under the terms of the notes.
Any default may, in turn, cause a default under our senior debt. Moreover, the
occurrence of an event that requires us to offer to repurchase the notes may
cause a default under, and permit the acceleration of, senior debt that we
designate under the terms of the indenture related to the notes. The indenture
prohibits us from repurchasing the notes until this senior debt is paid in full,
or unless we obtain a waiver under the indenture.
Year 2000 Problems For Us, Our Suppliers or Our Customers Could Increase
Our Liabilities or Expenses and Impact Our Profitability. We are in the
assessment phase of our year 2000 program. We cannot assure you 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.
The Price of Our Common Stock Is Subject to Wide Fluctuation, Which Could
Affect the Trading Prices of the Notes. The trading price of our common stock is
subject to wide fluctuations. Trading prices of our common stock may fluctuate
in response to a number of events and factors, such as:
o quarterly variations in operating results
o announcements of innovations
o new products, strategic developments or business combinations by us
or our competitors
13
<PAGE> 16
o changes in our expected operating expense levels or losses
o changes in financial estimates and recommendations of securities
analysts
o the operating and securities price performance of other companies
that investors may deem comparable to us
o news reports relating to trends in the Internet
o other events or factors
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of these companies.
These broad market and industry fluctuations may adversely affect the trading
price of our common stock. Fluctuations in the market price of our common stock
could adversely affect the trading price of the notes.
We Have a Substantial Number of Shares of Common Stock That May Be Sold,
Which Could Affect the Trading Price of Our Common Stock and the Notes. We have
a substantial number of shares of common stock subject to stock options and
warrants and the notes may be converted into shares of common stock. We cannot
predict the effect, if any, that future sales of shares of common stock or
notes, or the availability of shares of common stock or notes for future sale,
will have on the market price of our common stock or notes. Sales of substantial
amounts of common stock (including shares issued upon the exercise of stock
options or warrants or the conversion of the notes), or the perception that such
sales could occur, may adversely affect prevailing market prices for our common
stock and notes.
Provisions of Our Certificate of Incorporation, Bylaws and Delaware Law
Could Deter Takeover Attempts. Some provisions in our certificate of
incorporation and bylaws could delay, prevent or make more difficult a merger,
tender offer, proxy contest or change of control. Our stockholders might view
any transaction of this type as being in their best interest since the
transaction could result in a higher stock price than the current market price
for our common stock. Among other things, our certificate of incorporation and
bylaws:
o authorize our board of directors to issue preferred stock in series
with the terms of each series to be fixed by our board of directors
o divide our board of directors into three classes so that only
approximately one-third of the total number of directors is elected
each year
o permit directors to be removed only for cause
o specify advance notice requirements for stockholder proposals and
director nominations
In addition, with certain exceptions, the Delaware General Corporation Law
restricts mergers and other business combinations between us and any stockholder
that acquires 15% or more of our voting stock.
You May Not Be Able to Sell Your Notes. We issued the notes in March 1999
in a private placement to a number of buyers. The notes trade on the Portal
Market. However, following the resale of the notes pursuant to this prospectus,
the notes will no longer trade on the Portal Market. As a result, you may be
unable to sell your notes. We do not intend to list the notes on any national
securities exchange or on The Nasdaq National Market.
An active trading market for the notes may not develop or last, in which
case the trading price of the notes could be adversely affected. If a public
market were to exist, the notes might trade at prices higher or lower than their
initial offering price. The trading price would depend on many factors, such as:
14
<PAGE> 17
o interest rates
o the market for similar securities
o the trading price of our common stock
o general economic conditions
o our financial condition, performance and prospects
Historically, disruptions in the market for non-investment grade debt have
caused substantial fluctuation in the prices of these securities. The market for
the notes may be subject to these disruptions, which could have an adverse
effect on you. You should be aware that reselling your notes may be difficult
and you may be unable to sell them at all.
The investment banking firms that originally purchased the notes informed
us that they intend to make a market in the notes. However, they do not have to
do so, and they may discontinue this market-making activity at any time without
notice. In addition, the Securities Act of 1933 and the Securities Exchange Act
of 1934 impose limitations on market-making, including during the time this
prospectus is being used.
INCORPORATION OF DOCUMENTS BY REFERENCE
We furnish our stockholders with annual reports containing audited
financial statements and other appropriate reports. We also file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. Instead of repeating in this prospectus
information that we have already filed with the Securities and Exchange
Commission, rules of the Securities and Exchange Commission permit us to
"incorporate by reference" the information we file with them. These rules mean
that we can disclose important information to you by referring you to those
documents that we have previously filed with the Securities and Exchange
Commission. These documents are considered to be part of this prospectus. Any
documents that we file with the Securities and Exchange Commission in the future
will also be considered to be part of this prospectus and will automatically
update and supersede the information in this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934 until the selling securityholders sell all
of the notes or the shares of common stock offered by this prospectus.
o Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
o Our Reports on Form 8-K filed March 1, 1999, March 1, 1999, March
17, 1999, April 1, 1999 and April 23, 1999;
o Our Proxy Statement filed April 22, 1999; and
o The description of our common stock contained in our Registration
Statement on Form 8-A filed on June 17, 1996, including any
amendments or reports filed for the purpose of updating that
description.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement with the Securities and Exchange
Commission to register the notes and the common stock issuable upon conversion
of the notes that the selling securityholders are offering to you. This
prospectus is part of that registration statement. As allowed by the Securities
and Exchange Commission's rules, we have not included in this prospectus all of
the information that is included in the registration statement. At your request,
we will provide to you, without charge, a copy of
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<PAGE> 18
the registration statement or any of the exhibits to the registration statement.
If you want more information, write or call us at:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Telephone: (415) 395-7800
Attention: Chief Financial Officer
You may also obtain a copy of any filing we have made with the Securities
and Exchange Commission directly from the Securities and Exchange Commission.
You may either:
o read and copy reports, statements or other information we have filed
with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference room at 450 Fifth Street
N.W., Washington, D.C.
o obtain copies of documents that we have filed with the Securities
and Exchange Commission on the Securities and Exchange Commission's
internet web site at http://www.sec.gov
You can get more information about the Securities and Exchange commission's
public reference room by calling the Securities and Exchange Commission at
1-800-SEC-0330.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
of the notes and the common stock issuable upon conversion of the notes under
this prospectus. We will not receive any proceeds from these sales.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing fixed
charges into earnings. Earnings is defined as pretax income from continuing
operations adjusted by adding fixed charges and excluding interest capitalized
during the period. Fixed charges means the total of interest expense and
amortization of financing costs, the estimated interest component of rental
expense on operating leases and preferred stock dividends.
The following table sets forth our deficiency of earnings to fixed charges
for each of the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Amount of deficiency........ $(2,826,549) $(8,607,358) $(16,948,662) $(24,728,092) $(27,188,199)
</TABLE>
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<PAGE> 19
DESCRIPTION OF THE NOTES
GENERAL
We issued the notes pursuant to an indenture dated as of March 8, 1999
between us and The Bank of New York, as trustee. The following is a summary of
certain provisions of the indenture and the registration agreement relating to
the notes. Although we believe that we have summarized the material terms of
these agreements, this summary is not complete and is qualified in its entirety
by reference to the indenture and the registration agreement. The definitions of
certain terms used in the following summary are set forth below under the
heading "Certain Definitions."
The notes are general unsecured obligations of our company and are
subordinated in right of payment to all our existing and future senior debt to
the extent set forth in the indenture. The indenture does not limit the amount
of other indebtedness or liabilities that we or our subsidiaries may incur or
securities that we or our subsidiaries may issue. We currently do not conduct
any operations through subsidiaries. If in the future we conduct operations
through subsidiaries, we could be dependent upon the cash flow of these
subsidiaries to meet some or all of our obligations, including our obligations
under the notes. As a result, the notes are subordinated to all existing and
future indebtedness and other liabilities of any of our current or future
subsidiaries. You should read the information under the heading "Risk Factors --
The Notes are Subordinated to Our Other Indebtedness, Which May Affect Our
Ability to Pay Our Obligations on the Notes" on page 12 for more information on
the subordination of the notes.
The notes are traded in the Portal Market. However, once the notes are sold
under this prospectus, they will no longer trade in the Portal Market. You
should read the information under the heading "Risk Factors -- You May Not Be
Able to Sell Your Notes" on page 14 for more information on the trading of the
notes.
PRINCIPAL, MATURITY AND INTEREST
We issued $172,915,000 aggregate principal amount of notes. The notes bear
interest from March 8, 1999 at 5% per annum and mature on March 1, 2006.
We pay interest on the notes semiannually on March 1 and September 1 of
each year commencing on September 1, 1999, to holders of record at the close of
business on the February 15 or August 15 immediately preceding the interest
payment dates. We compute interest on the basis of a 360-day year consisting of
twelve 30-day months. Interest on the notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
March 8, 1999.
If we do not comply with certain deadlines set forth in the registration
agreement that relates to the registration of the notes and the common stock
issuable upon conversion of the notes for resale, holders of the notes and/or
the common stock issued upon conversion of the notes will be entitled to
additional interest. We refer to this additional interest as liquidated damages.
You should read the information under the heading "Registration Rights" below
for more information on the registration of the notes and liquidated damages.
We pay the principal of, premium, if any, interest and liquidated damages,
if any, on the notes at:
o our office or agency maintained for this purpose within the Borough
of Manhattan, The City of New York
o subject to applicable laws and regulations, at the office of any
paying agent
o at our option, by check mailed to the holders of the notes
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<PAGE> 20
Until we designate otherwise, our office or agency in the Borough of Manhattan,
The City of New York will be the office of the trustee maintained for this
purpose. We issued the notes in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000.
If a payment date is not a business day at a place of payment, we may make
payment at that place on the next succeeding business day, and no interest will
accrue for the intervening period.
We have appointed the trustee, The Bank of New York, at its corporate trust
office in the Borough of Manhattan, The City of New York as the registrar,
paying agent and conversion agent. We may terminate the appointment of the
registrar, paying agent or conversion agent at any time and appoint additional
or other registrars, paying agents and conversion agents. We will maintain an
office or agency in the Borough of Manhattan, The City of New York for payments
with respect to the notes and for the surrender of notes for conversion until
the notes have been delivered to the trustee for cancellation, or moneys
sufficient to pay the principal of, and premium, if any, interest and liquidated
damages, if any, on the notes have been made available for payment and either
paid or returned to us as provided in the indenture. We will give notice of any
termination or appointment and of any change in the office through which the
paying agent or conversion agent will act in accordance with the procedures set
forth under the heading "Notices" below.
OPTIONAL REDEMPTION
We may not redeem the notes prior to March 6, 2002. On and after March 6,
2002, we may redeem the notes at our option, in whole or from time to time in
part (in any integral multiple of $1,000), after giving not less than 30 nor
more than 60 days' prior notice by mail to the holders of the notes. We may
redeem the notes at the following redemption prices (expressed as percentages of
the principal amount), in each case together with accrued interest and
liquidated damages, if any, to, but excluding, the redemption date. Payment of
the redemption price to the holder of the note is subject to the right of
holders of record on the relevant record date to receive interest and liquidated
damages, if any, due on an interest payment date. If we redeem the notes during
the 12-month period beginning March 1 of the years indicated (March 6, in the
case of 2002) the redemption price shall be:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE YEAR REDEMPTION PRICE
---- ---------------- ---- ----------------
<S> <C> <C> <C>
2002 102.857% 2004 101.429%
2003 102.143% 2005 100.714%
</TABLE>
On or after the redemption date, interest and liquidated damages, if any, will
cease to accrue on the notes, or portions thereof, called for redemption unless
we shall fail to redeem the notes.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of an event known as a "designated event", each holder
of notes has the right to require us to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of the holder's notes pursuant to the
offer described below at a purchase price equal to 100% of the principal amount
of the notes, together with accrued and unpaid interest and liquidated damages,
if any, on the notes to the payment date for the designated event. The
definition of a designated event is set forth below. Within 30
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<PAGE> 21
days following any designated event, unless we have previously given the holders
notice of our intention to redeem the notes in whole pursuant to the provisions
set forth under the heading "Optional Redemption" below, we will mail a notice
to each holder stating:
o that the designated event offer is being made pursuant to the
covenant described in this paragraph and that all notes validly
tendered will be accepted for payment
o the purchase price and the purchase date, which shall be no earlier
than 30 days nor later than 60 days following the date such notice
is mailed unless a later date is required by applicable law
o that any notes not validly tendered or accepted for payment will
continue to accrue interest and liquidated damages, if applicable,
and will continue to have conversion rights
o that, unless we default in the payment of the designated event
payment, all notes accepted for payment pursuant to the designated
event offer will cease to accrue interest and liquidated damages, if
applicable, from and after the designated event payment date and
will cease to have conversion rights after the designated event
payment date
o that holders electing to have any notes purchased pursuant to a
designated event offer will be required to surrender the notes, with
the form entitled "Option of Noteholder to Elect Purchase" on the
reverse of the notes completed, to a paying agent at the address
specified in the notice prior to the close of business on the third
business day preceding the designated event payment date
o that holders will be entitled to withdraw their election if a paying
agent receives, not later than the close of business on the second
business day preceding the designated event payment date, a
facsimile transmission or letter setting forth the name of the
holder, the principal amount of notes delivered for purchase and a
statement that such holder is withdrawing his election to have such
notes purchased
o that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased
portion of the notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof
o the instructions and any other information necessary to enable
holders to accept a designated event offer or effect withdrawal of
such acceptance
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations under the Securities
Exchange Act of 1934 to the extent these laws and regulations apply to the
repurchase of the notes in connection with a designated event.
On the designated event payment date, we will, to the extent lawful:
o accept for payment notes or portions thereof validly tendered
pursuant to the designated event offer
o deposit with the trustee or a paying agent in immediately available
funds an amount equal to the designated event payment in respect of
all notes or portions of notes tendered
o deliver or cause to be delivered to the trustee the notes accepted
together with an officers' certificate identifying the notes or
portions of notes that we have accepted for payment
The paying agent will promptly (but in any event not later than five calendar
days after the designated event payment date) mail or deliver to each holder of
notes accepted payment in an amount equal to the designated event payment for
the notes, and the trustee will promptly authenticate and mail or deliver to
each holder a new certificate representing a note equal in principal amount to
any unpurchased portion of the notes surrendered. Each new certificate
representing a note will be in a principal amount of $1,000 or an integral
multiple of $1,000. Any notes not accepted will be promptly mailed or delivered
by or on
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<PAGE> 22
behalf of us to the holder of the notes. We will publicly announce the results
of the designated event offer on or as soon as practicable after the designated
event payment date.
Except as described above with respect to a designated event, the indenture
does not contain any other provisions that permit the holders of the notes to
require us to repurchase or redeem the notes in the event of a takeover,
recapitalization or similar restructuring.
The designated event purchase feature of the notes may in certain
circumstances make more difficult or discourage a takeover of our company, and,
thus, the removal of the management of our company at that time. The designated
event purchase feature, however, is not the result of our knowledge of any
specific effort to accumulate our capital stock or to obtain control of us by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the
designated event purchase feature is a result of negotiations between us and the
initial purchasers of the notes. We have no current intention to engage in a
transaction involving a designated event, although it is possible that we could
decide to do so in the future. Subject to the limitations on mergers,
consolidations and sales of assets described in this prospectus, we could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not be a designated event
under the indenture, but that could increase the amount of indebtedness
(including senior debt) outstanding at that time or otherwise affect our capital
structure or credit ratings. The payment of the designated event payment is
subordinated to the prior payment of senior debt as described under the heading
"Subordination of Notes" below.
Our ability to repurchase notes upon the occurrence of a designated event
may be limited. If a designated event were to occur, we cannot assure you that
we would have sufficient financial resources, or would be able to arrange
financing, to pay the designated event payment for all notes tendered by holders
of the notes. Our subsidiaries, if any, may be parties in the future to credit
agreements and other agreements which restrict the transfer of funds to our
company sufficient to permit us to pay a designated event payment. In addition,
future credit agreements or other agreements may prohibit or restrict our
ability to pay a designated event payment. If a designated event occurs at a
time when prohibitions or restrictions are in effect, we could seek the consent
of appropriate third parties to enable us to purchase notes or we could attempt
to refinance any borrowings that contain prohibitions or restrictions. If we do
not obtain consents or repay these borrowings, we will not be able to purchase
notes. In this case, our failure to purchase tendered notes would constitute an
event of default under the indenture whether or not the repurchase is permitted
by the subordination provisions of the indenture. Any default may, in turn,
cause a default under our senior debt. Moreover, the occurrence of a designated
event may cause an event of default under, and permit acceleration of, senior
debt that we designate under the indenture. The indenture prohibits us from
repurchasing the notes until this senior debt is paid in full, or unless we
obtain a waiver under the indenture. You should read the information under the
heading "Subordination of Notes" below and under the heading "Risk Factors --
The Notes are Subordinated to Our Other Indebtedness" for more information on
the subordination of the notes.
A "designated event" will be deemed to have occurred upon a change of
control or a termination of trading.
A "change of control" will be deemed to have occurred when:
o any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of
shares representing more than 50% of the combined voting power of
the then outstanding securities entitled to vote generally in
elections of our directors
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<PAGE> 23
o we consolidate with or merge into any other person, or any other
person merges into us, and, in the case of any such transaction, our
outstanding common stock is reclassified into or exchanged for any
other property or securities, unless our stockholders immediately
before such transaction own, directly or indirectly immediately
following such transaction, at least a majority of the combined
voting power of the then outstanding voting securities entitled to
vote generally in elections of directors of the corporation
resulting from such transaction in substantially the same respective
proportions as their ownership of our voting stock immediately
before the transaction
o our company and our subsidiaries, taken as a whole, sell, assign,
convey, transfer or lease all or substantially all of the assets of
our company or of our company and our subsidiaries, taken as a
whole, (other than to one or more of our wholly-owned subsidiaries)
o any time the continuing directors do not constitute a majority of
our board of directors (or, if applicable, a successor corporation
to our company)
provided, however, that (a) a change of control under the first three bullets
above shall not be deemed to have occurred if the daily market price per share
of common stock for any five trading days within the period of 10 consecutive
trading days ending immediately after the later of the change of control or the
public announcement of the change of control (in the case of a change of control
under the first bullet above) or the period of 10 consecutive trading days
ending immediately before the change of control (in the case of a change of
control under the second and third bullets above) shall equal or exceed 105% of
the conversion price of the notes in effect on the date of the change of control
or the public announcement of the change of control, as applicable, or (b) a
change of control under the first three bullets above shall not be deemed to
have occurred if at least 90% of the consideration in the change of control
transaction consists of shares of capital stock traded on a U.S. national
securities exchange or quoted on The Nasdaq National Market, and as a result of
the transaction, the notes become convertible solely into this capital stock.
Note that the definition of change of control in the indenture includes a
phrase relating to the sale, assignment, conveyance, transfer or lease of "all
or substantially all" of the assets of our company or of our company and our
subsidiaries taken as a whole. There are only a limited number of court
decisions interpreting the phrase "substantially all" and, as a result, there is
no precise established definition of the phrase under applicable law.
Accordingly, your ability as a holder of notes to require us to repurchase your
notes as a result of a sale, assignment, conveyance, transfer or lease of less
than all of the assets of our company or our company and our subsidiaries, taken
as a whole, to another person or group may be uncertain.
The term "continuing directors" means, as of any date of determination, any
member of our board of directors who (i) was a member of our board of directors
on March 8, 1999 or (ii) was nominated for election or elected to our board of
directors with the approval of a majority of the continuing directors who were
members of our board at the time of their nomination or election.
A "termination of trading" will be deemed to have occurred if our common
stock (or other securities into which the notes are then convertible) is neither
listed for trading on a United States national securities exchange nor approved
for trading on The Nasdaq National Market or other established automated
over-the-counter trading market in the United States.
SELECTION AND NOTICE
If we are redeeming less than all of the notes, the trustee will select the
notes for redemption by complying with the requirements of the principal
national securities exchange, if any, on which the notes are listed, or, if the
notes are not listed, on a pro rata basis, by lot or by another method that the
trustee
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deems fair and appropriate. No notes of $1,000 in principal amount or less will
be redeemed in part. We will mail, or cause to be mailed, a notice of redemption
to each holder of notes to be redeemed at its registered address at least 30 but
not more than 60 days before the redemption date. If we are redeeming any note
in part only, the notice of redemption that relates to the note will state the
portion of the principal amount of the note to be redeemed. We will issue, or
cause to be issue, a new note in principal amount equal to the unredeemed
portion of the note in the name of the holder of the note upon cancellation of
the original note. On and after the redemption date, interest and liquidated
damages, if any, will cease to accrue on notes or portions of notes called for
redemption unless we default in the payment of the redemption price for the
notes.
REGISTRATION RIGHTS
Pursuant to the registration agreement entered into with the initial
purchasers of the notes, we agreed for the benefit of the holders of the notes
and common stock issued upon conversion of the notes that we:
o would, at our cost, file a shelf registration statement with the
Securities and Exchange Commission with respect to resales of the
notes and the common stock issuable upon conversion of the notes by
May 7, 1999
o would use our reasonable best efforts to cause the shelf
registration statement to be declared effective under the Securities
Act of 1933 by August 5, 1999
o would keep the shelf registration statement continuously effective
under the Securities Act of 1933 for a specified period of time
Our obligation to keep the shelf registration statement continually
effective expires upon the earliest of:
o March 8, 2001
o the date on which the notes or the common stock issuable upon
conversion of the notes may be sold by non-affiliates of our company
pursuant to paragraph (k) of Rule 144 (or any successor provision)
of the Securities and Exchange Commission under the Securities Act
o the date as of which the notes or the common stock issuable upon
conversion of the notes have been transferred pursuant to Rule 144
under the Securities Act (or any similar provision then in force)
o the date as of which all the notes or the common stock issuable upon
conversion of the notes have been sold pursuant to the shelf
registration statement
If:
o we do not file the shelf registration statement by May 7, 1999
o if it has not been declared effective by August 5, 1999
o if it ceases to be effective (without being succeeded immediately by
a replacement shelf registration statement filed and declared
effective) or cannot be used (including as a result of a suspension
period, as described below) for the offer and sale of transfer
restricted securities (as described below) for a period of time
(including any suspension period) that exceeds 60 days in the
aggregate in any 12-month period during the period beginning on
March 8, 1999 and ending on March 8, 2001
(each of these events is called a "registration default"), we will pay
liquidated damages to each holder of transfer restricted securities which has
complied with its obligations under the registration agreement. The amount of
liquidated damages payable during any period in which a registration default
shall have
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occurred and be continuing is that amount which is equal to one-quarter of one
percent (25 basis points) per annum per $1,000 principal amount of notes or
$2.50 per annum per 13.36675 shares of common stock (subject to adjustment in
the event of a stock split, stock recombination, stock dividend and the like)
constituting transfer restricted securities for the first 90 days during which a
registration default has occurred and is continuing and one-half of one percent
(50 basis points) per annum per $1,000 principal amount of notes or $5.00 per
annum per 13.36675 shares of common stock (subject to adjustment as set forth
above) constituting transfer restricted securities for any additional days
during which such registration default has occurred and is continuing. We have
agreed to pay all accrued liquidated damages by wire transfer of immediately
available funds or by federal funds check on each damages payment date.
Following the cure of a registration default, liquidated damages will cease to
accrue.
The term "transfer restricted securities" means each note and each share of
common stock issued on conversion of notes until the date on which the note or
share, as the case may be:
o has been transferred pursuant to the shelf registration statement or
another registration statement covering the note or share which has
been filed pursuant to the Securities Act of 1933, in either case
after the registration statement has become and while such
registration statement is effective under the Securities Act
o has been transferred pursuant to Rule 144 under the Securities Act
of 1933 (or any similar provision then in force)
o may be sold or transferred pursuant to Rule 144(k) under the
Securities Act of 1933 (or any similar provision then in force)
We will:
o provide or cause to be provided to each holder of the notes, or
common stock issuable upon conversion of the notes, copies of the
prospectus, which will be a part of the shelf registration statement
o notify or cause to be notified each holder when the shelf
registration statement for the notes or the common stock issuable
upon conversion of the notes has become effective
o take certain other actions as are required to permit unrestricted
resales of the notes or the common stock issuable upon conversions
of the notes
A holder of notes or the common stock issuable upon conversion of the notes
that sells these securities pursuant to a shelf registration statement:
o will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers
o will be subject to certain of the civil liability provisions under
the Securities Act of 1933 in connection with such sales
o will be bound by the provisions of the registration agreement that
are applicable to such holder (including certain indemnification and
contribution rights or obligations)
We will distribute a questionnaire to each beneficial holder of notes as of a
specified date to obtain certain information regarding the selling
securityholders for inclusion in the prospectus.
We are permitted to suspend the use of the prospectus which is a part of
the shelf registration statement for a period not to exceed 30 days in any
three-month period or for three periods not to exceed an aggregate of 90 days in
any twelve-month period under certain circumstances relating to pending
corporate developments, public filings with the Securities and Exchange
Commission and similar events.
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The period of time that we have suspended the use of the prospectus is called a
"suspension period." We will pay all expenses of the shelf registration
statement.
CONVERSION
The holder of any note has the right, exercisable at any time beginning
June 7, 1999 and prior to the close of business on the business day immediately
preceding March 1, 2006, to convert the principal amount of its notes (or any
portion of its notes that is an integral multiple of $1,000) into shares of
common stock at the conversion price of $74.8125 per share, subject to
adjustment as described below. If we have called a note for redemption, the
conversion right will terminate at the close of business on the business day
immediately preceding the redemption date (unless we default in making the
redemption payment when it becomes due, in which case the conversion right shall
terminate on the date on which the default is cured). If the holder of any note
delivers notice of its election to have such note purchased pursuant to a
designated event offer, the note may be converted only if the notice of election
is withdrawn as described under the heading "Repurchase at Option of Holders"
above. Except as described below, we will not pay or adjust any notes upon
conversion for accrued and unpaid interest or liquidated damages, if any,
accrued on the notes or for dividends or distributions on, or liquidated
damages, if any, attributable to, any common stock issued upon conversion of
notes. We will not issue fractional shares upon conversion. Instead, we will
make a cash adjustment for any fractional interest.
The owners of a note may exercise their right of conversion by delivering
to The Depository Trust Company, which is known as the "DTC", the appropriate
instruction form for conversion pursuant to DTC's conversion program. In the
case of conversions through Euroclear or Cedel Bank, the owner shall deliver
instructions in accordance with Euroclear's or Cedel Bank's normal operating
procedures when application has been made to make the underlying common stock
eligible for trading on Cedel Bank or Euroclear. To convert a note held in
certificated form into shares of common stock, a holder must:
o complete and manually sign the conversion notice on the back of the
note (or complete and manually sign a facsimile of the notice) and
deliver the notice to the conversion agent
o surrender the note to the conversion agent
o if required by the conversion agent, furnish appropriate
endorsements and transfer documents
o if required, pay any transfer or similar taxes
Pursuant to the indenture, the date on which all of the foregoing
requirements have been satisfied is the date of surrender for conversion. The
notice of conversion can be obtained from the trustee at its corporate trust
office or the office of the conversion agent. As promptly as practicable on or
after the conversion date, we will issue and deliver to the trustee a
certificate or certificates for the number of full shares of common stock
issuable upon conversion, together with payment for any fraction of a share in
an amount determined on the basis of the daily market price (as described below)
of the common stock on the trading day prior to the applicable conversion date.
The trustee to the conversion agent will send the certificate or certificates
for delivery to the holder. The common stock issuable upon conversion of the
notes will be fully paid and nonassessable. Any note surrendered for conversion
during the period after the close of business on any record date and before the
opening of business on the next succeeding interest payment date (except notes
called for redemption on a redemption date or to be repurchased on a designated
event payment date during this period) must be accompanied by payment of an
amount equal to the interest and liquidated damages, if any, payable on the
interest payment date on the principal amount of notes being surrendered for
conversion. In the case of any note which has been surrendered for conversion
after the close of business on any record date and before the opening of
business on the next succeeding interest payment date, interest and liquidated
damages, if any, on the note shall be payable on the interest payment date
notwithstanding the conversion of the note, and the interest and liquidated
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damages, if any, will be paid to the person who was the holder of the note at
the close of business on the record date. Holders of common stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
common stock as of any record time before the close of business on the
conversion date.
We will adjust the conversion price upon the occurrence of certain events,
including:
o the issuance of shares of common stock as a dividend or distribution
on the common stock
o the subdivision or combination of common stock
o the issuance to all holders of common stock of rights or warrants to
subscribe for or purchase common stock (or securities convertible
into common stock) at a price per share less than the then current
market price per share (determined as set forth below)
o the distribution of shares of our capital stock (other than common
stock), evidences of indebtedness, cash, rights or warrants to
subscribe for or purchase securities (other than rights or warrants
referred to in the third bullet above) or other assets (including
securities of persons other than our company, but excluding:
(a) dividends or distributions paid exclusively in cash
(b) dividends or distributions referred to in the second or
third bullets above
(c) distributions in connection with a consolidation, merger
or transfer of assets covered in the next succeeding
paragraph) to all holders of common stock
o distributions, by dividend or otherwise, to all holders of common
stock exclusively in cash (excluding any cash that is distributed as
part of a distribution requiring a conversion price adjustment
pursuant to the fourth bullet above) in an aggregate amount that,
together with the aggregate of:
(a) any other all-cash distributions to all holders of
common stock within the 12 months preceding the date
fixed for determining the stockholders entitled to the
distribution that did not trigger a conversion price
adjustment
(b) all excess payments in respect of each tender offer or
other negotiated transaction by our company or any of
our subsidiaries for common stock concluded within the
12 months preceding the date fixed for determining the
stockholders entitled to the distribution not triggering
a conversion price adjustment, exceeds 12 1/2% of the
product of the current market price per share on the
date fixed for determining the stockholders entitled to
the distribution times the number of shares of common
stock outstanding on that date
o payment of an excess payment in respect of a tender offer or other
negotiated transaction consummated by our company or any of our
subsidiaries for common stock, if the aggregate amount of that
excess payment, together with the aggregate amount of
(a) cash distributions made to all holders of common stock
within the 12 months preceding the expiration of the
tender offer or the date of payment of the negotiated
transaction consideration, as the case may be, not
triggering a conversion price adjustment
(b) all excess payments in respect of each other tender
offer or other negotiated transaction by our company or
any of our subsidiaries for common stock concluded
within the 12 months preceding that date not triggering
a conversion price adjustment, exceeds 12 1/2% of the
product of the current market price per share on that
date times the number of shares of common stock
outstanding on that date
In the event of a distribution to all holders of common stock of rights to
subscribe for additional shares of our capital stock (other than those rights
and warrants referred to in the third bullet above), we may, instead of making
any adjustment in the conversion price, make proper provision so that each
holder
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of a note who converts the note after the record date for the distribution and
prior to the expiration or redemption of the rights shall be entitled to receive
upon the conversion, in addition to shares of common stock, an appropriate
number of the rights. We will not make an adjustment of the conversion price
until cumulative adjustments amount to one percent or more of the conversion
price as last adjusted.
If we reclassify or change our outstanding common stock (other than changes
in par value or from par value to no par value or from no par value to par value
or resulting from a subdivision or a combination), or consolidate with or merge
into any person (other than a merger where our company is the continuing
corporation and which does not result in a reclassification or change in the
common stock other than a change in par value described above), or transfers all
or substantially all our assets (determined on a consolidated basis), the notes
will become convertible into the kind and amount of securities, cash or other
assets which the holders of the notes would have owned immediately after any
transaction if the holders had converted the notes immediately before the
transaction.
The indenture also provides that if rights, warrants or options expire
unexercised, we will readjust the conversion price to take into account the
actual number of such warrants, rights or options which were exercised.
In the indenture, the "current market price" per share of common stock on
any date is deemed to be the average of the daily market prices for the shorter
of:
o 30 consecutive business days ending on the last full trading day on
the exchange or market referred to in determining the daily market
prices prior to the time of determination
o the period commencing on the date next succeeding the first public
announcement of the issuance of rights or warrants or other
distribution or tender offer or other negotiated transaction through
the last full trading day on the exchange or market referred to in
determining the daily market prices prior to the time of
determination
An "excess payment" is the excess of (A) the aggregate of the cash and fair
market value (as determined by our board of directors, whose determination shall
be conclusive evidence of the fair market value) of other consideration paid by
our company or any of our subsidiaries with respect to the shares acquired in a
tender offer or other negotiated transaction over (B) the daily market price on
the trading day immediately following the completion of the tender offer or
other negotiated transaction multiplied by the number of acquired shares.
To the extent permitted by law, we may from time to time reduce the
conversion price by any amount for any period of at least 20 days, in which case
we will give at least 15 days' notice of the reduction if our board of directors
has made a determination that the reduction would be in the best interests of
our company, which determination shall be conclusive. We may, at our option,
make reductions in the conversion price, in addition to those set forth above,
as our board of directors deems advisable to avoid or diminish any income tax to
holders of common stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or any event treated as dividend or distribution for
federal income tax purposes. See "Certain United States Federal Income Tax
Considerations."
SUBORDINATION OF NOTES
The notes are general unsecured obligations of our company, and are
subordinated in right of payment to all our existing and future senior debt and
rank equal in right of payment with all our other existing and future
indebtedness and liabilities that are not subordinated by their express terms
to, or that by their express terms do not rank equal with, the notes. In
addition, the notes are structurally subordinated to all indebtedness and other
liabilities of our subsidiaries, if any. The indenture does not
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restrict the amount of senior debt or other indebtedness of our company or any
subsidiary of our company. You should read the information under the heading
"Risk Factors -- The Notes are Subordinated to Our Other Indebtedness, Which May
Affect Our Ability to Pay Our Obligations on the Notes", for more information on
the subordination of the notes.
The payment of the principal of, and premium, if any, interest, and
liquidated damages, if any, on, and any other amounts due on the notes is
subordinated in right of payment to the prior payment in full of all our senior
debt. No payment on account of principal of, or premium, if any, interest or
liquidated damages, if any, on or any other amounts due on the notes, including,
without limitation, any payments on the designated event offer, and no
redemption, purchase or other acquisition of the notes may be made unless:
o full payment of amounts then due on all senior debt has been made or
duly provided for pursuant to the terms of the instrument governing
the senior debt
o at the time for, and immediately after giving effect to, any
payment, redemption, purchase or other acquisition, there shall not
exist under any senior debt or any agreement pursuant to which any
senior debt has been issued any default which shall not have been
cured or waived and which shall have resulted in the full amount of
the senior debt being declared due and payable
In addition, the indenture provides that if any of the holders of any issue
of designated senior debt notify the trustee that a default has occurred and is
continuing giving the holders of the designated senior debt the right to
accelerate the maturity of the designated senior debt, we will make no payment
on account of principal of, or premium, if any, interest, liquidated damages, if
any, or any other amounts due on the notes and we will make no purchase,
redemption or other acquisition of the notes for the period commencing on the
date the notice is received and ending (unless earlier terminated by notice
given to the trustee by the holders or the representative of the holders of the
designated senior debt) on the earlier of:
o the date on which the default is cured or waived
o 180 days from the date the notice is received
Notwithstanding the foregoing (but subject to the provisions contained in the
first and second sentences of this paragraph), unless the holders of the
designated senior debt or the representative of the holders have accelerated the
maturity of the designated senior debt, we may resume payments on the notes
after the end of the blockage period described above. The holders of designated
senior debt may not give, in the aggregate, more than one blockage notice in any
consecutive 365-day period, irrespective of the number of defaults with respect
to senior debt during any consecutive 365-day period.
We must pay in full all senior debt before the holders of the notes are
entitled to any payments whatsoever (other than payments of junior securities)
upon:
o any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization of our company
o acceleration of the principal amount due on the notes because of an
event of default
If payment of the notes is accelerated because of an event of default, we
will give prompt written notice to the holders of senior debt or to the
trustee(s) for senior debt of the acceleration. We may not pay the principal of,
premium, if any, interest or liquidated damages, if any, on or any other amounts
due on the notes until five business days after the holders or trustee(s) of
senior debt receive notice of the acceleration and, thereafter, we may pay the
principal of, premium, if any, interest and liquidated damages, if any, on or
any other amounts due on the notes only if the subordination provisions of the
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indenture otherwise permit payment at that time. As a result of these
subordination provisions, in the event of our insolvency, holders of the notes
may recover less than our general creditors.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The indenture provides that we may not consolidate or merge with or into
any person (whether or not our company is the surviving corporation), continue
in a new jurisdiction, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our properties or assets unless:
o (a) our company is the surviving corporation or (b) the person
formed by or surviving any consolidation or merger (if other than
our company) or the person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition our properties and
assets is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia
o the corporation formed by or surviving any consolidation or merger
(if other than our company) or the corporation to which the sale,
assignment, transfer, lease, conveyance or other disposition has
been made assumes all our obligations, pursuant to a supplemental
indenture in a form reasonably satisfactory to the trustee, under
the notes, the registration agreement and the indenture
o the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of our properties or assets
shall be as an entirety or virtually as an entirety to one
corporation and the corporation assumes all obligations, pursuant to
a supplemental indenture in a form reasonably satisfactory to the
trustee, under the notes, the registration agreement and the
indenture
o immediately after the transaction, no default or event of default
exists
o our company or the corporation has delivered to the trustee an
officers' certificate and an opinion of counsel, each stating that
the transaction and the supplemental indenture comply with the
indenture and that all conditions precedent in the indenture
relating to the transaction have been satisfied
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission, so long as any notes are outstanding, we will file with the
Securities and Exchange Commission and furnish to the trustee and the holders of
notes all quarterly and annual financial information (without exhibits) required
to be contained in a filing with the Securities and Exchange Commission on Forms
10-Q and 10-K, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report on the annual consolidated
financial statements by our independent auditors. We are not required to file
any report or other information with the Securities and Exchange Commission if
the Securities and Exchange Commission does not permit the filing.
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default:
o default for 30 days in the payment when due of interest on or
liquidated damages with respect to the notes
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o default in payment when due of principal of the notes at maturity,
upon redemption or otherwise, including our failure to purchase the
notes when required as described under the heading "Repurchase at
the Option of Holders" above
o our failure for 60 days after the receipt of written notice from the
trustee or from the holders of at least 25% in aggregate principal
amount of the outstanding notes to comply with other covenants and
agreements contained in the indenture or the notes
o default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by our company or any of our
material subsidiaries (or the payment of which is guaranteed by our
company or any of our material subsidiaries), whether the
indebtedness or guarantee existed on March 8, 1999 or is created
thereafter, which default (a) is caused by a failure to pay when due
principal of or interest on the indebtedness within the grace period
provided in the indebtedness (which failure continues beyond any
applicable grace period) or (b) results in the acceleration of the
indebtedness prior to its express maturity (without such
acceleration being rescinded or annulled) and, in each case, the
principal amount of the indebtedness, together with the principal
amount of any other indebtedness under which there has been default
in payment or the maturity of which has been accelerated, aggregates
$15,000,000 or more, which default in payment is not cured or
acceleration is not annulled, within 30 days after the receipt of
written notice to comply as provided in the indenture
o failure by our company or any material subsidiary of our company to
pay final non-appealable judgments (other than any judgment as to
which a reputable insurance company has accepted full liability) for
the payment of money entered by a court or courts of competent
jurisdiction aggregating in excess of $15,000,000, which judgments
are not stayed, bonded or discharged within 60 days after their
entry
o certain events of bankruptcy or insolvency with respect to our
company or any of our material subsidiaries
If any event of default (other than an event of default arising from
certain events of bankruptcy or insolvency) occurs and is continuing, the
trustee or the holders of at least 25% in principal amount of the then
outstanding notes may declare all the notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an event of default arising from
certain events of bankruptcy or insolvency with respect to our company or any
material subsidiary, all outstanding notes will become due and payable without
further action or notice. Holders of the notes may not enforce the indenture or
the notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power. The trustee may
withhold from holders of the notes notice of any continuing default or event of
default (except a default or event of default relating to the failure to pay
principal, premium, if any, interest or liquidated damages, if applicable) if it
determines that withholding notice is in their interest.
By notice to the trustee, the holders of a majority in aggregate principal
amount of the notes then outstanding may, on behalf of the holders of all of the
notes, waive any existing default or event of default and its consequences under
the indenture except:
o a continuing default or event of default in the payment of the
designated event payment or interest or liquidated damages, if
applicable, on, or the principal of or premium on, the notes
o in respect of any covenant or provision of the indenture or the
notes which cannot be modified or amended without the consent of the
holder of each note affected
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We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and we are required, upon becoming aware of any
default or event of default, to deliver to the trustee a statement describing
the default or event of default.
BOOK-ENTRY; DELIVERY AND FORM; GLOBAL NOTE
Notes sold in the United States in reliance on Rule 144A or in offshore
transactions in reliance on Regulation S are represented by a single, permanent
global note in definitive, fully-registered form without interest coupons. The
global note was deposited with the trustee as custodian for DTC and registered
in the name of a nominee of DTC in New York, New York for the accounts of
participants in DTC.
Investors who are "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act of 1933) and who purchase notes in reliance on Rule
144A under the Securities Act may hold their interests in the global note
directly through DTC if they are DTC participants, or indirectly through
organizations that are DTC participants.
Investors who purchase notes in offshore transactions in reliance on
Regulation S under the Securities Act may hold their interests in the global
note directly through Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System and Cedel Bank, societe anonyme, if
they are participants in these systems, or indirectly through organizations that
are participants in these systems. Euroclear and/or Cedel Bank will hold
interests in the global note on behalf of their participants through their
respective depositaries, which in turn will hold the interests in the global
note in customers' securities accounts in the depositaries' names on the books
of DTC. Citibank, N.A., is acting initially as depositary for Cedel Bank, and
The Chase Manhattan Bank is acting initially as depositary for Euroclear.
Notes originally purchased by or transferred to institutional accredited
investors (as defined in Rules 501(a)(1), (2), (3) or (7) under the Securities
Act of 1933) that are not qualified institutional buyers will be issued and
physically delivered in fully registered, definitive form and may not be
represented by interests in the global note. Otherwise, except in the
circumstances described below, holders of notes represented by interests in the
global note will not be entitled to receive definitive notes.
Upon transfer of a definitive note to a qualified institutional buyer
pursuant to Rule 144A or in an offshore transaction pursuant to Rule 904 of
Regulation S, the definitive note will be exchanged for an interest in the
global note, and the transferee will be required to hold its interest through a
participant in DTC, Euroclear or Cedel Bank, as applicable. Upon transfer of a
beneficial interest in a global note to an institutional accredited investor,
the beneficial interest will be exchanged for a definitive note. All transfers
described in this paragraph are subject to certain restrictions set forth in the
indenture, including a requirement for the delivery of certain certifications
and other documents.
Except as set forth below, the global note may be transferred, in whole or
in part, only to another nominee of DTC or to a successor of DTC or its nominee.
DTC has advised us that DTC:
o is a limited purpose trust company organized under the laws of the
State of New York
o a member of the Federal Reserve System
o a "clearing corporation" within the meaning of the New York Uniform
Commercial Code
o a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act
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DTC was created to hold securities of institutions that have accounts with DTC
and to facilitate the clearance and settlement of securities transactions among
its participants in securities through electronic book-entry changes in accounts
of the participants, thereby eliminating the need for physical movement of
securities certificates. DTC's participants include:
o securities brokers and dealers
o banks
o trust companies
o clearing corporations
o certain other organizations
Access to DTC's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the global note, DTC credited, on its book-entry
registration and transfer system, the respective principal amount of the
individual beneficial interests represented by the global note to the accounts
of participants. The accounts credited were designated by the initial purchasers
of the beneficial interests. Ownership of beneficial interests in the global
note is limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the global note is shown on,
and the transfer of those ownership interests will be effected only through,
records maintained by DTC (with respect to participants' interests) and the
participants (with respect to the owners of beneficial interests in the global
note other than participants).
So long as DTC or its nominee is the registered holder and owner of the
global note, DTC or its nominee, as the case may be, will be considered the sole
legal owner of the notes represented by the global note for all purposes under
the indenture and the notes. Except as set forth below, owners of beneficial
interests in the global note will not be entitled to receive definitive notes
and will not be considered to be the owners or holders of any notes under the
global note. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the global note desires to take any action
that DTC, as the holder of the global note, is entitled to take, DTC would
authorize the participants to take the action, and that participants would
authorize beneficial owners owning through the participants to take the action
or would otherwise act upon the instructions of beneficial owners owning through
them. No beneficial owner of an interest in the global note will be able to
transfer the interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the indenture and, if applicable, those of
Euroclear and Cedel Bank.
We will make payments of the principal of, and interest on, the notes
represented by the global note registered in the name of and held by DTC or its
nominee to DTC or its nominee, as the case may be, as the registered owner and
holder of the global note.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of the global note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants and indirect participants
to owners of beneficial interests in the global note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for accounts of customers registered in
the names of nominees for these customers. The payments, however, will be the
responsibility of the participants and indirect participants, and neither we,
the trustee nor any paying agent will have any responsibility or liability for:
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o any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global note
o maintaining, supervising or reviewing any records relating to the
beneficial ownership interests
o any other aspect of the relationship between DTC and its
participants
o the relationship between the participants and indirect participants
and the owners of beneficial interests in the global note
Unless and until it is exchanged in whole or in part for definitive notes,
the global note may not be transferred except as a whole by DTC to a nominee of
DTC or by a nominee of DTC to DTC or another nominee of DTC.
Participants in DTC will effect transfers with other participants in the
ordinary way in accordance with DTC rules and will settle transfers in same-day
funds. Participants in Euroclear and Cedel Bank will effect transfers with other
participants in the ordinary way in accordance with the rules and operating
procedures of Euroclear and Cedel Bank, as applicable. If a holder requires
physical delivery of a definitive note for any reason, including to sell notes
to persons in jurisdictions which require physical delivery or to pledge notes,
the holder must transfer its interest in the global note in accordance with the
normal procedures of DTC and the procedures set forth in the indenture.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Cedel Bank participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf Euroclear or Cedel Bank,
as the case may be, by its respective depositary; however, these cross-market
transactions will require delivery of instructions to Euroclear or Cedel Bank,
as the case may be, by the counterparty in the system in accordance with its
rules and procedures and within its established deadlines (Brussels time).
Euroclear or Cedel Bank, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the global note in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel Bank participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in the global note from a DTC
participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date, and the credit of any
transactions interests in the global note settled during the processing day will
be reported to the relevant Euroclear or Cedel Bank participant on that day.
Cash received in Euroclear or Cedel Bank as a result of sales of interests in
the global note by or through a Euroclear or Cedel Bank participant to a DTC
participant will be received with value on the DTC settlement date, but will be
available in the relevant Euroclear or Cedel Bank cash account only as of the
business day following settlement in DTC.
We expect that DTC will take any action permitted to be taken by a holder
of notes (including the presentation of notes for exchange as described below)
only at the direction of one or more participants to whose accounts at the DTC
interests in the global note are credited and only in respect of the portion of
the aggregate principal amount of the notes as to which the participant or
participants has or have given direction. However, if there is an event of
default under the notes, DTC will exchange the global note for definitive notes,
which it will distribute to its participants. These definitive notes are subject
to certain restrictions on registration of transfers and will bear appropriate
legends restricting their transfer.
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Although we expect that DTC, Euroclear and Cedel Bank will agree to the
foregoing procedures in order to facilitate transfers of interests in the global
note among participants of DTC, Euroclear, and Cedel Bank, DTC, Euroclear and
Cedel Bank are under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither we nor
the trustee have any responsibility for the performance by DTC, Euroclear or
Cedel Bank or their participants or indirect participants of their obligations
under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the global note or ceases to be a clearing agency registered under the
Securities Exchange Act of 1934 and we do not appoint a successor depositary
within 90 days, we will issue definitive notes in exchange for the global note.
The definitive notes will be subject to certain restrictions on registration of
transfers and will bear appropriate legends concerning these restrictions.
TRANSFER AND EXCHANGE
We have initially appointed the trustee as registrar in New York, New York.
We reserve the right to vary or terminate the appointment of the registrar or to
appoint additional or other registrars or to approve any change in the office
through which the registrar acts.
A holder may transfer or exchange notes in accordance with the indenture.
The registrar may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and pay any taxes and fees required by law
or permitted by the indenture. We are not required to exchange or register the
transfer of any note selected for redemption. Also, we are not required to
exchange or register the transfer of any note for a period of 15 days before the
mailing of a notice of redemption of notes to be redeemed.
All notes that our company or any of our subsidiaries or affiliates redeem,
purchase or otherwise acquire prior to the final maturity date of the notes
shall be delivered to the trustee for cancellation. We will not hold or resell
any of these notes or issue any new notes to replace any of these notes or any
other notes that any holder has converted pursuant to the indenture.
We will treat the registered holder of a note as the owner of the note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or the
notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the then outstanding notes (including consents
obtained in connection with a tender offer or exchange offer for notes), and any
existing default or compliance with any provision of the indenture or the notes
may be waived with the consent of the holders of a majority in principal amount
of the then outstanding notes (including consents obtained in connection with a
tender offer or exchange offer for notes).
Without the consent of each holder affected, an amendment, supplement or
waiver may not (with respect to any notes held by a nonconsenting holder of
notes):
o reduce the amount of notes whose holders must consent to an
amendment, supplement or waiver
o reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
o reduce the rate of or change the time for payment of interest on any
note
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o waive a default in the payment of principal of or premium, if any,
or interest or liquidated damages, if any, on any notes (except a
rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the notes and a waiver of
the payment default that resulted from the acceleration
o make any note payable in money other than that stated in the notes
o make any change in the provisions of the indenture relating to
waivers of past defaults or the rights of holders of notes to
receive payments of principal of or premium, if any, or interest or
liquidated damages, if any, on the notes
o waive a redemption payment with respect to any note
o impair the right to convert the notes into common stock
o modify the conversion or subordination provisions of the indenture
in a manner adverse to the holders of the notes
o make any change in the amendment and waiver provisions described
above
Notwithstanding the foregoing, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes:
o to cure any ambiguity, defect or inconsistency
o to provide for uncertificated notes in addition to or in place of
definitive notes
o to provide for the succession of another person to us and the
assumption by the successor to our covenants and obligations under
the indenture
o to evidence and provide for the acceptance of the appointment under
the indenture of a successor trustee
o to make any change that would provide any additional rights or
benefits to the holders of the notes or that does not adversely
affect the legal rights under the indenture of any such holder
o to make provisions with respect to the conversion rights of holders
of notes in the event of a consolidation, merger, continuation or
sale of assets as required by the indenture
o to comply with requirements of the Securities and Exchange
Commission in order to qualify, or maintain the qualifications of,
the indenture under the Trust Indenture Act
NOTICES
We will give or cause to be given notices to holders of the notes by mail
to the addresses of the holders as they appear in the note register. The notices
will be deemed to have been given on the date of the mailing or on the date of
the first publication, as the case may be.
GOVERNING LAW
The indenture, the notes and the registration agreement are governed by and
construed in accordance with the laws of the State of New York, United States of
America.
CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should it
become a creditor of our company, to obtain payment of claims in certain cases,
or to realize on certain property received in respect of any claim as security
or otherwise. The trustee will be permitted to engage in other transactions with
us; however, if the trustee acquires any conflicting interest it must eliminate
the conflict within 90 days, apply to the Securities and Exchange Commission for
permission to continue or resign.
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The holders of a majority in principal amount of outstanding notes have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the trustee, subject to exceptions. The
indenture provides that, if an event of default occurs (which is not cured), the
trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of the person's own affairs. Subject to
these provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of notes,
unless the holder shall have offered to the trustee security and indemnity
satisfactory to the trustee against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are some of the defined terms used in the indenture.
"Business day" means any day that is not a legal holiday.
"Capital stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of equity interests in any entity,
including, without limitation, corporate stock and partnership interests.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an event of default.
"Designated senior debt" means any senior debt which, at the date of
determination, has an aggregate principal amount outstanding of, or commitments
to lend up to, at least $15,000,000 and is specifically designated by us in the
instrument evidencing or governing the senior debt as "designated senior debt"
for purposes of the indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by other
entities as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness; and such term, when used as a verb, shall have a correlative
meaning.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of the person:
o (a) for borrowed money (including, but not limited to, any
indebtedness secured by a security interest, mortgage or other lien
on the assets of such person which is (1) given to secure all or
part of the purchase price of property subject thereto, whether
given to the vendor of such property or to another, or (2) existing
on property at the time of acquisition thereof), (b) evidenced by a
note, debenture, bond or other written instrument, (c) under a lease
required to be capitalized on the balance sheet of the lessee under
GAAP or under any lease or related document (including a purchase
agreement) which provides that the person is contractually obligated
to purchase or to cause a third party to purchase such leased
property, (d) in respect of letters of credit, bank guarantees or
bankers' acceptances (including reimbursement obligations with
respect to any letters of credit, bank guarantees or bankers'
acceptances), (e)
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with respect to indebtedness secured by a mortgage, pledge, lien,
encumbrance, charge or adverse claim affecting title or resulting in
an encumbrance to which the property or assets of the person are
subject, whether or not the obligation secured by a mortgage,
pledge, lien, encumbrance, charge or adverse claim shall have been
assumed or guaranteed by or shall otherwise be the person's legal
liability, (f) in respect of the balance of the deferred and unpaid
purchase price of any property or assets, and (g) under interest
rate or currency swap agreements, cap, floor and collar agreements,
spot and forward contracts and similar agreements and arrangements
o with respect to any obligation of others of the type described in
the preceding bullet or under the third bullet below assumed by or
guaranteed in any manner by the person or in effect guaranteed by
the person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of the person under the assumptions,
guarantees or other such arrangements)
o any and all deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any
of the foregoing
"Junior securities" means securities of our company as reorganized or
readjusted or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided for in the indenture with respect to the notes, to the payment in full
without diminution or modification by the plan of all senior debt.
"Legal holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a legal holiday at a place of payment, we may make payment at that place
on the next succeeding day that is not a legal holiday, and no interest shall
accrue for the intervening period. If any other operative date for purposes of
the indenture occurs on a legal holiday then for all purposes the next
succeeding day that is not a legal holiday shall be the operative date.
"Material subsidiary" means any of our subsidiaries which at the date of
determination is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act (as the regulation
was in effect on March 8, 1999).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, and other liabilities payable under
the documentation governing any Indebtedness.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof.
"Representative" means the trustee, agent or representative (if any) for an
issue of senior debt.
"Senior debt" means the principal of, premium, if any, interest on and
other amounts due on our indebtedness, whether outstanding on March 8, 1999 or
created, incurred, assumed or guaranteed by us (including all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing) after that date, unless,
in the instrument creating or evidencing or pursuant to which indebtedness is
outstanding, it is expressly provided that the indebtedness is not senior in
right of payment to, or ranks pari passu in right of payment with, the notes.
Senior debt includes, with respect to the obligations described above, interest
accruing, pursuant to the terms of the senior debt, on or after the filing of
any petition in bankruptcy or for reorganization relating to our company,
whether or not post-filing interest is allowed in any proceeding, at the rate
specified in
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the instrument governing the relevant obligation. Notwithstanding anything to
the contrary in the previous sentences, senior debt shall not include:
o indebtedness of or amounts owed by us for compensation to employees,
or for goods, services or materials purchased in the ordinary course
of business
o indebtedness of our company to one of our subsidiaries
o any liability for federal, state, local or other taxes owed or owing
by us
"Subsidiary" of a person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
capital stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that person or one or more of
the subsidiaries of that person or a combination of that person and/or one or
more subsidiaries of that person.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.0001 per share, and 5,000,000 shares of preferred stock, par value
$.01 per share.
The following is a summary of some of the provisions of our certificate of
incorporation and bylaws and Section 203 of the General Corporation Law of the
State of Delaware. Although we have attempted to summarize the material portions
of these documents, the summary is not complete and is subject to, and qualified
in its entirety by reference to, the provisions of the certificate of
incorporation, bylaws and Section 203 of the General Corporation Law of the
State of Delaware. We will provide you with copies of any of these documents
upon request.
COMMON STOCK
Holders of common stock have one vote per share for each share held of
record on any matter submitted to the holders of common stock for a vote. All
outstanding shares of common stock are, and the shares of common stock issuable
upon conversion of the notes will be when issued, duly authorized, validly
issued, fully paid and nonassessable. Subject to the rights of the holders of
any outstanding shares of preferred stock and any restrictions that may be
imposed by any of our lenders, holders of common stock are entitled to receive
such dividends, if any, as our board of directors may declare out of legally
available funds. In the event of the liquidation, dissolution or winding up of
our company, holders of common stock are entitled to share equally and ratably,
based on the number of shares held, in the assets, if any, remaining after
payment of all of our debts and liabilities and the liquidation preference of
any outstanding preferred stock. The shares of common stock are neither
redeemable nor convertible, and the holders of common stock have no preemptive
rights to subscribe for or purchase any additional shares of our capital stock.
PREFERRED STOCK
We are authorized to issue 5,000,000 shares of preferred stock in one or
more series, and to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including voting, redemption and
conversion rights. Our board of directors also may designate dividend rights and
preferences in liquidation. It is not possible to state the actual effect of the
authorization and issuance of series of preferred stock upon the rights of
holders of common stock until our board of directors determines the specific
terms, rights and preferences of a series of preferred stock. The effects,
however, might include, among other things:
o granting the holders of preferred stock priority over the holders of
common stock with respect to the payment of dividends
o diluting the voting power of the common stock
o granting the holders of preferred stock preference with respect to
liquidation rights
In addition, under certain circumstances, the issuance of preferred stock may
render more difficult or tend to discourage:
o a merger
o tender offer
o proxy contest
o the assumption of control by a holder of a large block of our
securities
o the removal of incumbent management
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DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in a "business combination"
with certain persons for three years following the date the person becomes an
interested stockholder. Interested stockholders generally include:
o persons who are the beneficial owners of 15% or more of the
outstanding voting stock of the corporation
o persons who are affiliates or associates of the corporation and who
hold 15% or more of the corporation's outstanding voting stock
at any time within three years before the date on which the person's status as
an interested stockholder is determined. Subject to certain exceptions, a
business combination includes, among other things:
o mergers or consolidations
o the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10%
or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation
o transactions that result in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder, except pursuant to a transaction that effects a pro
rata distribution to all stockholders of the corporation
o any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series, or securities convertible into the stock of any class or
series, of the corporation that is owned directly or indirectly by
the interested stockholder
o any receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits provided by or
through the corporation
Section 203 does not apply to a business combination if:
o before a person becomes an interested stockholder, the board of
directors of the corporation approves the transaction in which the
interested stockholder became an interested stockholder or approved
the business combination
o upon consummation of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commences, other
than some excluded shares
o following a transaction in which the person became an interested
stockholder, the business combination is (a) approved by the board
of directors of the corporation and (b) authorized at a regular or
special meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the
interested stockholder
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
Our certificate of incorporation and bylaws contain several provisions that
could have the effect of delaying, deterring or preventing the acquisition of
control of our company by means of tender offer, open
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market purchases, a proxy contest or otherwise. We have described those
provisions in the following paragraphs.
Classified Board of Directors
Our certificate of incorporation divides our board of directors into three
classes, with one class having an initial term of one year, one class having an
initial term of two years and one class having an initial term of three years.
The three classes will be as nearly equal in number as possible. At each annual
meeting of stockholders, stockholders elect directors to succeed those directors
whose terms have expired, and each newly elected director will serve for a
three-year term. We believe that a classified board of directors helps assure
the continuity and stability of our board of directors and our business
strategies and policies. The classified board provision could increase the
likelihood that, in the event of a takeover of our company, incumbent directors
will retain their positions. In addition, the classified board provision will
help ensure that our company's board of directors, if confronted with an
unsolicited acquisition proposal from a third party that has acquired a block of
our voting stock, will have sufficient time to review the proposal and
appropriate alternatives and to seek the best available result for all
stockholders.
Removal of Directors; Filing Vacancies
Our bylaws provide that our stockholders may remove directors only "for
cause" and only by the affirmative vote of a majority of the stockholders
entitled to vote. As defined in our bylaws, "for cause" means:
o commission of an act of fraud or embezzlement against our company
o conviction of a felony or a crime involving moral turpitude
o gross negligence or willful misconduct in performing the director's
duties to our company or our stockholders
o breach of fiduciary duty owed to our company
Our bylaws also provide that vacant directorships may be filled by our board of
directors.
Special Meetings of Stockholders
Our bylaws provide that special meetings of stockholders may be called only
by our chief executive officer, and shall be called by our chief executive
officer or secretary at the written request of a majority of our board of
directors. Special meetings may not be called by our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
Our bylaws establish advance notice procedures with regard to stockholder
proposals and the nomination, other than by or at the direction of our board of
directors or a committee of our board of directors, of candidates for election
as directors. These procedures provide that the notice of stockholder proposals
and stockholder nominations for the election of directors at an annual meeting
must be in writing and received by the secretary of our company no later than:
o with respect to an annual meeting, 120 calendar days in advance of
date our proxy statement is released to securityholders in
connection with the previous year's annual meeting of
securityholders
o with respect to a special meeting, a reasonable time before the
solicitation is made
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The notice of stockholder nominations must set forth certain information with
respect to each nominee who is not an incumbent director.
Certain Effects of Authorized but Unissued Stock
We have a large number of unissued and unreserved shares of common stock
and 5,000,000 unissued and unreserved shares of preferred stock. We are also
considering increasing the amount of authorized common stock. Unissued and
unreserved shares may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital and for facilitating
corporate acquisitions. Except pursuant to certain employee benefit plans, and
except for shares of common stock issuable upon exercise of outstanding warrants
and upon conversion of the notes, we do not currently have any plans to issue
additional shares of common stock or preferred stock. One of the effects of
unissued and unreserved shares of capital stock may be to enable our board of
directors to render more difficult or discourage an attempt to obtain control of
our company by means of a merger, tender offer, proxy contest or otherwise, and
thereby to protect the continuity of our management. If, in the due exercise of
its fiduciary obligations, for example, our board of directors determines that a
takeover proposal is not in our best interests, our board of directors could
issue shares of common stock without stockholder approval in one or more private
transactions or other transactions that might prevent or render more difficult
or costly the completion of the takeover transaction by:
o diluting the voting or other rights of the proposed acquirer or
insurgent stockholder group
o creating a substantial voting block in institutional or other hands
that might undertake to support the position of our incumbent board
of directors
o by effecting an acquisition that might complicate or preclude the
takeover
TRANSFER AGENT AND REGISTRAR
Harris Trust Company of California is the transfer agent and registrar for
our common stock.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations to holders of the notes. This discussion is based upon the
Internal Revenue Code of 1986, Treasury Regulations, Internal Revenue Service
rulings, and judicial decisions now in effect, all of which are subject to
change (possibly with retroactive effect) or different interpretations. We
cannot assure you that the Internal Revenue Service will not challenge one or
more of the tax consequences described in this discussion, and we have not
obtained, and do not intend to obtain, a ruling from the Internal Revenue
Service with respect to the U.S. federal income tax consequences of acquiring or
holding notes or common stock.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to holders of the notes or common stock and does
not deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. This discussion is for general information purposes only,
and does not purport to address all tax consequences that may be important to
particular holders in light of their personal circumstances (for example,
persons subject to the alternative minimum tax provisions of the Internal
Revenue Code), or to certain types of holders (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
persons who hold the notes or common stock as part of a hedging or conversion
transaction or straddle or persons deemed to sell notes or common stock under
the constructive sale provisions of the Internal Revenue Code) that may be
subject to special rules. This discussion assumes that each holder holds the
notes and any common stock received upon conversion of the notes as capital
assets under Section 1221 of the Internal Revenue Code, and that the notes are
properly characterized as debt instruments for federal income tax purposes.
For the purpose of this discussion, a "U.S. holder" refers to any holder
that is a U.S. person, and a "non-U.S. holder" refers to any holder who is not a
U.S. person. The term "U.S. person" means:
o a citizen or resident of the United States
o a corporation, partnership (or other entity treated as a corporation
or a partnership for U.S. federal income tax purposes) created or
organized in the United States or any state of the United States or
the District of Columbia
o an estate the income of which is includible in income for U.S.
federal income tax purposes regardless of its source
o a trust subject to primary supervision by a court in the United
States and control by one or more U.S. persons
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF YOUR OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT YOUR PARTICULAR
CIRCUMSTANCES MAY HAVE ON THESE TAX CONSEQUENCES.
OWNERSHIP OF NOTES
Interest on Notes
A holder must generally include stated interest on notes in its gross
income. Stated interest is generally taxable to a holder as ordinary income in
accordance with the holder's method of tax accounting at the time that the
interest is accrued or received. We intend to take the position that the
possibility that holders of notes will be paid liquidated damages due to the
occurrence of a Registration default is a remote contingency within the meaning
of Treasury Regulations Section 1.1275-4(a)(5). See "Description
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<PAGE> 45
of Notes -- Registration Rights." Because this position will not bind the
Internal Revenue Service, if the Internal Revenue Service were to successfully
challenge this position, holders of notes could suffer potentially adverse
tax-timing consequences, and any gain recognized on the sale of the notes would
constitute ordinary income if the sale occurred when there remained a
possibility that liquidated damages would be paid. We urge you to consult your
own tax advisors regarding the information in this paragraph. Special rules may
apply in the case of non-U.S. holders. See "-- Certain Federal Income Tax
Considerations Applicable to Non-U.S. Holders."
Adjustments to Conversion Price
We will adjust the conversion price of the notes under certain
circumstances. Section 305 of the Internal Revenue Code and the Treasury
Regulations issued under the Internal Revenue Code may treat the holders of the
notes as having received a constructive distribution if adjustments in the
conversion price increase the proportionate interest of a holder in our common
stock. For example, an adjustment to reflect a taxable dividend to holders of
common stock may result in a constructive dividend. Any constructive dividend
would be considered as ordinary income (subject to a possible dividends received
deduction in the case of corporation holders) to the extent of our current
and/or accumulated earnings and profits. A constructive dividend may occur
whether or not the holder exercises its conversion privilege. Moreover, if there
is not a full adjustment to the conversion ratio of the notes to reflect a stock
dividend or other event increasing the proportionate interest of the holders of
outstanding common stock in our assets or earnings and profits, then the
increase in the proportionate interest of the holders of the common stock
generally will be treated as a distribution to the holders, taxable as ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of our current and/or accumulated earnings and
profits. At this time, we have a deficit in accumulated earnings and profits.
Sale, Exchange, Redemption or Retirement of Notes
In general, a holder of notes will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of the notes measured by
the difference between:
o the amount realized (except to the extent attributable to the
payment of accrued interest not previously included in income)
o the holder's adjusted tax basis in the notes
A holder's tax basis in notes generally will equal the cost of the notes to the
holder, increased by the amount of any market discount (as discussed below)
previously taken into income by the holder or decreased by any bond premium
amortized by the holder with respect to the notes. Any gain or loss recognized
on the sale, exchange, redemption, retirement or other disposition of a note
should be capital gain or loss and will generally be long-term capital gain or
loss if the note has been held or deemed held for more than one year at the time
of the sale or exchange. Special rules may apply in the case of non-U.S.
holders. See "-- Certain Federal Income Tax Considerations Applicable to
Non-U.S. Holders."
Conversions of Notes into Common Stock
In general, a holder of notes will not recognize gain or loss on the
conversion of the notes into shares of common stock, except upon the receipt of
cash in lieu of a fractional share. The holder's tax basis in the shares of
common stock received upon conversion of the notes will equal the holder's
aggregate basis in the notes exchanged for the common stock, less any portion of
the notes allocable to a fractional share. The holding period of the shares of
common stock received by the holder upon conversion of notes generally will
include the period during which the holder held the notes prior to the
conversion. Cash received in lieu of a fractional share of common stock should
be treated as a payment in exchange for the
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<PAGE> 46
fractional share. Gain or loss recognized on the receipt of cash paid in lieu of
a fractional share generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional share.
Special rules may apply in the case of non-U.S. holders. See "-- Certain Federal
Income Tax Considerations Applicable to Non-U.S. Holders."
The Common Stock
A holder will include in its ordinary income distributions, if any, paid on
the common stock after a conversion, to the extent made from our current and/or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes as they are paid. These distributions may be subject to a possible
dividends received deduction in the case of corporate holders. Gain or loss
realized on the sale or exchange of common stock will equal the difference
between:
o the amount realized on such sale or exchange
o the holders' adjusted tax basis in the common stock
Subject to the market discount rules discussed below, the gain or loss will
generally be long-term capital gain or loss if the holder has held or is deemed
to have held the common stock for more than one year. Special rules may apply in
the case of non-U.S. holders. See "-- Certain Federal Income Tax Considerations
Applicable to Non-U.S. Holders."
Market Discount
The resale of notes may be affected by the "market discount" provisions of
the Internal Revenue Code. Market discount on a Note will generally equal the
amount, if any, by which the principal amount of the note exceeds the holder's
acquisition price. Subject to a de minimis exception, those provisions generally
require a holder of a note acquired at a market discount to treat as ordinary
income any gain recognized on the disposition of the note to the extent of the
"accrued market discount" at the time of disposition. If a Note with accrued
market discount is converted into common stock pursuant to the conversion
feature, the amount of such accrued market discount generally will be taxable as
ordinary income upon disposition of the common stock. Market discount on a note
will be treated as accruing on a straight-line basis over the term of such note
or, at the election of the holder, under a constant-yield method. A holder of a
note acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to purchase
or carry the note until the note is disposed of in a taxable transaction, unless
the holder elects to include market discount in income as it accrues.
Amortizable Premium
A purchaser of a note at a premium over its stated principal amount, plus
accrued interest, generally may elect to amortize the premium from the purchase
date to the note's maturity date under a constant-yield method that reflects
semiannual compounding based on the note's payment period. This premium,
however, will not include any premium attributable to a note's conversion
feature. The premium attributable to the conversion feature is the excess, if
any, of the note's purchase price over what the note's fair market value would
be if there were no conversion feature. Amortized premium is treated as an
offset to interest income on a note and not as a separate deduction.
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<PAGE> 47
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Notes
Generally, stated interest paid on the notes to a non-U.S. holder will not
be subject to U.S. federal income tax if:
o such interest is not effectively connected with the conduct of a
trade or business within the United States by such non-U.S. holder
o the non-U.S. holder does not actually or constructively own 10% or
more of the total voting power of all classes of our stock entitled
to vote, the non-U.S. holder is not a "controlled foreign
corporation" with respect to which the Company is a "related person"
within the meaning of the Internal Revenue Code, and the beneficial
owner of the note, under penalty of perjury, certifies to the payer
that the owner is not a U.S. person and such certificate provides
the owner's name and address
If certain requirements are satisfied, the certification described above may be
provided by a securities clearing organization, a bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business. For this purpose, the non-U.S. holder of notes would be deemed to
own constructively the common stock into which it could be converted.
A non-U.S. holder that is not exempt from tax under these rules generally
will be subject to U.S. federal income tax withholding at a rate of 30% unless:
o the interest is effectively connected with the conduct of a U.S.
trade or business, in which case the interest will be subject to the
U.S. federal income tax on net income that applies to U.S. persons
generally
o an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax
In the case of a non-U.S. holder that is a corporation, such U.S. trade or
business income may also be subject to the branch profits tax, which is
generally imposed on a foreign corporation on the actual or deemed repatriation
from the United States of earnings and profits attributable to U.S. trade or
business income, at a 30% rate. The branch profits tax may not apply, or may
apply at a reduced rate, if a recipient is a qualified resident of a country
with which the U.S. has an income tax treaty.
To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is effectively connected with a U.S. trade or business, the
non-U.S. holder must provide a properly executed Form 1001 or 4224, or such
successor forms as the IRS designates, as applicable, prior to the payment of
interest. These forms must be periodically updated. Under recently finalized
U.S. Treasury regulations, effective for payments made after December 31, 1999,
the Forms 1001 and 4224 will be replaced by Form W-8. Also, under the new U.S.
Treasury regulations, a non-U.S. holder who is claiming the benefits of a treaty
may be required to obtain a U.S. taxpayer identification number and to provide
certain documentary evidence issued by foreign governmental authorities to prove
residence in the foreign country. Certain special procedures are provided in the
new regulations for payments through qualified intermediaries.
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<PAGE> 48
Sale, Exchange or Redemption of Notes or Shares of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
on gain recognized upon the sale or other disposition of notes or shares of
common stock received in exchange therefor unless:
o the gain is effectively connected with the conduct of a trade or
business within the U.S. by the non-U.S. holder
o in the case of a non-U.S. holder who is a nonresident alien
individual and holds the common stock as a capital asset, the
non-U.S. holder is present in the U.S. for 183 or more days in the
taxable year
However, if we were to become a "United States real property holding
corporation" under the Internal Revenue Code, a non-U.S. holder may be subject
to federal income tax with respect to gain realized on the disposition of notes
or shares of common stock. In that case, any withholding tax withheld pursuant
to the rules applicable to dispositions of a "United States real property
interest" will be creditable against the non-U.S. holder's U.S. federal income
tax liability and may entitle the non-U.S. holder to a refund upon furnishing
required information to the Internal Revenue Service. We are not now a "United
States real property holding corporation" and do not anticipate that we will
become one.
Conversion of Notes
A non-U.S. holder generally will not be subject to U.S. federal income tax
on the conversion of a note into shares of common stock. However, to the extent
a non-U.S. holder receives cash in lieu of a fractional share on conversion, the
cash may give rise to gain that would be subject to the rules described above
with respect to the rules regarding the sale or exchange of a note.
Dividends on Shares of Common Stock
Generally, any distribution on shares of common stock to a non-U.S. holder
will be subject to U.S. federal income tax withholding at a rate of 30% unless:
o the dividend is effectively connected with the conduct of a trade or
business within the U.S. by the non-U.S. holder, in which case the
dividend will be subject to the U.S. federal income tax on net
income that applies to U.S. persons generally (and, with respect to
corporate non-U.S. holders under certain circumstances, the branch
profits tax)
o an applicable income tax treaty provides for a lower rate of, or
exemption from, withholding tax. A Non-U.S. holder may be required
to satisfy certain certification requirements in order to claim a
reduction of or exemption from withholding under the foregoing rules
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders
Information reporting and backup withholding may apply to payments of
principal, interest or dividends on or the proceeds from the sale or other
disposition of the notes or common stock with respect to certain noncorporate
U.S. holders. These U.S. holders generally will be subject to backup withholding
at a rate of 31% unless, among other conditions, the U.S. holder supplies a
taxpayer identification number and certain other information, certified under
penalties of perjury, to the payer or otherwise establishes an exemption from
backup withholding. Any amount withheld under backup withholding is allowable as
a credit against the U.S. holder's federal income tax liability.
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<PAGE> 49
Non-U.S. Holders
Generally, information reporting will apply to payments of interest on the
notes or dividends on the common stock, and backup withholding at a rate of 31%
will apply unless the payee certifies that it is not a U.S. person or otherwise
establishes an exemption. The 31% backup withholding tax will not apply,
however, to interest or dividends subject to the 30% withholding tax described
above. In addition, information reporting and backup withholding will apply to
payments of principal on the notes unless the payee certifies that it is not a
U.S. person or otherwise establishes an exemption.
The payment of the proceeds of the disposition of notes or common stock to
or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and possible backup withholding unless the Non-U.S. holder
certifies as to its non-U.S. holder status or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The proceeds of the disposition by a non-U.S. holder of
notes or common stock to or through a foreign office of a broker generally will
not be subject to information reporting or backup withholding. However, if the
broker is a U.S. person, a controlled foreign corporation for U.S. tax purposes,
or a foreign person 50% or more of whose gross income from all sources for
certain periods is from activities that are effectively connected with a U.S.
trade or business, information reporting generally will apply unless the broker
has documentary evidence in its files of the non-U.S. holder's foreign status
and has no actual knowledge to the contrary.
NEW WITHHOLDING REGULATIONS
The recently finalized withholding regulations referred to above make
certain modifications to the withholding and information reporting rules
described above. These new regulations attempt to unify certification
requirements and modify reliance standards. The new regulations will generally
be effective for payments made after December 31, 1999, subject to certain
transition rules. We urge you to consult your own tax advisors regarding the new
regulations.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO YOU
OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND THE COMMON STOCK,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
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SELLING SECURITYHOLDERS
We originally issued the notes in a private placement. The notes were
resold by the initial purchasers of the notes to qualified institutional buyers
(within the meaning of Rule 144A under the Securities Act of 1933),
institutional accredited investors (as defined in Rule 501 (a) (1), (2), (3) or
(7) under the Securities Act of 1933) and to non-U.S. persons outside the United
States in transactions exempt from registration under the Securities Act of
1933. The notes and the shares of our common stock issuable upon conversion of
the notes that may be offered pursuant to this prospectus will be offered by the
selling securityholders. The following table sets forth certain information
concerning the principal amount of notes beneficially owned by each selling
securityholder and the number of shares of our common stock issuable upon
conversion of the notes that may be offered from time to time pursuant to this
prospectus.
The selling securityholders may, from time to time, offer and sell any or
all of the notes and the shares of our common stock issuable upon conversion
thereof under this prospectus. All of the notes and the shares of common stock
offered pursuant to this prospectus are offered by the selling securityholders.
Any sales of the notes or shares of common stock will be for the account of the
selling securityholders and we will not receive any of the proceeds from these
sales.
The information in the following table is as of , 1999 and assumes
that no selling securityholder beneficially owns any shares of our common stock
other than shares issuable pursuant to the conversion of the notes. In addition,
the information in the table assumes the conversion of all notes owned by each
selling securityholder at the initial conversion price of $74.8125 per share.
This initial conversion price may be adjusted under certain circumstances. As a
result, the number of shares issuable upon conversion of the notes may increase
or decrease. Under the terms of the indenture governing the notes, cash will be
paid instead of issuing fractional shares upon conversion. The selling
securityholders listed below provided us the information contained in the
following table with respect to themselves and the respective principal amount
of notes that may be sold by each of them under this prospectus. We have not
independently verified this information.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NOTES BENEFICIALLY SHARES
NAME OF SELLING OWNED THAT PERCENTAGE OF COMMON STOCK THAT PERCENTAGE OF COMMON
SECURITYHOLDER MAY BE SOLD NOTES OUTSTANDING MAY BE SOLD STOCK OUTSTANDING
- ---------------------- ------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Selling Securityholders to
be named in a Prospectus
Supplement(1).............. $172,915,000 100% 2,311,312
------------ ---- ---------
Total............ $172,915,000 100% 2,311,312
</TABLE>
- --------------------
* Less than 1%.
(1) No holder may offer notes pursuant to this prospectus until such holder is
named as a selling securityholder in a supplement to this prospectus.
None of the selling securityholders has had any position, office or
other material relationship with us or our affiliates within the past three
years.
The selling securityholders identified above may have sold, transferred
or otherwise disposed of, in transactions exempt from the registration
requirements of the Securities Act of 1933, all or a portion of their notes
since the date on which the information in the preceding table is presented.
Information concerning the selling securityholders may change from time to time
and any such changed information will be set forth in supplements to this
prospectus if and when necessary. Because the selling securityholders may offer
all or some of the notes they hold or shares of common stock issuable upon
conversion of the notes pursuant to the offering contemplated by this
prospectus, no estimate can be given as to the amount of the notes or shares of
common stock that will be held by the selling securityholders upon the
termination of this offering. See "Plan of Distribution."
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<PAGE> 51
PLAN OF DISTRIBUTION
The selling securityholders intend to distribute the notes and the shares
of common stock issuable upon conversion of the notes from time to time only as
follows (if at all):
o to or through underwriters, brokers or dealers
o directly to one or more other purchasers
o through agents on a best-efforts basis
o otherwise through a combination of any such methods of sale
The notes and the shares of common stock issuable upon conversion of the
notes may be sold from time to time:
o in one or more transactions at a fixed price or prices, which may be
changed
o at market prices prevailing at the time of sale
o at prices related to such prevailing market prices
o at varying prices determined at the time of sale
o at negotiated prices
Such sales may be effected in transactions (which may involve crosses or
block transactions):
o on any national securities exchange or quotation service on which
the notes or our common stock may be listed or quoted at the time of
sale
o in the over-the-counter market
o in transactions otherwise than on such exchanges or services or in
the over-the-counter market
o through the writing of options
In connection with sales of the notes or common stock or otherwise, the
selling securityholder may enter into hedging transactions with brokers-dealers
or others, which may in turn engage in short sales of the notes or our common
stock in the course of hedging the positions they assume. The selling
securityholder may also sell notes or common stock short and deliver notes or
common stock to close out such short positions, or loan or pledge notes or
common stock to brokers-dealers or others that in turn may sell such securities.
The selling securityholder may pledge or grant a security interest in some or
all of the notes or common stock issued upon conversion of the notes owned by it
and, if it defaults in the performance of its secured obligations, the pledgees
or secured parties may offer and sell the notes or the common stock from time to
time pursuant to this prospectus. The selling securityholder also may transfer
and donate notes or shares of common stock issuable upon conversion of the notes
in other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling securityholders for purposes of the
prospectus. The selling securityholder may sell short the common stock and may
deliver this prospectus in connection with such short sales and use the shares
of common stock covered by the prospectus to cover such short sales.
LEGAL MATTERS
The validity of the notes and the shares of common stock issuable upon
conversion of the notes offered in this prospectus will be passed upon for us by
Hughes & Luce, L.L.P., Dallas, Texas.
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<PAGE> 52
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
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<PAGE> 53
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL
ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
$172,915,000
CNET, INC.
5% CONVERTIBLE SUBORDINATED NOTES DUE 2006
(AND COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES)
PROSPECTUS
, 1999
================================================================================
<PAGE> 54
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
Registration fee $48,071
Accounting fees and expenses 5,000
Legal fees and expenses 10,000
Miscellaneous expenses 10,000
-------
Total: $73,071
-------
</TABLE>
- ---------------
* Estimated
All of the above expenses will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws provide that officers and directors who are made a
party to or are threatened to be made a party to or is otherwise involved in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was an officer or a director of the Company or is or was serving at the
request of the Company as a director or an officer of another entity shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the Delaware General Corporation Law ("DGCL") against all expense, liability,
and loss reasonably incurred or suffered by such person in connection therewith.
The right to indemnification includes the right to be paid by the Company for
expenses incurred in defending any such proceeding in advance of its final
disposition. Officers and directors are not entitled to indemnification if such
persons did not meet the applicable standard of conduct set forth in the DGCL
for officers and directors.
DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, agent or employee of the Company or who serves or
served at the Company's request as a director, officer, agent, employee, partner
or trustee of another corporation or of a partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of the Company as well,
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of a judgment or settlement of the claim itself, and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct in the performance of
his duties to the Company, unless the court believes that in light of all the
circumstances indemnification should apply.
The indemnification provisions contained in the Company's Certificate of
Incorporation are not exclusive of any other rights to which a person may be
entitled by law, agreement, vote of stockholders or disinterested directors or
otherwise. In addition, the Company maintains insurance on behalf of its
directors
II-1
<PAGE> 55
and executive officers insuring them against any liability asserted against them
in their capacities as directors or officers or arising out of such status.
ITEM 16. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Index to
Exhibits on page II-6 of this Registration Statement, which Index is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a)
II-2
<PAGE> 56
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, State of California, on May 4, 1999.
CNET, INC.
By: /s/ SHELBY W. BONNIE
-----------------------------------------
Shelby W. Bonnie,
Executive Vice President, Chief Operating
Officer and Secretary
By: /s/ DOUGLAS N. WOODRUM
-----------------------------------------
Douglas N. Woodrum,
Executive Vice President, Chief Financial
Officer and Chief Accounting Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Shelby W. Bonnie and Douglas N. Woodrum his or her true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him or her and in his or her name, place, and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ HALSEY M. MINOR Chairman of the Board, President May 4, 1999
- -------------------------------- and Chief Executive Officer
Halsey M. Minor
/s/ SHELBY W. BONNIE Director, Executive Vice President, May 4, 1999
- -------------------------------- Chief Operating Officer
Shelby W. Bonnie and Secretary
/s/ DOUGLAS N. WOODRUM Director, Executive Vice President and May 4, 1999
- -------------------------------- Chief Financial Officer
Douglas N. Woodrum
/s/ ERIC ROBISON Director May 4, 1999
- --------------------------------
Eric Robison
/s/ MITCHELL KERTZMAN Director May 4, 1999
- --------------------------------
Mitchell Kertzman
/s/ JOHN C. COLLIGAN Director May 4, 1999
- --------------------------------
John C. Colligan
</TABLE>
II-4
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- -----------------------
<S> <C> <C>
4.1 -- Indenture dated March 8, 1999 between the Company and The Bank of New York, as
trustee (filed as Exhibit 10.40 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998 and incorporated herein by reference).
4.2 -- Form of 5% Convertible Subordinated Note due 2006 (filed as Exhibit 10.41 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 and
incorporated herein by reference).
4.3 -- Registration Agreement dated March 8, 1999 between the Company and Salomon Smith
Barney Inc., BancBoston Robertson Stephens Inc. and Volpe Brown & Company, LLP, as
Representative of the Initial Purchaser (filed as Exhibit 10.42 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by
reference).
5.1* -- Opinion of Hughes & Luce, L.L.P.
12.1* -- Computation of Ratio of Earnings to Fixed Charges.
23.1* -- Consent of KPMG LLP.
23.2* -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1)
24.1* -- Power of Attorney (included in Part II of this Registration Statement).
25.1* -- Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as trustee under the Indenture.
</TABLE>
- ---------------------
*Filed herewith
<PAGE> 1
EXHIBIT 5.1
[Hughes & Luce Letterhead]
1717 Main Street, Suite 2800
Dallas, Texas 75201
(214) 939-5500
May 4, 1999
CNET, Inc.
150 Chestnut Street
San Francisco, CA 94111
Ladies and Gentlemen:
We have acted as counsel to CNET, Inc., a Delaware corporation
(the "Company"), in connection with the Company's registration under the
Securities Act of 1933, as amended, of $172,915,000 aggregate principal amount
of 5% Convertible Subordinated Notes (the "Notes") issued by the Company and
such indeterminate number of shares of the Company's common stock, $.0001 par
value per share ("Common Stock"), issuable upon conversion thereof (the
"Shares") (the Notes and the Shares, collectively, the "Offered Securities"),
each as described in the Company's Registration Statement on Form S-3 (the
"Registration Statement") filed with the Securities and Exchange Commission on
or about May 4, 1999, with respect to the resale of the Offered Securities by
the holders thereof. Capitalized terms not otherwise defined in this opinion
have the meanings given to them in the Registration Statement.
In rendering this opinion, we have examined and relied upon executed
originals, counterparts or copies of such documents, agreements, records and
certificates (including certificates of public officials and officers of the
Company) as we considered necessary or appropriate for enabling us to express
the opinions set forth herein. In all such examinations, we have assumed the
authenticity and completeness of all documents submitted to us as originals and
the conformity to originals and completeness of all documents submitted to us as
photostatic, conformed, notarized or certified copies.
Based on the foregoing, we are of the opinion that: (i) the Notes have
been duly and validly authorized and issued and constitute legally valid and
binding obligations of the Company entitled to the benefits provided by the
Indenture dated as of March 8, 1999 by and between the Company and The Bank of
New York, as trustee (the "Indenture"), and (ii) the Shares have been duly and
validly authorized, and when issued upon the due conversion of the Notes against
payment therefore, will be validly issued, fully paid and nonassessable.
<PAGE> 2
The opinions expressed above are subject to the following assumptions,
exceptions and qualifications:
a. We have assumed that (i) all information contained in all
documents, records, agreements, certificates and other instruments reviewed by
us is true and correct; (ii) all signatures on all documents reviewed by us are
genuine; (iii) all documents, records, agreements, certificates and other
instruments submitted to us as originals are true and complete; (iv) all
documents, records, agreements, certificates and other instruments submitted to
us as copies are true and complete copies of the originals thereof; (v) each
natural person signing any document, record, agreement, certificate or other
instrument reviewed by us had the legal capacity to do so; (vi) each natural
person signing in a representative capacity any document, record, agreement,
certificate or other instrument reviewed by us had authority to sign in such
capacity; and (vii) the Indenture is a valid and binding agreement of The Bank
of New York, as trustee.
b. The opinions expressed in this letter are limited to the Delaware
General Corporation Law, the federal laws of the United States of America and
the laws of the State of Texas. We express no opinion about the effect of the
laws of any other jurisdiction.
This opinion may be filed as an exhibit to the Registration Statement.
We also consent to the reference to this firm as having passed on the validity
of the Notes and the Shares under the caption "Legal Matters" in the
Registration Statement. In giving this consent, we do not admit that we are
included in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
This opinion speaks as of the date hereof, and we disclaim any duty to
advise you regarding any changes subsequent to the date hereof in, or to
otherwise communicate with you with respect to, the matters addressed herein.
Very truly yours,
/s/ Hughes & Luce, L.L.P.
<PAGE> 1
EXHIBIT 12.1
CNET, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31,
1994 1995 1996 1997 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income (loss) (2,826,549) (8,607,358) (16,948,662) (24,728,092) 2,599,957
Losses from unconsolidated
majority owned subsidiaries (29,788,156)
Fixed charges 186,589 416,711 701,105 1,362,695 1,993,395
---------------------------------------------------------------------------
Total earnings (2,639,960) (8,190,647) (16,247,557) (23,365,397) (25,194,804)
---------------------------------------------------------------------------
Fixed Charges:
Interest expense 65,256 226,586 310,911 254,791 399,218
Interest in rental expense 121,333 190,125 390,194 1,107,904 1,594,177
---------------------------------------------------------------------------
Total fixed charges 186,589 416,711 701,105 1,362,695 1,993,395
---------------------------------------------------------------------------
Deficiency (2,826,549) (8,607,358) (16,948,662) (24,728,092) (27,188,199)
===========================================================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the registration
statement.
San Francisco, California
May 4, 1999
<PAGE> 1
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------------
CNET, INC.
(Exact name of obligor 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 94111
San Francisco, California (Zip code)
(Address of principal executive offices)
---------------------------
5% Convertible Subordinated Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4
to Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a
corporation organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of April, 1999.
THE BANK OF NEW YORK
By: /s/REMO J. REALE
------------------------------
Name: REMO J. REALE
Title: ASSISTANT VICE PRESIDENT
