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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF1934
For the fiscal year ended December 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-20939
CNET, INC.
(Exact Name of registrant as specified in its charter)
Delaware 13-3696170
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
150 Chestnut Street
San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 395-7800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Title of class
Common Stock, $0.0001 par value
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K ( 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /X/
The aggregate market value of common stock held by non-affiliates, based on
the closing price at which the stock was sold, at March 12, 1999 approximated
$1.8 billion.
The total number of shares outstanding of the issuer's common stock (its
only class of equity securities), as of March 12, 1999, was 34,767,270
Information is incorporated by reference into Part III of this
Form 10-K from the registrant's definitive proxy statement for its
1998 annual meeting of stockholders, which will be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
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<PAGE>
PART I
Item 1. Business
General
CNET, Inc. (the Company, which may be referred to as we, us or
our) is a leading media company that provides consumers with
authoritative information online and on television regarding
computers, the Internet and digital technologies. We seek to use
our editorial, technical, product database and programming
expertise to engage consumers and attract advertisers. Based on
the volume of traffic over our branded online network, we believe
that we have an established leadership position in our market. We
believe that our online network is the most frequently used source
of technology information online, with an average of approximately
8.2 million pages viewed daily during the fourth quarter of 1998.
According to Media Metrix, we reached 12.2% of the online
audience in the United States, or approximately 7.1 million unique
users, during January 1999. In addition, we deliver over 3.8
million newsletter dispatches per week to subscribers of our
newsletter services. We earn revenues from a combination of:
* banner and sponsorship advertising on our online network
* advertising and sales lead-based compensation from our
recently introduced online shopping services
* 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 information technology and
technology products and services. The primary channels accessible
through CNET.com are:
* Search.com
* Computers.com
* Shopper.com
* News.com
* Builder.com
* Gamecenter.com
* Download.com.
Through our shopping services, we help consumers decide what
products to buy and where to buy them. We believe that our
shopping services are a highly efficient marketing channel for
sellers of technology products who seek a targeted audience of
potential buyers. We began providing sales lead-based advertising
services in September 1998 through Computers.com and Shopper.com.
We believe that these services are among the industry's leading
information resources for buyers of technology products.
Within our shopping services we help the consumer with the
beginning phase of a product buying decision by providing high-
quality editorial content, including reviews and recommendations.
We supplement this information by providing real-time pricing
information from competing vendors covering more than 120,000
products. We also provide one-click access to these vendors,
which enables the consumer to order the desired product from the
supplier of their choice. We believe that our online database of
products and prices is the largest publicly-accessible computer
product database in the world. In the fourth quarter of 1998, the
first quarter that we offered these services, we estimate that we
generated approximately $80 million in sales to our 70
participating merchants. We generated an average of 90,000 leads
per day to Internet merchants during December 1998.
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:
* CNET Central (technology news)
* The Web (Internet and online services)
* Cool Tech (consumer-oriented technology products)
* 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 broadcast CNET Television programming to more than 75 million
households. CNET Television is syndicated nationally and in 40
international markets.
Our Other Ventures
We currently own approximately 81% of SNAP! LLC ("snap."), a
free Internet directory, search and navigation portal service
controlled by NBC Multimedia, Inc. NBC Multimedia currently owns
19% of snap., but has an option to increase its ownership to 60%.
As a result of this option, we effectively own approximately 40%
of snap. In addition to snap., we own approximately 9% (2.3
million shares) of Vignette Corporation (Nasdaq: VIGN), a
manufacturer of Web publishing software, and 16% of BuyDirect.com,
Inc., a Web retailer of downloadable software. BuyDirect.com
recently entered into a merger agreement with beyond.com. This
merger, if completed, would result in our owning approximately
800,000 shares of beyond.com (Nasdaq: BYND).
We are a Delaware corporation. Our principal executive offices
are located at 150 Chestnut Street, San Francisco, California
94111, and our telephone number is (415) 395-7800. We were
incorporated in 1992. We launched CNET.com in June 1995 and since
that time we have continued to build our online content and
services.
Our Recent Developments
* Agreement with America Online. On February 9, 1999, we
announced an agreement with America Online, Inc. whereby
we will become the exclusive provider of computer
hardware and software buying guides on the AOL service
and on AOL.com. We will also serve as the primary
provider of computer buying guides on CompuServe,
Digital City, AOL Hometown and certain AOL international
properties. In addition to buying guides, we will
provide or create a variety of co-branded, computing-
oriented content areas. Under the terms of the
agreement, AOL will receive guaranteed payments from us
of $14.5 million over approximately 27 months. We
believe that the agreement provides us with the
opportunity to extend substantially the reach of our
computer-oriented information and shopping services to a
new audience of consumers.
* Acquisition of NetVentures. On February 16, 1999, we
acquired NetVentures, Inc. in a stock-for-stock exchange
valued at approximately $12.5 million. NetVentures owns
and operates ShopBuilder (www.shopbuilder.com), an
online store-creation system. With the acquisition, we
intend to develop the capacity to enable small and
midsize computer manufacturers and resellers of
unbranded computer systems, known in the industry as
"white box" PCs, to build online stores and use our
online sales channel to market products directly to
customers. In addition, we expect to create the
Internet's first marketplace for unbranded PCs, sales of
which make up an estimated 30% of the $75 billion U.S.
PC market, and expand our Shopper.com service by
incorporating a large segment of products and services
that to date have not been readily available online.
* Acquisition of AuctionGate Interactive. On February 19,
1999, we acquired AuctionGate Interactive, Inc. in a
stock-for-stock exchange valued at approximately $6.5
million. AuctionGate owns and operates AuctionGate.com,
an auction site specializing in computer products. With
the acquisition, we hope to expand our role as an
Internet marketplace linking computer buyers and
sellers. The acquisition also introduces a potential
new revenue stream for us, as participating sellers in
the new auction service will be charged listing fees.
The new auction site will allow individual customers,
resellers and manufacturers to auction their used,
refurbished, end-of-line and surplus items. We intend
to provide links to the auction service at relevant
areas across our Internet network.
* Agreement with Jenesys. On February 26, 1999, we
acquired the assets of Winfiles.com, a leading software
downloading service, from Jenesys LLC for a total
purchase price of $11.5 million, payable in cash in two
installments of $5.75 million. We believe that this
acquisition will increase the market reach of our CNET
Download.com service.
* Stock Split. On March 8, 1999, we effected a 2-for-1
split of our common stock that was distributed in the
form of a stock dividend to our common stock holders as
of February 22, 1999.
* 144A Offering. On March 8, 1999, we completed a private
placement of $172.9 million of our 5% convertible
subordinated notes. The notes are due on March 1, 2006,
and are convertible, at the option of the noteholder,
into shares of our common stock at a conversion price of
$74.8125 per share.
* Acquisition of KillerApp. On March 22, 1999, we
acquired KillerApp Corporation in a stock-for-stock
exchange valued at approximately $46 million. KillerApp
owns and operates KillerApp.com an online comparison
shopping service for computers and consumer electronic
products.
Industry Background
We believe that there is a significant opportunity for a
trusted, value-added on-line intermediary to connect buyers and
sellers of technology products online. Buyers of technology
products typically research product capabilities and compare
prices before making a purchase decision. Due to its interactive
nature, the Web is emerging as a medium that allows buyers of
technology products, both individuals and businesses, to complete
complex product and price comparisons on a real-time basis.
We believe that by connecting sellers of technology products
with buyers online, we address a significant market. According to
Jupiter Communications, PC hardware and software products
represent the largest e-commerce category on the Web. Purchases
of PC hardware and software are expected to constitute 45% of the
estimated $8 billion projected to be spent by consumers online in
1999. Forrester Research estimates that 46%, or approximately $50
billion, of the estimated $108 billion projected to be spent by
businesses online in 1999 will be spent on computers and
electronics.
The revenue opportunities that we see emerging on the Internet
combine certain elements of traditional offline businesses such as
print, television, direct marketing and point-of-purchase
marketing. We believe that there is a growing recognition among
manufacturers and marketers of technology products and services of
the advantages and increasing importance of reaching and selling
to their customers online.
Strategy
Our objective is to be the largest online computer and
technology network and to create a significant online marketplace
connecting buyers and sellers of technology products and services.
Through the end of 1998, we have focused on improving and
broadening our existing content and commerce services. In early
1999, we began a program of strengthening and expanding these
services through selective content and commerce focused
acquisitions.
* We seek to provide compelling content for our users
We seek to provide current, comprehensive and
entertaining editorial content throughout our online
network and television programs. Our goal is to expand
our audience of Internet users and television viewers.
* We seek to further develop market awareness and
recognition of our brand
We believe that further development of the CNET brand is
a critical aspect of our efforts to attract and expand
our Internet and television audiences. We seek to
promote and reinforce our brand by building on the
strength of our online network through our television
programming and through increased marketing efforts.
* We seek to build on our television programming experience
In addition to using our television programming to
promote the CNET brand, we believe that our experience in
developing and producing television programming
complements and strengthens our ability to develop
high-quality Internet content. We believe that the
Internet as a communication medium is similar to a hybrid
between television and print and believe that quality
Internet sites should be produced as multimedia
offerings, rather than being written like printed
publications.
* We seek to create value for manufacturers and marketers
of technology products and services
We believe that our Internet users, who have an interest,
ability and willingness to obtain information and
purchase products over the Internet, are generally an
attractive audience for technology manufacturers and
marketers. We will continue our efforts to create new
marketing programs for manufacturers and marketers and to
provide an efficient means to connect buyers and sellers.
* We seek to create value for our users
We will continue to evaluate acquisitions, which assist
in expanding and strengthening our online content and
commerce services. We are continually exploring
opportunities to leverage our brand, infrastructure and
existing audience. For example, recent acquisitions of
NetVentures (offers creation of online technology stores
within the CNET network), AuctionGate (allows
individuals, manufacturers and resellers to auction used,
refurbished and surplus technology products), WinFiles
(an extension of the downloadable software channel) and
KillerApp (an addition to our shopping services) provides
us with the opportunity to enter new commerce markets and
strengthen our leadership within the downloadable
software channel.
* We seek to utilize our technology to enhance content
We seek to capitalize on available technology to create
compelling Internet content, to improve the speed and
performance of our Internet network and to enhance the
user's experience through customization and
personalization of content. We strive to improve the
attractiveness and usefulness of our Internet content by
using the latest software tools and supporting the latest
technology standards.
CNET Online Network
All of our network channels are offered under the CNET brand
and provide content and commerce services to users interested in
information technology and the Internet. We attracted over 7
million unique users in January 1999 according to Media Metrix.
We currently operate the following network channels:
<TABLE>
<CAPTION>
LAUNCH DATE DESCRIPTION
----------- ------------
<S> <C> <C>
CNET.COM June 1995 The Gatewary to our network, offers news, product reviews,
feature stories, interviews and other editorial
content about information technology and the Internet.
SEARCH.COM March 1996 Search and navigational channel focused on providing
smart searches forcused on computers and technology
information.
NEWS.COM September 1996 Editorial channel featuring the latest news and
analysis about the Internet and the
computer industry.
DOWNLOAD.COM October 1996 Editorial channel, search engine
and download facility focused on software.
GAMECENTER.COM November 1996 Editorial channel featuring reviews and
information about popular computer games and
links to downloadable games.
COMPUTERS.COM November 1997 Computer products information channel focused on what-to buy
product reviews and information combined with broad product
listings, updated daily with real-time pricing and where-
to-buy links to manufacturers, retailers and resellers.
BUILDER.COM November 1997 Product review and industry news for the Web building community.
SHOPPER.COM June 1998 Broad product listings updated daily with real-time pricing
with where-to-buy links to manufacturers, retailers and
resellers
</TABLE>
CNET.COM. CNET.com was launched in June 1995 and serves as the
gateway for our network. We believe that CNET.com has become a
leading source on the Internet of news, reviews and other
editorial content related to information technology and the
Internet.
SEARCH.COM. Launched in March 1996, Search.com provides our
users search functionality focused on providing smart search
results related to computer and technology information.
NEWS.COM. Launched in September 1996, News.com is an editorial
site focused exclusively on providing daily coverage of breaking
news and scheduled events, in-depth analyses and original
reporting related to the computer industry, the Internet and
computer industry personalities. News.com is designed to provide
broad coverage of these industries and to appeal to information
technology professionals, as well as industry participants,
corporate information systems officers and members of the
financial community. The channel competes with weekly computer
trade publications by offering more current news and information
and by integrating text, audio and video to deliver high quality
content.
As a complement to our daily news, we produce daily audio
reports on the latest digital news. Using Progressive Networks'
RealAudio software (which users can download through our Internet
channels), users can hear the voices of the newsmakers themselves
on the issues of the day, such as a U.S. Congressman responding to
the morning's developments on telecommunications reform or the
president of a technology company announcing a new Internet
product.
DOWNLOAD.COM. Launched in October 1996, Download.com provides
search, browse and download software. Download.com is an organized
directory of approximately 14,000 files which have descriptions
and can be sorted by the user to find the most popular titles in a
given category Download.com offers a search engine for users
trying to find an ftp site for a specific title across a database
encompassing hundreds of thousands of software titles.
GAMECENTER.COM. Launched in November 1996, Gamecenter.com
provides the latest news and information about popular computer
games and serves online game players with current information and
interactive product reviews. Gamecenter.com also provides links to
popular downloads of the newest games, tips and tricks, and
information for connecting with other game players.
COMPUTERS.COM. Launched in November 1997, Computers.com
focuses on providing users the broadest and most in-depth source
of real-time computer products information in a convenient, easy-
to-use format. Computers.com is organized intuitively into
categories including: desktops, servers, notebooks, modems,
monitors, memory, storage, printers, graphics, cameras and
handhelds. Within each category, Computers.com gives users the
ability to customize hardware configurations feature-by-feature
including by price and manufacturer.
During the customization process, Computers.com provides access
to industry-wide product research for improved decision making
prior to purchase. Throughout the customization process each user
has access to Computers.com's proprietary, comprehensive database
of product listings by price and manufacturer which is updated
many times each day. This feature gives users an efficient means
of comparing products. At the point of purchase, Computers.com
helps connect buyers with sellers by providing buyers with an
easy-to-use, extensive database of where-to-buy listings of
product manufacturers, retailers and resellers.
BUILDER.COM. Launched in November 1997, Builder.com is the
Internet's central source for product reviews and industry news
for the Web building community, including designers, developers
and producers. The channel features reviews of Web development
tools, industry and technology news and downloadable software for
Web production. Builder.com also offers interactive forums.
SHOPPER.COM. Launched in June 1998, Shopper.com is a leading
information resource for buyers of technology products.
Shopper.com contains real-time pricing information from competing
vendors covering more than 120,000 products. Shopper.com, similar
to Computers.com, provides one-click access to these vendors
which enables the user to order the desired product from the
supplier of their choice. We believe that our online database of
products and prices is the largest publicly-accessible computer
product database in the world.
CNET Television
We produce television programming for viewers interested in
information technology and the Internet. Our television
programming is intended to complement and strengthen our Internet
operations by building brand awareness, attracting new users and
generating content that can also be presented through the
Internet. Four of the Company's programs are carried nationally
on cable television through USA Networks and The Sci-Fi Channel,
both of which are owned by USA Networks. One of our programs is
aired nationally on broadcast television. We produce all of our
programs in-house, in our San Francisco headquarters studio. We
employ a permanent staff of producers, researchers, editors and
directors to create our programs and hire additional freelance
camera crews and freelance producers as appropriate.
Digital Domain. Four of our programs, CNET Central, The Web,
Cool Tech and The New Edge, are produced in a two hour programming
block as The Digital Domain. The Digital Domain is broadcast two
times per week on The Sci-Fi Channel and once per week on USA
Networks. Additionally, CNET Central is aired once per week
locally on KPIX-TV, the San Francisco CBS affiliate. The USA
Network reaches over 75 million cable television homes, and The
Sci-Fi Channel (an affiliate of USA Networks) reaches over 52
million cable homes. Based on Nielsen Ratings, the four programs
reached an average weekly audience of 900,000 viewers during the
fourth quarter of 1998.
CNET Central. Launched in April 1995 as our first television
program, CNET Central covers the latest in news, features and
human interest stories relating to information technology and the
Internet. The series includes news updates from our news staff
and demonstrations of new and interesting Internet sites. CNET
Central also covers new product introductions, such as the release
of new games, applications and tools, and related product reviews
and demonstrations. We encourage viewers of the program to visit
our Internet channels for more detailed information and reviews
and to download available software.
The Web. Launched in July 1996, The Web is a half-hour long
show focused on the Internet and online services and is similar in
style to CNET Central, but with increased use of in-studio
interviews and demonstrations. The Web shows viewers the hottest
Web sites, explains the latest tools and covers the Internet
culture.
The New Edge. Launched in July 1996, The New Edge is a
half-hour magazine format show that focuses on new technological
breakthroughs and how they will change our lives. Each program
contains four segments that cover topics from action/adventure and
entertainment, to the healthcare industry and computer science.
Cool Tech. Launched in July 1998, Cool Tech delivers valuable
consumer-oriented information about the newest personal technology
products.
TV.COM. Launched in September 1996, TV.COM is a half-hour
program that offers the latest news, gossip and interviews
relating to information technology and the Internet. We
distribute TV.Com under a syndication agreement with Trans World
International. TV.COM airs nationally on broadcast television in
over 115 markets. During the fourth quarter of 1998, TV.COM
achieved an average weekly audience of approximately 600,000
viewers.
Using material from our tape library, we also produce 90-second
inserts called Tech Reports, about information technology and the
Internet for syndication to local news operations around the
country. We design these inserts to help promote the CNET brand.
They typically feature a host from CNET Central standing in the
CNET studio in front of the CNET logo. The inserts are syndicated
into 34 local markets.
Agreement with USA Networks
From April 1, 1995 through June 30, 1996, USA Networks carried
CNET Central nationally. Under our initial agreement, we paid USA
Networks a monthly fee of approximately $147,000 and received the
right to sell all of the available advertising during the program
and to retain all advertising revenues. In connection with this
agreement, we issued USA Networks a warrant to purchase 1,033,500
shares of our common stock at an exercise price of $1.21 per
share. The warrant was scheduled to vest in eight equal quarterly
installments beginning July 1, 1996 if USA Networks continued to
carry CNET Central in accordance with the agreement. USA Networks
exercised the warrant with respect to all 1,033,500 shares in July
1998.
Effective July 1, 1996, we amended the agreement. Under the
amended agreement, USA Networks licensed the right to carry CNET
Central, The Web and The New Edge as the two hour programming
block called the Digital Domain, for an initial one year term and
became entitled to sell all available advertising on the Digital
Domain. In exchange, USA Networks agreed to pay a fee which was
limited to our costs of producing the three programs, up to a
maximum of $5.2 million for the initial one year term.
Effective July 1, 1997, the agreement was extended for an
additional year and fees payable by USA Networks were increased to
a maximum of $5.5 million. In June 1998, USA Networks extended
the agreement with respect to the Digital Domain and added a
fourth program, Cool Tech, for an additional year (until June 30,
1999), during which the fee payable to us is limited to the costs
of producing such programs, subject to a maximum amount of $5.9
million. USA Networks is not required to carry any of the
programming that it purchases from us under the agreement.
Although we are in negotiations with USA Networks to extend our
relationship, we cannot assure you that the contract with USA
Networks will be extended after June 30, 1999. If USA Networks
chooses not to carry our television programming, we cannot assure
you that we would be able to obtain another source of
distribution. If we are unable to secure and maintain
distribution for our television programming on acceptable
commercial terms, we will be unable to achieve the strategic
objectives of our television programming, which would have a
material adverse effect on our business, prospects, financial
condition and operating results.
Pursuant to the amended agreement, we also agreed to modify the
vesting provisions of the warrant previously granted to USA
Networks. Under the amended agreement, the warrant became
exercisable with respect to 413,400 shares of common stock (40% of
the total) on July 1, 1996. The warrant became exercisable with
respect to an additional 310,050 shares (30% of the total) on
June 30, 1997, based on USA Networks' transmission of the three
programs during the first year of the agreement. The warrant
became exercisable with respect to the remaining 310,050 shares
(30% of the total) on June 30, 1998. In connection with the
extension of the agreement in January 1997, we agreed that the
warrants will vest in full on December 31, 2006, to the extent
they have not previously vested. USA Networks exercised the
warrant with respect to all 1,033,500 shares in July 1998.
During the initial one-year term of the amended agreement,
which ended on June 30, 1998, we agreed to pay USA Networks a fee
of $750,000 for the right to cross-market our Internet channels on
our television programs produced for USA Networks. During the
1998-1999 year extension, we will again pay a fee of $750,000 for
the right to continue these cross-marketing activities. We report
these fees as marketing expenses. USA Networks accounted for
approximately 10% of our total revenues during 1998.
Sales and Marketing
At December 31, 1998, we had a sales and marketing staff of 99
full-time employees located in our headquarters in San Francisco,
California, and in a sales office in New York City.
We earn our online revenues from the sale of advertising by our
direct sales organization and from lead-based compensation from
our shopping services. We provide discounts for multiple package
purchases and for longer-term agreements. We also provide a
number of services to marketers, including advertising response
tools and advertising targeting. Beginning March 1, 1998, we
began to use our direct sales organization to sell advertisements
on TV.COM.
We design our marketing activities to promote the CNET brand
and to attract consumers to our online network and television
programming. We currently retain a portion of our inventory of
Internet advertising banners on certain of our channels to promote
our own content and commerce services. We also use our weekly
online dispatch newsletters to promote and cross-market our
services. Our marketing programs also include participation in
trade shows, conferences, speaking engagements, print, television,
radio and Internet advertising campaigns and programs to generate
exposure in trade magazines and general interest magazines and
newspapers.
Technology
We maintain technology offices in Bridgewater, New Jersey and
San Francisco, California, which focus on designing, developing,
modifying and maintaining proprietary and third-party tools to
manage and improve our Internet channels and advertising
services. We focus our efforts to develop Internet channel
management technologies on:
* improving the speed and reliability of our Internet
network
* creating publishing tools for Internet content
* developing advertisement tracking and management tools
* building an infrastructure for performing advanced
traffic and user analysis.
* building commerce tools for our shopping service
Using our internally developed publishing tools, we are able
to separate our Internet content, which resides in databases,
from the presentation or formatting of the content on the
Internet. This separation of content and presentation allows us
to quickly incorporate new presentation technologies into our
channels and to customize the presentation of content. In
addition, this technology also speeds the production process by
enabling our editorial staff of journalists and editors to enter
information quickly and to post time-sensitive material with
minimal lead time. We use a modified version of the commercial
Accipiter AdManager system that allows us to customize the
delivery of advertisements by placing advertisements on specific
Internet pages based on the user's method of Internet access and
hardware and software configuration. We have also developed an
Advertising Response and Monitoring program, which allows
advertisers to track and test the effectiveness of their
Internet-based marketing programs.
In July 1996, we invested $512,000 in cash and transferred
rights to certain of our proprietary site content management
software systems to Vignette Corporation ("Vignette"), an Austin,
Texas, based software development company, in exchange for a
minority equity interest in Vignette. Vignette is marketing an
Internet site management system to operators of large Internet
sites, such as those that we operate. As a result of our
investment in Vignette, certain site management technologies that
were previously proprietary to us are now available to our
competitors.
Competition
Competition among content and service providers is intense and
is expected to increase significantly in the future. Our
Internet and television operations compete against a variety of
firms that provide content through one or more media, such as
print, broadcast, cable television and the Internet. As with any
other content or service provider, we compete generally with
other content and service providers for the time and attention of
consumers and for advertising revenues. To compete successfully,
we must provide sufficiently compelling and popular Internet
content and service and television programming to attract
Internet users and television viewers and to attract advertisers
hoping to reach such users and viewers. Within the content niche
of information technology and the Internet, we compete in
particular with the publishers of computer-oriented magazines and
Internet services, such as:
* Ziff-Davis Publishing Company
* International Data Group
* CMP Publications
and with television companies that offer computer-related
programming, such as:
* the Cable News Network
* the Discovery Channel
* Jones Computer Network
* Mind Extension University
* MSNBC, a joint venture between Microsoft Corporation and
General Electric's NBC Television Network.
Each of these competitors also offers one or more Internet sites
with content designed to complement its magazines or television
programming.
In the overall market for Internet users, we compete with other
Internet content and service providers, including Web directories,
search engines, shareware archives, sites that offer original
editorial content, commercial online services, e-commerce sites
and solution providers, and sites maintained by Internet service
providers. These competitors include:
* Excite, Inc.
* Infoseek Corporation
* Lycos, Inc.
* Microsoft Corporation
* Netscape Communications Corporation
* The Walt Disney Company
* Time Warner, Inc.
* Yahoo! Inc.
* America Online, Inc.
* eBay Inc.
* Amazon.com, Inc.
The market for Internet content and services is new, intensely
competitive and rapidly evolving. There are minimal barriers to
entry, and current and new competitors can launch new sites at
relatively low cost. In addition, we compete for the time and
attention of Internet users with thousands of non-profit Internet
sites operated by individuals, government and educational
institutions. Existing and potential competitors also include
magazine and newspaper publishers, cable television companies and
startup ventures attracted to the Internet market. Accordingly,
we expect competition to persist and intensify and the number of
competitors to increase significantly. As we expand the scope of
our Internet content and services, we will compete directly with a
greater number of Internet sites, including other online retailers
and direct sellers of computer products and other media companies.
Because the operations and strategic plans of existing and future
competitors are undergoing rapid change, it is difficult for us to
anticipate which companies are likely to offer competitive
services in the future. We cannot assure you that our Internet
operations will compete successfully.
With respect to our television operations, we compete directly
with established broadcast and cable television networks and with
other distributors and producers of programming about information
technology and the Internet. We also face potential competition
from a wide range of existing broadcast and cable television
companies and from joint ventures between television companies and
computer-oriented magazine publishers or computer hardware or
software vendors, any of which could produce television
programming that competes directly with our television
programming. For example, Ziff-Davis recently launched and is
operating a 24 hour cable television network focused on
technology.
Employees
As of December 31, 1998, we had a total of 491 employees, all
of whom are based in the United States. Of the total:
* 262 were involved in our Internet operations
* 99 were engaged in marketing and sales
* 53 were involved in television production
* 21 provided creative services for our Internet and
television operations
* 56 were in administration and finance.
Seven of our employees, who consist of our on-air television
talent, are represented by a labor union, the American Federated
Television and Radio Artists. We have not experienced any work
stoppages and we believe that our relations with our employees is
good.
Intellectual Property
Our success and ability to compete is dependent in part on the
protection of our original content for the Internet and television
and on the goodwill associated with our trademarks, trade names,
service marks and other proprietary rights. We rely on copyright
laws to protect the original content that we develop for the
Internet and television, including our editorial features and the
various databases of information that we maintain and make
available through our Internet channels. In addition, we rely on
federal trademark laws to provide additional protection for the
appearance of our Internet channels. A substantial amount of
uncertainty exists concerning the application of copyright and
trademark laws to the Internet, and we cannot assure you that
existing laws will provide adequate protection for our original
content or our Internet domain names. In addition, because
copyright laws do not prohibit independent development of similar
content, we can offer no assurance that copyright laws will
provide any competitive advantage to us.
We own a federal trademark registration for the name "CNET"
for computer services, namely, providing databases featuring
information in the general fields of entertainment and education.
We also own two other federal trademark registrations for the name
"CNET" for use in connection with certain software applications
and consulting services that we acquired by assignment. Further,
we own a federal trademark registration for the CNET logo in
connection with providing entertainment services over electronic
communication networks. We have also filed applications to
register the names CNET.com, Shareware.com, Search.com and
Download.com, but no federal registrations have been granted for
such names or marks. We also claim common law protection on
certain names and marks that we have used in connection with our
business activities. Two third parties objected to our
application to register the service mark "CNET: The Computer
Network," and, in connection with one of these objections, we
agreed not to use such mark for any real estate or insurance
related services. We are also a defendant in pending litigation
concerning our use of the name "Snap". We cannot assure you that
we will be able to secure registration for any of our marks. We
have also invested significant resources in purchasing Internet
domain names for existing and potential Internet sites from the
registered owners of such names. The application of federal
trademark law to the protection of Internet domain names is not
certain, and we cannot assure you that we will be entitled to use
such domain names.
We rely on trade secret and copyright laws to protect the
proprietary technologies that we have developed to manage and
improve our Internet channels and advertising services. We
cannot assure you that such laws will provide sufficient
protection to us, that others will not develop technologies that
are similar or superior to ours, or that third parties will not
copy or otherwise obtain and use our technologies without
authorization. We have filed patent applications with respect to
certain of our software systems, methods and related
technologies. Although two of these applications have matured
into U.S. patents, we can offer no assurance that any other
applications will be granted. In addition, we can offer no
assurance that any patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide
a competitive advantage for us. We also rely on certain
technology licensed from third parties. We may be required to
license additional technology in the future for use in managing
our Internet channels and providing related services to users and
advertising customers. Our ability to generate revenues from
Internet commerce may also depend on data encryption and
authentication technologies that we may be required to license
from third parties. We cannot assure you that these third party
technology licenses will be available or will continue to be
available to us. The inability to enter into and maintain any of
these technology licenses could have a material adverse effect on
our business, prospects, financial condition and operating
results.
Policing unauthorized use of our proprietary technology and
other intellectual property rights could entail significant
expense and could be difficult or impossible, particularly given
the global nature of the Internet and the fact that the laws of
other countries may afford us little or no effective protection of
our intellectual property. In addition, we cannot assure you that
third parties will not bring claims of copyright or trademark
infringement against us or claim that our use of certain
technologies violates a patent. We anticipate an increase in
patent infringement claims involving Internet-related technologies
as the number of products and competitors in this market grows and
as related patents are issued. Further, we cannot assure you that
third parties will not claim that we have misappropriated their
creative ideas or formats or otherwise infringed upon their
proprietary rights in connection with our Internet content or
television programming. Any claims of infringement, with or
without merit, could:
* be time consuming to defend
* result in costly litigation
* divert management attention
* require us to enter into costly royalty or licensing
arrangements
* prevent us from using important technologies or methods.
Any of the foregoing could have a material adverse effect on our
business, prospects, financial condition and operating results.
Government Regulation
Although there are currently few laws and regulations directly
applicable to the Internet, a range of new laws and regulations
have been proposed, and could be adopted, covering issues such as
privacy, copyrights, obscene or indecent communications and the
pricing, characteristics and quality of Internet products and
services. The federal government and a number of states have
adopted or proposed legislation which, among other things, seek to
impose criminal penalties on anyone that distributes "obscene" or
"indecent" material over the Internet. Although certain
provisions of such legislation have been and may be subject to
challenge on constitutional grounds, the manner in which any such
legislation or future federal and state laws will ultimately be
interpreted and enforced and their effect on our operations cannot
yet be fully determined. Any such laws could subject us to
substantial liability. For example, we do not and cannot
practically screen the contents of the various Internet sites that
are indexed or accessible through our directories and search
engines. Restrictive laws or regulations could also dampen the
growth of the Internet generally and decrease the acceptance of
the Internet as an advertising medium, and could, thereby, have a
material adverse effect on our business, prospects, financial
condition and operating results. Application to the Internet of
existing laws and regulations governing issues such as property
ownership, libel and personal privacy is also subject to
substantial uncertainty.
The television industry is subject to extensive regulation at
the federal, state and local levels. In addition, legislative
and regulatory proposals under consideration by Congress and
federal agencies may materially affect the industry and our
ability to obtain distribution for our television programming.
We can offer no assurance that current or new government laws
and regulations, or the application of existing laws and
regulations, will not subject us to significant liabilities,
significantly dampen growth in Internet usage, prevent us from
obtaining distribution for our television programming, prevent us
from offering certain Internet content or services or otherwise
have a material adverse effect on our business, prospects,
financial condition and operating results.
Item 2. Properties
We lease approximately 109,000 square feet of office and studio
space in various facilities in San Francisco, California, that
house our principal administrative, finance, sales, marketing,
Internet and television production operations. In addition, we
lease approximately 19,000 square feet of office space in
Bridgewater, New Jersey, that is used primarily by technology
personnel, and approximately 9,000 square feet of office space in
New York City, that is used primarily by sales personnel. We also
have short term operating leases in Irvine, California, Cambridge,
Massachusetts and Chicago, Illinois.
Our San Francisco headquarters facility and television
production studio is approximately 54,000 square feet and is
leased through December 31, 2004, with a five year renewal
option. Our additional San Francisco offices are located in two
buildings under three leases, ranging in size from 11,000 to
32,000 square feet and expire between January 2001 and September
2004. In June 1998, we assigned a lease of approximately 97,000
square feet to snap., however, we remain primarily liable under
the terms of the lease. We believe that the general condition
of our leased real estate is good and that our facilities
are generally suitable for the purposes for which they
are being used. We anticipate that we will be required to lease
additional facilities during 1999 to accommodate anticipated
growth.
Item 3. Legal Proceedings
In November 1998, Snap Technologies commenced an action
against us in the U.S. District Court for the Northern District
of California alleging trademark infringement and related claims
arising from the name of the snap., portal service. The
plaintiffs seek injunctive relief and unspecified damages. This
proceeding is in its initial stages. We intend to defend this
case vigorously, but we cannot assure you that the name of the
snap., portal service will be able to continue or on what terms
it will be able to continue.
We are from time to time a party to other legal proceedings
that arise in the ordinary course of business. There is no
pending or threatened legal proceeding to which we are a party
that, in our opinion, is likely to have a material adverse effect
on our business, prospects, financial condition and operating
results.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock is traded on the National Market System of
the Nasdaq Stock Market ("Nasdaq") under the symbol "CNET".
On July 2, 1996, we completed our initial public offering
(the "IPO"). The following table sets forth the ranges of high
and low trading prices of the common stock for the quarterly
periods indicated, as reported by Nasdaq. The prices in the table
have been adjusted to reflect a 2-for-1 split of our common stock
that was distributed on March 8, 1999 in the form of a stock
dividend to holders of our common stock as of February 22, 1999.
High Low
------- -------
Year ended December 31, 1996:
Third quarter $10.25 $6.00
Fourth quarter $14.50 $7.09
Year ended December 31, 1997:
First quarter $17.88 $9.38
Second quarter $17.81 $7.88
Third quarter $23.25 $12.13
Fourth quarter $19.88 $9.66
Year ended December 31, 1998:
First quarter $20.07 $11.69
Second quarter $35.50 $12.63
Third quarter $37.00 $15.50
Fourth quarter $33.00 $14.50
At March 12, 1999, the closing price for our common stock
as reported by Nasdaq, was $86.25, and the approximate
number of holders of record of the Company's common stock was 226.
We have never declared or paid a cash dividend on our common stock.
We intend to retain any earnings to cover operating losses and working
working capital fluctuations and to fund capital expenditures and
expansion. We do not anticipate paying cash dividends on our common
stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
and other operating information of the Company. The financial data and
operating informationdo not purport to indicate results of operations as of
any future date or for any future period. The financial data and operating
information is derived from our consolidated financial statement and should be
read in conjunction with the consolidated financial statements, related
notes and other financial information included herein.
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------------
1,998 1,997 1,996 1,995 1,994
------------- ------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Total revenues $56,432 $33,640 $14,830 $3,500 --
Gross profit (deficit) 26,400 6,923 (503) (2,133) --
Total operating expenses* 23,870 41,060 15,032 6,337 2,772
Operating income (loss) 2,530 (34,138) (15,535) (8,470) (2,772)
Total other income (expense) 70 9,410 (1,413) (137) (54)
Net income (loss) 2,600 (24,728) (16,949) (8,607) (2,827)
Basic net income (loss)
per share $0.08 ($0.91) ($1.06) ($0.47) ($0.19)
Diluted net income (loss)
per share $0.07 ($0.91) ($1.06) ($0.47) ($0.19)
Shares used in basic per
share caluclation 31,933 27,224 15,928 18,432 14,907
Shares used in diluted
per share calculation 34,853 27,224 15,928 18,432 14,907
Consolidated Balance Sheet Data:
Cash and cash equivalents $51,534 $22,554 $20,156 $703 $1,224
Working capital 59,787 19,431 20,223 719 871
Total assets 88,354 58,262 39,842 4,657 1,609
Non-current portion of
long-term debt 569 2,612 281 467 --
Stockholders' equity $76,603 $40,643 $33,098 $2,799 $1,192
*Operating expenses included unusual items consisting of an expense reversal of $922,000
in 1998 related to a real estate reserve and expenses of $9.0 million in 1997 related
to warrant compensation expense of $7.0 million, a real estate reserve and a write-
off of certain domain names.
<FN>
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Our revenues, cost of revenues and operating expenses have
grown substantially and we earned net income of $2.6 million in
1998 and incurred net losses of $24.7 million and $16.9 million
in 1997 and 1996, respectively. The losses in 1997 and 1996
reflected substantial expenditures to develop and launch our
various Internet channels and television programs. In addition,
newly launched services required a certain period of growth
before they began to achieve adequate revenues to support their
operation. The increase in television programming and Internet
channels has also required increased sales and marketing expenses
as well as increased general and administrative costs. As the
audience for our Internet channels and television programs grows
we believe that we will be able to attract additional advertising
customers and increased advertising revenues.
Results of Operations
Revenues
Total Revenues. Total revenues were $56.4 million, $33.6 million
and $14.8 million for 1998, 1997 and 1996, respectively.
Television Revenues. Revenues attributable to television
operations were $7.1 million, $6.9 million and $4.7 million for
1998, 1997 and 1996, respectively. From April 1995 through June
1996, television revenues were derived primarily from the sale of
advertising during our CNET Central television program, which was
carried nationally on USA Networks and The Sci-Fi Channel pursuant
to an agreement with USA Networks. Effective July 1, 1996, we
amended our agreement, whereby USA Networks licensed the right to
carry the Digital Domain, a two hour programming block which
included CNET Central, The New Edge and The Web, on its networks
for an initial one-year term for a fee equal to the cost of
production of those programs up to a maximum of $5.2 million. In
January 1997, USA Networks agreed to extend the agreement for an
additional year beginning July 1, 1997 and revenues were again
limited to the costs of producing such programs, subject to a
maximum amount of $5.5 million. During the second quarter of
1998, we entered into an agreement for an additional year of
programming with USA Networks beginning July 1, 1998. The
agreement added a fourth program to the Digital Domain called Cool
Tech and decreased The Web from 60 minutes to 30 minutes.
Revenues are limited to the costs of production, subject to a
maximum of $5.9 million.
In August 1996, we entered into an agreement with Golden
Gate Productions, L.P. ("GGP"), whereby we produce a television
program, TV.COM, which was exclusively distributed by GGP.
Revenue from the distribution of TV.COM was first used to offset
costs of distribution and production, with any excess being shared
equally by us and GGP. In August 1997, the assets of GGP were
acquired by a third party, Trans World International ("TWI") who
has agreed to distribute the program under the same terms as the
original GGP agreement. Beginning March 1, 1998, we assumed
responsibility for the sale of advertisements on TV.COM and will
pay a distribution fee to TWI.
Television revenues increased slightly from 1997 to 1998
primarily due to the contractual increase with USA Networks for
the additional year of television programming that commenced July
1, 1998. The increase in television revenues of $2.2 million from
1996 to 1997 was primarily related to twelve months of
distribution of the Digital Domain and TV.COM during 1997 as
compared to six months of distribution for the Digital Domain in
1998 and three months of distribution of TV.COM in 1996.
Internet Revenues. Revenues attributable to our Internet
operations were $49.4 million, $26.7 million and $10.1 million
for 1998, 1997 and 1996, respectively. Internet revenues consist
primarily of revenues derived from the sale of advertisements on
pages delivered to users of our Internet network. Advertising
programs are generally delivered on either an "impression" based
program or a "performance" based program. An impression based
program earns revenues when an advertisement is delivered to a
user of our Internet network. A performance based program earns
revenues when a user of our Internet network responds to an
advertisement by linking to an advertisers Internet network.
Advertising rates vary depending upon whether a program is
impression or performance based, where advertisements are placed
and the amount and length of the advertiser's commitment.
Advertising revenues are recognized in the period in which the
advertisements are delivered. Our ability to sustain or increase
revenues for Internet advertising will depend on numerous
factors, which include, but are not limited to, our ability to
increase our inventory of delivered Internet pages on which
advertisements can be displayed and our ability to maintain or
increase advertising rates. In the fourth quarter of 1998 CNET
began generating revenue from lead-based compensation from its
shopping services.
The increases in revenues of $22.7 million from 1997 to
1998 and $16.6 million from 1996 to 1997 was primarily
attributable to increased pages delivered and increased
advertisements sold on our network. Average daily pages
delivered in 1998 approximated 6.9 million, an increase of 60%
over 4.3 million average daily pages in 1997. The increased
traffic from 1997 to 1998 primarily relates to an increase in the
number of users of our network. A portion of the increased
traffic was related to the addition of Shopper.Com in May, 1998.
Average daily pages delivered on our Internet channels during
1997 approximated 4.3 million pages, an increase of 187% over 1.5
million average daily pages in 1996. The increase in pages
delivered was attributable to a full year of operations for
Search.com, News.com, Download.com, and Gamecenter.com, which ran
for 10 months, 4 months, 3 months and 2 months, respectively, in
1996, as well as increased traffic growth on all of our Internet
channels during 1997. In addition, Internet revenues include
non-advertising revenues of $2.7 million, $5.1 million and
$144,000 for 1998, 1997 and 1996 respectively. Non-advertising
revenues include fees earned from Company sponsored trade shows,
electronic commerce revenues, content licensing revenues,
technology licensing and consulting.
During 1998, 1997 and 1996, approximately $3.4 million,
$905,000 and $760,000, respectively, of Internet revenues were
derived from barter transactions whereby we delivered
advertisements on our Internet channels in exchange for
advertisements on the Internet sites of other companies. These
revenues and marketing expenses were recognized at the fair value
of the advertisements received and delivered, and the
corresponding revenues and marketing expenses were recognized when
the advertisements were delivered.
Revenue Mix. Television operations accounted for 13%, 21%
and 32% and Internet operations accounted for 87%, 79% and 68% of
total revenues for 1998, 1997 and 1996, respectively. We expect
to experience fluctuations in television and Internet revenues in
the future that may be dependent on many factors, including demand
for our Internet network and television programming, and our
ability to develop, market and introduce new and enhanced Internet
content and television programming.
Significant Customers. USA Networks accounted for
approximately 10%, 16% and 19% of total revenues for 1998, 1997
and 1996 respectively, and Microsoft Corporation accounted for 10%
and 12% of total revenues for 1997 and 1996, respectively. There
can be no assurance that any of these customers will continue to
account for a significant portion of total revenues in any future
period.
Cost of Revenues
Total Cost of Revenues. Total cost of revenues were $30.0
million, $26.7 million and $15.3 million for 1998, 1997 and 1996,
respectively. Cost of revenues includes the costs associated with
the production and delivery of our television programming and the
production of our Internet channels. The principal elements of
cost of revenues for our television programming have been the
production costs of our television programs, which primarily
consist of payroll and related expenses for the editorial and
production staff, and costs for facilities and equipment. In
addition, prior to June 30, 1996, cost of revenues for our
television programming included the fee payable to USA Networks
under our agreement with USA Networks as then in effect. The
principal elements of cost of revenues for our Internet operations
have been payroll and related expenses for the editorial,
production and technology staff, as well as costs for facilities
and equipment.
Cost of Television Revenues. Cost of revenues for
television programming were $6.7 million, $6.9 million and $6.2
million, or 95%, 100% and 132% of the related revenues, for 1998,
1997 and 1996, respectively.
Cost of revenues for television programming in 1998 were
comparable to 1997. The increase in cost of revenues for
television of $700,000 from 1996 to 1997 was primarily related to
$1.6 million of additional production costs for twelve months of
production of the Digital Domain and TV.COM in 1997 as compared to
six months of production for the Digital Domain in 1996 and three
months of production of TV.COM in 1996. The increase in
production costs were offset by $869,000 in fees payable to USA
Networks in 1996 under the Company's initial agreement with USA
Networks.
Cost of Internet Revenues. Cost of revenues for Internet
operations were $23.3 million, $19.8 million and $9.1 million or
47%, 74%, and 90% of the related revenues for 1998, 1997 and 1996,
respectively.
The increase in cost of revenues for Internet operations of
$3.5 million from 1997 to 1998 was primarily attributable to $2.3
million in costs associated with an Internet network that was
launched in November 1997, approximately $1.0 million in
additional costs associated with Company sponsored trade shows and
increases of approximately $4.0 million related to increased
personnel, facilities and other costs associated with growing its
Internet network. The increases in Internet cost of revenues from
1997 to 1998 were offset by cost savings resulting from the change
in percentage ownership of snap. and BuyDirect which resulted in a
reduction of costs of $3.8 million.
The increase in cost of revenues for Internet operations of
$10.7 million from 1996 to 1997 was primarily attributable to
costs associated with Internet channels which operated for a full
year in 1997, as compared to a partial year during 1996, and
channels which launched in 1997. Channels that were operational
for a partial year in 1996 include CNET.Search.com,
CNET.News.com, CNET.Download.com, CNET.Gamecenter.com, and
Buydirect.com, which were launched in March 1996, September 1996,
October 1996, November 1996 and November 1996, respectively.
Channels which launched during 1997 include snap. and
Computers.com, which launched in September 1997 and November
1997, respectively. The Company anticipates increases in cost of
revenues for Internet production in the future.
Cost of Revenues Mix. Cost of television revenues accounted
for 22%, 26% and 41% and cost of Internet revenues accounted for
78%, 74% and 59% of total cost of revenues for 1998, 1997 and
1996, respectively. This mix of cost of revenues was impacted by
more rapid growth of Internet operations in each of 1998 and 1997.
We anticipate that our cost of Internet revenues will continue to
account for an increasing percentage of total cost of revenues in
future periods.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll,
sales commissions, personnel related expenses, consulting fees and
advertising expenses. Sales and marketing expenses were $14.5
million, $11.6 million and $7.8 million for 1998, 1997, and 1996,
respectively. Sales and marketing expense represented 26%, 34%
and 53% of total revenues in 1998, 1997 and 1996, respectively.
The increase in sales and marketing expenses of $2.9 million
from 1997 to 1998 related primarily to increased advertising
expenditures of $2.8 million and increases of approximately $2.2
million in sales and marketing personnel and their related
expenses. The increases were partially offset by a reduction in
sales and marketing expenses resulting from the change in
percentage ownership of snap. and BuyDirect, effective
December 31, 1997 and March 31, 1998, respectively. Sales and
marketing expenses related to snap. and BuyDirect totaled
approximately $2.9 million in 1997.
The increase in sales and marketing expenses of $3.8
million from 1996 to 1997, was attributable to $2.3 million in
expenses related to snap., which were primarily related to
advertising costs, and to increased salaries and related expenses
due to an increase in the size of our sales force. We expect
sales and marketing expenses to increase in the future as we may
pursue a more aggressive brand building strategy and as we
continue to expand our sales force.
Development
Development expenses include expenses for the development
and production of new Internet channels and research and
development of new or improved technologies, including payroll and
related expenses for editorial, production and technology staff,
as well as costs for facilities and equipment. Costs associated
with the development of a new Internet channel are no longer
recognized as development expenses when the new channel begins
generating revenue.
Development expenses were $3.5 million, $13.6 million and
$3.4 million for 1998, 1997 and 1996, respectively. Development
expenses represented 6%, 41% and 23% of total revenues for 1998,
1997 and 1996, respectively.
During 1997 we incurred expenses of $8.3 million for the
development of snap. and $3.8 million for the development of
Computers.com. Both services were launched during the fourth
quarter of 1997. During 1998, our development efforts were
primarily focused on enhancing our existing Internet network's
functionality and performance. The decrease in development
expenses from 1997 to 1998 of $10.1 million relates primarily to
the completion and launch of the snap. and Computers.com sites in
late 1997.
The increase in development expenses of $10.2 million from
1996 to 1997 was primarily attributable to the development
expenses for snap. and Computers.com incurred in 1997. The
increases in development expenses attributable to snap. and
Computers.com in 1997 were partially offset by expenses incurred
to develop and launch channels during 1996, such as Download.com
and Buydirect.com.
General and Administrative
General and administrative expenses consist of payroll and
related expenses for executive, finance and administrative
personnel, professional fees and other general corporate expenses.
General and administrative expenses were $6.8 million, $6.8
million and $3.8 million for 1998, 1997 and 1996 respectively.
General and administrative costs represented 12%, 20% and 25% of
total revenues for 1998, 1997 and 1996, respectively.
General and administrative costs for 1998 were comparable to
1997. The increase in general and administrative expense of $3.1
million from 1996 to 1997 was primarily attributable to increased
salaries and related expenses and other costs related to
facilitating our growth during 1997.
Unusual Items
In the first quarter of 1997, we incurred a one-time, non-
cash expense of $7.0 million related to an amendment to the
warrant agreement with USA Networks whereby we agreed that the
warrants held by USA Networks will vest in full on December 31,
2006, to the extent that they have not previously vested.
Additionally, USA Networks exercised its option to extend its
agreement with the Company to carry three of our television
programs through June 30, 1998.
In the fourth quarter of 1997, we recognized an expense of
$1.3 million related to reorganizing our real estate needs as we
had determined that based on existing and planned headcount we had
a significant excess of leased real estate. Also in the fourth
quarter of 1997, we recognized an expense of $700,000 relating to
a write-off of Internet domain names that we determined that we
would not use. Through the fourth quarter of 1998, we had
incurred expenses of approximately $379,000 related to
reorganizing our real estate needs. During the fourth quarter of
1998 we completed our planning for 1999 and determined that, due
to expected growth and potential acquisitions, we no longer had
excess leased real estate and would no longer incur expenses
related to the reorganization. We recorded a reversal of the
remaining real estate reserve of $922,000 during the fourth
quarter of 1998.
Other Income (Expense)
Total other income (expense) was $70,000, $9.4 million and
($1.4) million for 1998, 1997 and 1996, respectively. Other
income (expense) consists of equity losses, gains on the sales of
equity investments and net interest income and interest expense.
Equity losses include our interest in snap., our minority interest
in Vignette and our interest in a joint venture E! Online.
Pursuant to an agreement in June 1998, between NBC Multimedia and
us, snap., was formed as a limited liability company, whereby both
companies share control. We have recorded snap's financial
results using the equity method of accounting effective January 1,
1998.
Equity losses were $11.8 million, $2.2 million and $1.9
million for 1998, 1997 and 1996, respectively. All of the equity
losses in 1998 were related to snap. The equity losses in 1997
were attributable to $1.8 million related to the E! Online joint
venture and $417,000 related to our Vignette investment. All of
the equity losses in 1996 related to E! Online.
Gains on the sale of equity investments were $10.5 million
and $11.0 million for 1998 and 1997, respectively. The gain on
sales of equity investment in 1998 were primarily attributable to
a gain related to the sale of a portion of our Vignette investment
of $9.8 million. The gain on sale of equity investments in 1997
was related to the sale of all our ownership in E! Online.
Income Taxes
We had net income for 1998 and a net loss for each of 1997
and 1996. As of December 31, 1998, we had approximately $61
million of net operating loss carryforwards for federal income tax
purposes, which expire between 2008 and 2018. We also have
approximately $24 million of net operating loss carryforwards for
state income tax purposes, which expire between 1999 and 2003. We
experienced an "ownership change" as defined by Section 382 of the
Internal Revenue Code in October 1994. As a result of the
ownership change, our use of the federal and state net operating
loss carryforwards is subject to limitation. The ability to use
net operating loss carryforwards may be further limited should we
experience another "ownership change" as defined by Section 382 of
the Internal Revenue Code. See Note 3 of Notes to Consolidated
Financial Statements.
Income (Loss)
We recorded net income of $2.6 million or $0.7 per diluted
share for 1998, compared to net losses of $24.7 million or $0.91
per share and $16.9 million or $1.06 per share for 1997 and 1996,
respectively. Net income was $2.6 million for 1998 as compared to
a net loss of $24.7 million for 1997. The change from 1997 to
1998 was attributable to an increase in total revenues of $22.8
million, a reduction of unusual items expense of approximately
$8.1 million, a reduction in other income of $9.3 million and
increases to cost of revenues and operating expenses (excluding
unusual items) of $4.0 million. The net loss for each of the
years 1997 and 1996 was primarily attributable to cost of revenues
and operating expenses in excess of total revenues. The increase
in net loss of $7.8 million from 1996 to 1997 was primarily
attributable to increased cost of revenues of $11.4 million,
increased sales and marketing expenses of $3.8 million, increased
development costs of $10.2 million and increased general and
administrative costs of $3.1 million, totaling $28.5 million in
increased expenses, which were offset by an increase of $18.8
million in total revenues.
Liquidity and Capital Resources
As of December 31, 1998, we had cash and cash equivalents of
$51.5 million compared to $22.6 million in 1997. Cash provided by
operating activities of $9.2 million in 1998 was primarily due to
earnings of $2.6 million and depreciation, amortization and the
amortization of program costs of $12.1 million. Net cash used in
operating activities of $5.9 million and $8.9 million for 1997 and
1996 respectively, were primarily attributable to net losses in
such periods. Net cash used in investing activities of $11.0
million, $19.7 million and $18.5 million for 1998, 1997 and 1996,
respectively, were primarily attributable to purchases of
equipment and programming assets. Cash flows provided by financing
activities of $30.8 million in 1998 consisted primarily of the
issuance of common stock through a private placement in June of
1998, and the issuance of common stock through the exercise of
warrants, our stock option plans and our Employee Stock Purchase
Plan. Cash flows provided by financing activities in 1997
consisted primarily of proceeds from the issuance of common stock
in private placements. Cash flows provided by financing
activities in 1996 consisted primarily of proceeds from our IPO,
the private sale of common stock to Intel and the issuance of
preferred stock. We believe that existing funds will be sufficient
to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months.
As of December 31, 1998 we had obligations outstanding under
a note payable and under certain capital leases of $1.7 million.
Such obligations were incurred to finance equipment purchases and
are payable through May 2008.
On March 31, 1998, we contributed our ownership in
BuyDirect and net assets related to BuyDirect of approximately
$744,000, to a new venture that was separately owned by
BuyDirect's existing management group. Prior to the transaction,
BuyDirect was a wholly owned division of the Company that
distributed electronic software. As part of the transaction, we
received a 19% ownership interest in the new venture,
BuyDirect.com. We used the cost method of accounting for the
investment, effective April 1, 1998. Prior to March 31, 1998 the
operating results of BuyDirect were included in our consolidated
results. BuyDirect.com recently entered into a merger agreement
with beyond.com. This merger will result in our owning
approximately 800,000 shares of beyond.com.
In May of 1998 we acquired U.Vision Inc. In the
acquisition, we issued 1,089,930 shares of common stock in
exchange for all of the outstanding shares of U.Vision. U.Vision
owned and operated ComputerESP, a pricing and availability engine
for buying computer products on the Internet. Subsequent to the
merger, we relaunched ComputerESP as Shopper.com. We recorded
this transaction using the pooling-of-interests accounting method
and recorded the financial results of U.Vision in our
consolidated financial statements effective April 1, 1998. The
financial statements prior to April 1, 1998 were not adjusted for
the financial results of U.Vision as the impact was not material.
In June of 1998 we entered into an agreement with NBC
Multimedia, Inc. ("NBC Multimedia") to form a limited liability
company to operate the snap. Internet portal service. The newly
formed company was called Snap! LLC. Prior to the agreement,
snap. was a wholly owned division of the Company. Pursuant to
the agreement, we contributed to Snap! LLC substantially all of
the assets used exclusively in the operation of the snap.
service. Initially, we own 81% of Snap! LLC and NBC Multimedia
owns 19%. However, NBC Multimedia has an option to increase its
ownership to 60%. Effective January 1, 1998, we recorded snap.'s
financial results using the equity method of accounting, due to
certain contractual control provisions. Prior to January 1,
1998, the operating results of snap. were included in our
consolidated results.
In June of 1998 we completed the sale of 1,625,600 shares
of common stock to National Broadcasting Company, Inc. ("NBC").
The aggregate purchase price for the shares sold was $26.2
million.
On February 9, 1999, we announced an agreement with
American Online, Inc. whereby we will become the exclusive
provider of computer hardware and software buying guides on the
AOL service and on AOL.com, as well as the primary provider of
computer buying guides on CompuServe, Digital City, AOL Hometown
and certain AOL international properties. Under the terms of the
agreement, AOL will receive guaranteed payments from us of $14.5
million over approximately 27 months.
On February 16, 1999, we acquired NetVentures, Inc. in a
stock-for-stock exchange valued at approximately $12.5 million.
NetVentures owns and operates ShopBuilder (www.shopbuilder.com),
an online store-creation system.
On February 19, 1999, we acquired AuctionGate Interactive,
Inc. in a stock-for-stock exchange valued at approximately $6.5
million. AuctionGate owns and operates AuctionGate.com, an
auction site specializing in computer products.
On February 26, 1999, we acquired the assets of
Winfiles.com, a leading software downloading service, from
Jenesys LLC for a total purchase price of $11.5 million, payable
in cash in two installments of $5.75 million.
On March 8, 1999, we effected a 2-for-1 split of our common
stock that was distributed in the form of a stock dividend to our
common stock holders as of February 22, 1999.
On March 8, 1999, we also completed a private placement
with gross proceeds of $172.9 million of our 5% convertible
subordinated notes. The placement will be subject to certain
fees and expenses. The notes are due March 1, 2006, and we pay
interest on March 1 and September 1 of each year. The notes are
convertible beginning June 7, 1999, at the option of the
noteholder, into shares of our common stock at a conversion price
of $74.8125 per share. The conversion price of the notes will be
adjusted if certain events that are described in the terms of the
notes occur. We may repurchase or redeem the notes at our option
at any time beginning March 6, 2002 at the following prices, plus
accrued and unpaid interest and liquidated damages, if any,
Year Redemption Price Year Redemtion Price
2002 102.857% 2004 101.429%
2003 2.143% 2005 100.714%
A noteholder may require us to repurchase the notes if a change
of control of the Company, as described in the terms of the
notes, occurs or if our common stock is no longer listed for
trading on Nasdaq or another stock exchange. If one of these
events occurs and the noteholder requires us to repurchase the
notes, we will repurchase the notes at a purchase price equal to
the face amount of the notes, plus accrued and unpaid interest
and liquidated damages, if any.
In connection with the private placement, we also agreed to
file a registration statement with the Securities and Exchange
Commission so that the noteholders, and the holders of shares of
our common stock issued upon the conversion of the notes, will be
able to resell the notes and the common stock. If we fail to
file the registration statement by May 7, 1999, fail to cause the
registration statement to become effective by August 5, 1999, or
if we suspend the use of the related prospectus in excess of 60
days within any 12-month period, we will be required to pay
additional interest on the notes. This additional interest is
referred to as liquidated damages. We will pay an additional
.25% of interest on the notes for the first 90 days of any such
failure, and pay an additional .50% of interest on the notes for
the period of time that our failure exceeds 90 days.
The notes are general, unsecured obligations of the Company
and are subordinate to all of our senior debt, as defined in the
terms of the notes. The terms of the notes do not limit our
ability to incur other indebtedness and we are not required to
make periodic payments on the principal of the notes except as
described above.
On March 22, we acquired KillerApp Corporation in a stock-
for-stock exchange valued at approximately $46 million.
KillerApp owns and operates KillerApp.com, an online comparison
shopping service for computer and consumer electronics products.
Seasonality
We believe that advertising sales in traditional media,
such as television, are generally lower in the first and third
calendar quarters of each year than in the respective preceding
quarters and that advertising expenditures fluctuate
significantly with economic cycles. Depending on the extent to
which the Internet is accepted as an advertising medium,
seasonality and cyclicality in the level of advertising
expenditures generally could become more pronounced for Internet
advertising. Seasonality and cyclicality in advertising
expenditures generally, or with respect to Internet-based
advertising specifically, could have a material adverse effect on
our business, prospects, financial condition and operating
results.
We may also experience seasonality in our operating results,
particularly in connection with our shopping services which may
reflect seasonal trends in the retail industry. The level of
consumer retail spending generally decreases in the first and
third calendar quarters. Advertising expenditures, which account
for substantially all of our revenues, are also subject to
seasonal fluctuations and are influenced by consumer spending
patterns.
Year 2000 Compliance
We are aware of the issues associated with the programming
code and embedded technology in existing systems as the year 2000
approaches. The "Year 2000 Issue" arises from the potential for
computers to fail or operate incorrectly because their programs
incorrectly interpret the two digit date fields "00" as 1900 or
some other year, rather than the year 2000. The year 2000 issue
creates risk for us from unforeseen problems in our own computer
systems and from third parties, including customers, vendors and
manufacturers, with whom we deal. Failures of our and/or third
parties' computer systems could result in an interruption in, or
a failure of certain normal business activities or operations.
Such failures could materially and adversely affect our business,
prospects, financial condition and operating results.
To mitigate this risk, we have established a formal year 2000
program to oversee and coordinate the assessment, remediation,
testing and reporting activities related to this issue. We are
currently in the assessment phase of our year 2000 program. As
part of this assessment, we will review the following systems to
determine if they are year 2000 compliant:
* our application systems (financial systems, various
custom-developed business applications)
* technology infrastructure (networks, servers, desktop
equipment)
* facilities (security systems, fire alarm systems)
* vendors/partners and products.
This review will include:
* the collection of documentation from software and
hardware manufacturers
* the detailed review of programming code for custom
applications
* the physical testing of desktop equipment using software
designed to test for year 2000 compliance
* the examination of key vendors'/partners' year 2000
programs
* the ongoing testing of our products as part of normal
quality assurance activities.
We anticipate that we will complete the assessment and
remediation phase and begin the testing phase of our year 2000
program by the third quarter of 1999. We have not made estimates
for the costs associated with completing our year 2000 program,
but will do so after completion of the assessment phase of the
project. Costs incurred to date, including costs of personnel,
have not been material. We can offer no assurance that we will
not experience serious unanticipated negative consequences and/or
additional material costs caused by undetected errors or defects
in the technology used in our internal systems, or by failures of
our vendors/partners to address their year 2000 issues in a
timely and effective manner.
Should miscalculations or other operational errors occur as a
result of the year 2000 issue, we or the parties on which we
depend may be unable to produce reliable information or to
process routine transactions. Furthermore, in the worst case, we
or the parties on which we depend may be incapable of conducting
critical business activities which include, but are not limited
to, the production and delivery of our Internet channels,
invoicing customers and paying vendors, which could have a
material adverse effect on our business, prospects, financial
condition and operating results.
Cautionary Statement Regarding Factors That May Affect Our
Business and Our Future Results
Our disclosure and analysis in this report contains
"forward-looking statements". Forward-looking statements are any
statements other than statements of historical fact. Examples of
forward-looking statements include projections of earnings,
revenues or other financial items, statements of the plans and
objectives of management for future operations, statements
concerning proposed new products or services, statements
regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In
some cases, you can identify forward-looking statements by the
use of words such as "may," "will," "expects," "believes",
"plans," "anticipates," "estimates," "potential," or "continue,"
and any other words of similar meaning.
Any or all of our forward-looking statements in this report
and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many
factors mentioned in the discussion in this report will be
important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future
results may vary materially.
We undertake no obligation to publicly update any forward-
looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects in our 10-Q
and 8-K reports to the SEC. Also note that we provide the
following cautionary discussion of risks, uncertainties and
possibly inaccurate assumptions relevant to our businesses.
These are factors that we think could cause our actual results to
differ materially from expected and historical results. Other
factors besides those listed here could also adversely affect the
Company. This discussion is provided as permitted by the Private
Securities Litigation Reform Act of 1995.
We Have A Limited Operating History and an Accumulated
Deficit. 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:
* an evolving and unpredictable business model
* uncertain acceptance of new services including CNET
Shopper.com
* competition
* management of growth.
To address these risks, we must, among other things:
* develop new relationships and maintain existing
* relationships with our advertising customers, their
' advertising agencies and other third parties
* provide original and compelling content to Internet users
and television viewers
* develop and upgrade our technology
* implement and successfully execute our business and
marketing strategy
* successfully expand into new products, services or
markets
* effectively manage and integrate acquisitions and other
business combinations
* respond to competitive developments
* attract, retain and motivate qualified personnel.
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 can offer no
assurance 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 5% convertible subordinated 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 an
indication of future performance.
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 equity or convertible debt securities 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. 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:
* demand for Internet advertising
* the addition or loss of advertisers, and the advertising
budgeting cycles of individual advertisers
* the level of traffic on our network of Internet channels
* the amount and timing of capital expenditures and other
costs (including marketing costs) relating to the
expansion of our Internet operations
* competition
* our ability to manage effectively our development of new
business segments and markets
* our ability to successfully manage the integration of
operations and technology of acquisitions and other
business combinations
* our ability to upgrade and develop our systems and
infrastructure
* technical difficulties, system downtime or Internet
brownouts
* governmental regulation and taxation policies
* 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 a gross deficit 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 have a negative effect on
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. In such event, the trading price of our common stock
would likely be materially adversely affected.
Our Internet Content and Services May Not be Accepted. Our
future success depends upon our ability to deliver original and
compelling Internet content and services in order to 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 possessing
demographic characteristics attractive to advertisers and sellers
of technology products, we will be unable to generate revenue.
Our Television Programming May Not be Accepted. We cannot
assure you that television broadcasters, cable networks or their
viewers will accept our television programming. The successful
development and production of television programming is subject to
numerous uncertainties, including the ability to:
* anticipate and successfully respond to rapidly changing
consumer tastes and preferences
* obtain favorable distribution rights
* fund new program development
* 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.
We Face Significant Competition. The market for Internet
content and services is new, intensely competitive and rapidly
evolving; there are minimal barriers to entry, and current and
new competitors can launch new sites at relatively low cost.
There can be no assurance that we will compete successfully with
current or future competitors.
We May Have Difficulties Managing Our Growth. 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 is expected to continue to place, a significant strain
on our management, operational and financial resources. We cannot
assure you that our current personnel, systems, procedures and
controls will be adequate to support our future operations, that
management will be able to identify, hire, train, motivate or
manage required personnel or that management will be able to
successfully identify and exploit existing and potential market
opportunities.
We Have Risks Associated With System Development and
Operations. 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. Any system
interruptions that result in the unavailability of our Internet
channels may result in us being unable to deliver the number of
impressions guaranteed by such agreements. During 1998, we
experienced two power interruptions which resulted in the
unavailability of our Internet channels and services for portions
of two days. We can offer no assurance 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.
We are Dependent on 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.
The Internet May Not Be Accepted as an Advertising Medium.
Our Internet advertising customers have only limited experience
with the Internet as an advertising medium and neither such
customers nor their advertising agencies have devoted a
significant portion of their advertising budgets to Internet-based
advertising in the past. 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 highly 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.
Brand May Not Be Accepted or Maintained. 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.
The Loss of Key Personnel Could Adversely Affect Our
Business. Our performance is substantially dependent on the
continued services of Halsey M. Minor, Shelby W. Bonnie and the
other members of our senior management team, as well as on our
ability to retain and motivate our other officers and key
employees. We do not have "key person" life insurance policies
on any of our officers or other employees. Our future success also
depends on our ability to attract and retain highly qualified
personnel. 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.
The failure to attract and retain the necessary technical,
managerial, editorial and sales personnel could have a material
adverse effect on our business and operating results.
We Have Risks Associated With Television Distribution and
We Are Dependent on USA Networks. 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.
We Are Subject to Risks Associated With Technological
Change. The market for Internet products and services is
characterized by rapid technological developments, frequent new
product introductions and evolving industry standards. The
emerging character of these products and services and their rapid
evolution will require that we continually improve the
performance, features and reliability of our Internet content,
particularly in response to competitive offerings. We can offer
no assurance that we will be successful in responding quickly,
cost effectively and sufficiently to these developments. In
addition, the widespread adoption of new Internet technologies or
standards could require substantial expenditures by us 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.
We Depend on Third Parties for Our Internet Operations. 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 can offer no assurance that such 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:
* Macromedia's Shockwave
* Microsoft's ActiveX
* Progressive Networks' RealAudio
* 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 leverage such relationships, our financial condition and
operating results will be materially adversely affected.
We Have Risks Associated With Our Potential Acquisitions
and Investments. 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 would likely
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, or the issuance of
additional equity interests, which would be dilutive to our
current stockholders. Any investment could also result in
operating losses for us. Further, the pursuit of expansion or new
business opportunities would place additional, substantial burdens
on our management personnel and our financial and operational
systems. In addition, 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 achieve market
acceptance. We cannot assure you that any significant business
expansion or new business opportunity would ever be profitable.
We Have Risks Associated With Business Combinations and
Strategic Alliances. We may choose to expand our operations or
market presence by entering into agreements, business
combinations, investments, joint ventures or other strategic
alliances with third parties, such as our agreement with America
Online, or our joint venture with an affiliate of NBC to operate
the snap. Internet portal service. Any such transaction will be
accompanied by risks commonly encountered in such transactions,
which include, among others:
* the difficulty of assimilating the operations,
technology and personnel of the combined companies
* the potential disruption of our ongoing business
* the possible inability to retain key technical and
managerial personnel
* additional expenses associated with amortization of
goodwill and other purchased intangible assets
* additional operating losses and expenses associated with
the activities and expansion of acquired businesses
* the possible impairment of relationships with existing
employees and advertising customers.
There can be no assurance that we will be successful in
overcoming these risks or any other problems encountered in
connection with such business combination, investments, joint
ventures or other strategic alliances, or that such transactions
will be profitable.
We Are Dependent 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 such laws will provide sufficient
protection, that others will not develop technologies that are
similar or superior to ours, or that third parties will not copy
or otherwise obtain and use our technologies without
authorization.
We Have Risks Associated with Domain Names. We currently
hold various Web domain names relating to our brand and sites.
The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. 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 such inability
could have a material adverse effect on our business.
We Have Risks Associated With Government Regulation and
Legal Uncertainties. 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 privacy, copyrights, obscene or indecent communications
and the pricing, characteristics and quality of Internet products
and services. The adoption of restrictive laws or regulations
could decrease the growth of the Internet or expose us to
significant liabilities.
We are Dependent on the Continued Growth in Use of the
Internet. 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 emerge to support our
business.
To the extent that the Internet continues to experience an
increase in users, an increase in frequency of use or an increase
in the bandwidth requirements of users, we can offer no assurance
that the Internet infrastructure will be able to support the
demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development
or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased
government regulation. 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. The satisfactory performance, reliability and
availability of our Internet channels and our network
infrastructure are critical to attracting Internet users and
maintaining relationships with advertising customers. Our
Internet advertising revenues are directly related 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 the foregoing 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 of
up to a few hours due to power loss and telecommunications
failures, and there can be no assurance that interruptions in
service will not materially adversely affect 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, and any losses or damages incurred by
us could have a material adverse effect on our financial
condition.
We May Be Liable for Our Internet and Television Content.
As a publisher and a distributor of content over the Internet and
television, we also face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other
claims based on the nature and content of the materials that we
publish or distribute. Such claims have been brought, and
sometimes successfully pressed, against online services. In
addition, we could be exposed to liability with respect to
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 indemnify
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.
We Have Security Risks. 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 such security breaches or to
alleviate problems caused by such breaches. 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. There can be no assurance that contractual
provisions attempting to limit our liability in such areas will
be successful or enforceable, or that other parties will accept
such contractual provisions as part of our agreements.
We Are Dependent on Licensed Technology. We rely on certain
technology licensed from third parties, and there can be no
assurance that these third party technology licenses will be
available or will continue to be available to us on acceptable
commercial terms or at all.
We Have Substantial Indebtedness. As a result of the sale
of our 5% convertible subordinated notes in March 1999 we
incurred $172.9 million of additional indebtedness. Along with
the notes, we may incur substantial additional indebtedness in
the future. The level of our indebtedness, among other things,
could:
* make it difficult for us to make payments on the notes
* make it difficult for us to obtain any necessary
financing in the future for working capital, capital
expenditures, debt service requirements or other
purposes
* limit our flexibility in planning for, or reacting to
changes in, our business
* make us more vulnerable in the event of a downturn in
our business.
We can offer no assurance that we will be able to meet our
debt service obligations including our
obligations under the notes.
We May Be Unable To Pay Our Debt Service and Other
Obligations. 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
can offer no assurance 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 otherwise
fail to comply with the various covenants in our indebtedness, we
would be in default under the terms thereof, which would permit
the holders of such indebtedness to accelerate the maturity of
such indebtedness and could cause defaults under our other
indebtedness. Any such default could have a material adverse
effect on our financial condition.
We Face Uncertainty Relating to the Year 2000 Issue. We
are in the assessment phase of our year 2000 program. We can
offer no assurance that we will not experience serious
unanticipated negative consequences and/or additional material
costs caused by undetected errors or defects in the technology
used in our internal systems, or by failures of our
vendors/partners to address their year 2000 issues in a timely
and effective manner.
The Price of Our Common Stock Is Subject to Wide
Fluctuation. 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:
* quarterly variations in operating results
* announcements of innovations
* new products, strategic developments or business
combinations by us or our competitors
* changes in our expected operating expense levels or
losses
* changes in financial estimates and recommendations of
securities analysts
* the operating and securities price performance of other
companies that investors may deem comparable to us
* news reports relating to trends in the Internet.
* other events or factors many of which are beyond our
control.
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 such companies. These broad market
and industry fluctuations may adversely affect the trading price
of our common stock, regardless of our operating performance.
Certain 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 such transaction 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:
* 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
* divide our board of directors into three classes so that
only approximately one-third of the total number of
directors is elected each year
* permit directors to be removed only for cause
* 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.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
We are exposed to the impact of interest rate changes and changes
in the market values of our investments.
Interest Rate Risk. Our exposure to market rate risk for
changes in interest rates relates primarily to our investment
portfolio. We have not used derivative financial instruments in
our investment portfolio. We invest our excess cash in debt
instruments of the U.S. Government and its agencies, and in high-
quality corporate issuers and, by policy, limits the amount of
credit exposure to any one issuer. We protect and preserve our
invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest
earning instruments carries a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if force to sell securities
which have declined in market value due to changes in interest
rates.
Investment Risk. We invest in equity instruments of
privately-held, information technology companies for business and
strategic purposes. These investments are included in other long-
term assets and are accounted for under the cost method when
ownership is less that 20%. For these non-quoted investments, our
policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the
carrying values. We identify and record impairment losses on
long-lived assets when events and circumstances indicate that such
assets might be impaired. In February 1999, one of these
investments in a privately-held company became a marketable equity
security when the investees completed an initial public offering.
Such investment, which is in the Internet industry, is subject to
significant fluctuations in fair market value due to the
volatility of the stock market, and is recorded as long-term
investments.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
We are exposed to the impact of interest rate changes and changes
in the market values of our investments.
Interest Rate Risk. Our exposure to market rate risk for
changes in interest rates relates primarily to our investment
portfolio. We have not used derivative financial instruments in
our investment portfolio. We invest our excess cash in debt
instruments of the U.S. Government and its agencies, and in high-
quality corporate issuers and, by policy, limits the amount of
credit exposure to any one issuer. We protect and preserve our
invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest
earning instruments carries a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if force to sell securities
which have declined in market value due to changes in interest
rates.
Investment Risk. We invest in equity instruments of
privately-held, information technology companies for business and
strategic purposes. These investments are included in other long-
term assets and are accounted for under the cost method when
ownership is less that 20%. For these non-quoted investments, our
policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the
carrying values. We identify and record impairment losses on
long-lived assets when events and circumstances indicate that such
assets might be impaired. In February 1999, one of these
investments in a privately-held company became a marketable equity
security when the investees completed an initial public offering.
Such investment, which is in the Internet industry, is subject to
significant fluctuations in fair market value due to the
volatility of the stock market, and is recorded as long-term
investments.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors Report
The Board of Directors,
CNET, Inc.
We have audited the accompanying consolidated balance sheets of CNET,
Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our reponsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of CNET, Inc. and subsidiaries as of December 31,
1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December
31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
San Francisco, California
February 9, 1999, except
as to paragraph 5 of
footnote 5 and footnote 10,
which are as of March 22, 1999
<PAGE>
CNET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $51,533,655 $22,553,988
Accounts receivable, net of allowance for
doubtful accounts of $1,721,625 and $461,000
in 1998 and 1997, respectively 15,074,639 9,149,762
Accounts receivable, related party 1,710,745 --
Other current assets 1,704,765 1,134,957
Restricted cash 945,330 1,599,113
------------ ------------
Total current assets 70,969,134 34,437,820
Property and equipment, net 15,325,512 19,553,537
Other assets 2,059,806 4,270,321
------------ ------------
Total assets $88,354,452 $58,261,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,476,654 $3,567,783
Accrued liabilities 6,592,819 10,080,504
Current portion of long-term debt 1,112,512 1,358,772
------------ ------------
Total current liabilities 11,181,985 15,007,059
Long-term debt 569,245 2,611,815
------------ ------------
Total liabilities 11,751,230 17,618,874
Commitments and contingencies
Stockholders' equity:
Common stock; $0.0001 par value;
50,000,000 shares authorized; 34,119,948
and 29,324,370 shares issued and
outstanding in 1998 and 1997,
respectively 3,412 2,936
Additional paid-in capital 127,770,245 94,696,127
Accumulated deficit (51,170,435) (54,056,259)
------------ ------------
Total stockholders' equity 76,603,222 40,642,804
------------ ------------
Total liabilities and stockholders' equity $88,354,452 $58,261,678
============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CNET, INC.
CONDOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Internet $49,374,195 $26,717,280 $10,133,684
Television 7,057,885 6,922,309 4,696,664
------------- ------------- ------------
Total revenues 56,432,080 33,639,589 14,830,348
------------- ------------- ------------
Cost of revenues:
Internet 23,291,215 19,812,604 9,120,545
Television 6,741,133 6,904,471 6,212,959
------------- ------------- ------------
Total cost of revenues 30,032,348 26,717,075 15,333,504
------------- ------------- ------------
Gross profit (deficit) 26,399,732 6,922,514 (503,156)
------------- ------------- ------------
Operating expenses:
Sales and marketing 14,530,355 11,602,746 7,821,454
Development 3,454,387 13,608,846 3,438,333
General and administrative 6,806,886 6,848,793 3,772,368
Unusual items (921,839) 9,000,000 --
------------- ------------- ------------
Total operating expenses 23,869,789 41,060,385 15,032,155
------------- ------------- ------------
Operating income(loss) 2,529,943 (34,137,871) (15,535,311)
Other income(expense):
Equity losses (11,795,944) (2,228,430) (1,865,299)
Gain on sale of equity investments 10,450,342 11,026,736 --
Interest income (expense), net 1,415,616 611,473 451,948
------------- ------------- ------------
Total other income (expense) 70,014 9,409,779 (1,413,351)
------------- ------------- ------------
Net income (loss) $2,599,957 ($24,728,092) ($16,948,662)
============= ============= ============
Basic net income (loss) per share $0.08 ($0.91) ($1.06)
============= ============= ============
Diluted net income (loss) per share $0.07 ($0.91) ($1.06)
============= ============= ============
Shares used in calculating 31,932,530 27,223,642 15,927,794
basic per share data ============= ============= ============
Shares used in calculating
diluted per share data 34,852,938 27,223,642 15,927,794
============= ============= ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preffered Stock Common Stock Additional Total
-------------------- ------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
----------- -------- ----------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1995 3,439,202 34,392 5,400,000 540 15,143,363 (12,379,505) 2,798,790
Issuance of Series B
convertible preferred
stock 366,144 3,661 -- -- 362,483 -- 366,144
Issuance of Series D
convertible preferred
stock 2,588 26 -- -- 33,307 -- 33,333
Issuance of Series E
convertible preferred
stock 453,169 4,532 -- -- 8,364,102 -- 8,368,634
Issuance of warrants -- -- -- -- 164,000 -- 164,000
Public stock offering,
net of $3,151,406
issuance costs -- -- 5,200,000 520 37,776,074 -- 37,776,594
Conversion of preferred
stock into common stock (4,261,103) (42,611) 15,633,346 1564 41,047 -- --
Exercise of stock options -- -- 306,000 30 369,530 -- 369,560
Employee stock purchase
plan -- -- 23,578 2 169,759 -- 169,761
Net loss -- -- -- -- -- (16,948,662) (16,948,662)
----------- -------- ----------- ------- ------------ ------------ ------------
Balances as of
December 31, 1996 -- -- 26,562,924 2,656 62,423,665 (29,328,167) 33,098,154
Exercise of stock options -- -- 822,914 86 1,175,494 -- 1,175,580
Employee stock purchase
plan -- -- 70,026 8 705,403 -- 705,411
Issuances of common stock -- -- 1,868,506 186 23,391,565 -- 23,391,751
Warrant compensation -- -- -- -- 7,000,000 -- 7,000,000
Net loss -- -- -- -- -- (24,728,092) (24,728,092)
----------- -------- ----------- ------- ------------ ------------ ------------
Balances as of
December 31, 1997 -- -- 29,324,370 2,936 94,696,127 (54,056,259) 40,642,804
Exercise of stock options
and warrants -- -- 2,027,662 202 6,246,092 -- 6,246,294
Employee stock purchase
plan -- -- 56,386 4 723,553 -- 723,557
Issuances of common stock -- -- 1,625,600 162 26,212,556 -- 26,212,718
Issuance of common stock in
relation to the UVision
acquisition -- -- 1,089,930 108 (108,083) 285,867 177,892
Net income -- -- -- -- -- 2,599,957 2,599,957
----------- -------- ----------- ------- ------------ ------------ ------------
Balances as of
December 31, 1998 -- -- 34,119,948 3,412 127,770,245 (51,170,435) 76,603,222
=========== ======== =========== ======= ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income(loss) $2,599,957 ($24,728,092)($16,948,662)
Adjustments to reconcile net loss
to net cash provided (used) in
operating activities:
Depreciation and amortization 6,341,217 5,054,980 1,928,496
Amortization of program costs 5,802,074 6,548,937 4,673,201
Interest expense converted into
preferred stock -- -- 222,141
Allowance for doubtful accounts 1,260,625 361,214 75,000
Reserve for joint venture -- (1,248,799) 1,865,299
Warrant compensation expense -- 7,000,000 --
Changes in operating assets and
liabilities:
Accounts receivable (9,730,143) (4,218,799) (4,165,939)
Other current assets 455,340 (916,690) 29,750
Other assets 4,933,084 (1,515,407) (1,237,499)
Accounts payable 328,540 228,931 2,807,549
Accrued liabilities (2,833,799) 7,534,213 1,839,558
------------- ------------- ------------
Net cash provided (used) in
operating activities 9,156,895 (5,899,512) (8,911,106)
------------- ------------- ------------
Cash flows from investing activities:
Purchases of equipment, excluding
capital leases (4,879,353) (12,213,050) (10,739,354)
Purchases of programming assets (6,083,639) (5,826,476) (5,438,092)
Loan to joint venture -- (1,639,139) (1,776,588)
Investment in Vignette Corporation -- -- (511,500)
------------- ------------- ------------
Net cash used in investing
activities (10,962,992) (19,678,665) (18,465,534)
------------- ------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of
convertible preferred stock -- -- 4,543,826
Net proceeds from inital public
offering -- -- 37,776,594
Net proceeds from issuance of
common stock 26,212,718 23,391,751 --
Net proceeds from the issuance of common
stock in relation to the UVision
acquisition (107,975)
Allocated proceeds from issuance
warrants -- -- 164,000
Proceeds from stockholder reveivable -- -- 594,654
Proceeds from employee stock
purchase plan 723,557 705,411 169,761
Proceeds from debt -- 3,280,806 3,636,000
Proceeds from exercise of stock
and warrants 6,246,294 1,175,580 141,050
Principal payments on capital leases (416,377) (238,688) (104,542)
Principal payments on equipment note (1,872,453) (338,630) (91,851)
------------- ------------- ------------
Net cash provided by
financing activities 30,785,764 27,976,230 46,829,492
------------- ------------- ------------
Net increase (decrease) in cash and
cash equivalents 28,979,667 2,398,053 19,452,852
Cash and cash equivalents at
beginning of period 22,553,988 20,155,935 703,083
------------- ------------- ------------
Cash and cash equivalents at end
of period $51,533,655 $22,553,988 $20,155,935
============= ============= ============
Supplemental disclosure of cash flow
information:
Interest paid $324,762 $254,790 $88,792
Supplemental disclosure of noncash
transactions:
Non cash portion of Investment $3,066,449 -- $105,000
Capital lease obligations incurred -- $408,408 $297,436
Note issued in exchange for
equipment -- -- $137,551
Exercise of stock options through
issuance of note receivable from
stockholder -- -- $594,654
Conversion of preferred stock into
common stock -- -- $42,611
Conversion of debt and interest
into 0,0, and 208,548
shares of convertible preferred
stock, respectively -- -- $3,858,141
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CNET, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
CNET, Inc. (the "Company") was incorporated in the state of
Delaware in December 1992 and is a media company integrating television
programming with a network of channels on the World Wide Web. The Company
produces five television programs and operates an Internet network
focused on computers and technologies. Revenues for television are
derived primarily from licensing fees for the distribution of the
television programming. Internet revenues are primarily derived from
the sale of advertising.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CNET,Inc., and its majority owned controlled subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets which
range from three to seven years. Property and equipment recorded under
capital leases and leasehold improvements are amortized on a straight-
line basis over the shorter of the lease terms or their estimated useful
lives.
CONCENTRATION OF CREDIT RISK
Financial instruments potentially subjecting the Company to
concentrations of credit risk consist primarily of periodic
investments of excess cash and trade accounts receivable.
Substantially all of the Company's accounts receivable are derived from
domestic sales. Historically, the Company has not incurred material
credit related losses. The Company invests excess cash in low risk,
liquid instruments. No losses have been experienced on such investments.
DEVELOPMENT
Development expenses include expenses which were incurred in the
development of new Internet channels and in research and development of
new or improved technologies that enhance the performance of the
Company's Internet channels. Costs for development are expensed as
incurred. Costs are no longer recognized as development expenses when a
new Internet channel is launched and is generating revenue.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and
liabilities of changes in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Through June 30, 1996, television revenues were principally derived
from the sale of advertising during the Company's CNET CENTRAL
television program and were recognized upon broadcast based on the
number of viewers of the program. Effective July 1, 1996, and subsequently
renewed through June 30, 1999, the Company licensed a two hour programming
block it produces for broadcast on a cable network for a license fee
limited to the costs of production of the programming block and
further limited to certain maximum amounts per the contract. In
September 1996, the Company began producing TV.com which was exclusively
exclusively distributed by Golden Gate Productions, L.P., ("GGP").
The revenue from this program was used first to offset costs of
distribution and production and thereafter was shared equally by the
Company and GGP. In August 1997, the assets of GGP were acquired by a
third party who agreed to distribute the program through Trans World
International, ("TWI"), under the same terms. Beginning March 1, 1998,
the Company assumed responsibility for the sale of advertisements on
TV.com and pays a distribution fee to the third party.
Internet revenues consist primarily of revenues derived from the
sale of advertisements on pages delivered to users of our Internet
network. Advertising programs are generally delivered on either an
"impression" based program or a "performance" based program. An
impression based program earns revenues when an advertisement is
delivered to a user of our Internet network. A performance based
program earns revenues when a user of our Internet network responds to
an advertisement by linking to an advertisers Internet network.
Advertising revenues are recognized in the period in which the
advertisements are delivered. In the fourth quarter of 1998, the
Company began generating revenue from lead-based compensation from
its shopping services.
NET INCOME (LOSS) PER SHARE
Basic net income per share is computed using the weighted average
number of outstanding shares of common stock and diluted net income
per share is computed using the weighted average number of
outstanding shares of common stock and common stock equivalents.
Basic and diluted net loss per share are computed using the
weighted average number of outstanding shares of common stock. Net
loss per share for the years ended December 31, 1997 and 1996, does
not include the effect of approximately 5,077,844 and 3,128,932
stock options, with weighted average exercise prices of $12.37 and
$3.55, respectively, because their effects are anti-dilutive.
The following table sets forth the computation of net income
(loss) per share (in thousands, except per share data):
Year Ended December 31,
---------------------------------------
1998 1997 1996
-------------- ------------ -----------
Net income (loss) $2,600 ($24,728) ($16,949)
Basic and diluted: ============== ============ ===========
Weighted average common shares
outstanding used in computing basic 31,933 27,224 15,928
net income(loss) per share ============== ============ ===========
Basic net income(loss) per share $0.08 ($0.91) ($1.06)
============== ============ ===========
Weighted average common shares
and common stock equivalents
outstanding used in computing diluted
net income(loss) per share 34,853 27,224 26,928
============== ============ ===========
Diluted net income(loss) per share $0.07 ($0.91) ($1.06)
============== ============ ===========
STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plans
using the intrinsic value method. As such, compensation expense is recorded
on the date of grant if the current market price of the underlying stock
exceeded the exercise price.
COMPREHENSIVE INCOME(LOSS)
The Company has no significant comprehensive income(loss) and,
accordingly, the comprehensive income(loss) is the same as net income
(loss) for all periods.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Such costs are
included in selling and marketing expense and totalled approximately
$5,081,308, $2,267,154 and $3,697,314 during the years ended December 31,
1998, 1997 and 1996, repectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents,
accounts receivable, accounts payable and long-term debt approximate
their respective fair values.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
USE OF ESTIMATES
The Company's management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
revenues and expenses, and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
BARTER TRANSACTIONS
The Company trades advertisements on its Internet sites in exchange
for advertisements on the Internet channels of other companies. These
revenues and marketing expenses are recorded at the fair market value of
services provided or received, whichever is more determinable in the
circumstances. Revenue from barter transactions is recognized as income
when advertisements are delivered on the Company's Internet channels and
expense from barter transactions is recognized when advertisements are
delivered on the other companies' Internet sites. Barter revenues were
approximately $3,369,000, $905,000, and $760,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at
fair value. For a derivative not designated as a hedging instrument,
changes in the fair value of the derivative are recognized in earnings
in the period of change. The Company must adopt SFAS No. 133 by July 1,
1999. Management does not believe the adoption of SFAS No. 133 will
have a material effect on the financial position or operations of the
Company.
(2) BALANCE SHEET COMPONENTS
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents consisted of:
December 31,
---------------------------
1998 1997
-------------- ------------
Commercial paper $21,452,792 $2,004,131
Money market mutual funds 23,447,941 17,034,006
Cash 6,632,922 3,515,851
-------------- ------------
$51,533,655 $22,553,988
============== ============
All cash equivalents have been classified as available for sale
securities as of December 31, 1998 and 1997.
RESTRICTED CASH
Restricted cash balance relates to certain deposits in escrow for
leasehold improvements and as collateral for letters of credit relating
to security deposits.
PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
December 31,
---------------------------
1998 1997
-------------- ------------
Computer equipment $12,270,491 $11,769,291
Production equipment 2,552,420 2,241,597
Office equipment, furniture & fixtures 3,131,737 2,230,267
Software 1,845,777 1,745,660
Leasehold improvements 7,644,246 7,193,769
Assets in progress 620,165 1,533,198
-------------- ------------
28,064,836 26,713,782
Less accumulated depreciation
and amortization 12,739,324 7,160,245
-------------- ------------
$15,325,512 $19,553,537
============== ============
As of December 31, 1998 and 1997, the Company had equipment under
capital lease agreements of $1,168,134 , and accumulated amortization of
$1,084,125 and $694,747, respectively.
As of December 31, 1998, the Company had purchased equipment
pursuant to loan agreements in the amount of $948,982. As of
December 31, 1998 and 1997, the equipment had accumulated amortization of
$702,408 and $512,612, respectively.
ACCRUED LIABILITIES
A summary of accrued liabilities follows:
December 31,
---------------------------
1998 1997
-------------- ------------
Compensation and related benefits $4,007,614 $2,594,386
Marketing and advertising 577,872 619,101
Deferred Revenue 594,212 3,233,681
Lease Abandonment -- 1,300,000
Other 1,413,121 2,333,336
-------------- ------------
$6,592,819 $10,080,504
============== ============
DEBT
During 1997, the Company secured a $10.0 million line of credit from
a bank. The line of credit consisted of a $5.0 million operating line of
credit at an interest rate of prime (8.5%) plus 0.5%, secured by all of the
Company's tangible assets and a $5.0 million equipment line at an interest
rate of prime (8.5%) plus 1%, for up to 65% of capital equipment purchases.
The Company did not renew the $10.0 million line of credit upon its
expiration in July 1998. As of December 31, 1997, the Company had not yet
drawn any of the operating line of credit and had drawn $768,000 on the
capital equipment line which was paid off in July, 1998. In addition, the
Company had proceeds of $2.5 million from an asset based loan bearing
interest equal to the treasury rate plus 5.56% secured by certain
capital equipment. The $2.5 million asset based loan is subject to
certain financial covenants. At December 31, 1998 the Company was in
compliance with those covenants.
During 1996 and 1995, the Company financed certain production equipment
in the amounts of $189,256 and $759,726, repectively, through notes at an
an interest rate of 12.25%. The notes are secured by the equipment
financed. The current and long-term portion of the notes are included
in current portion of long-term debt and long-term debt, respectively,
in the accompanying balance sheet (along with capital lease obligations,
Note 4). The aggregate annual principal payments for notes payable
outstanding as of December 31, 1998, are summarized as follows:
YEAR ENDING DECEMBER 31,
-----------------------
1999 994,177
2000 535,728
2001 33,517
--------------
$1,563,422
==============
(3) INCOME TAXES
The Company's effective tax rate differs from the statutory federal income
tax rate of 34% as shown in the following schedule:
Year Ended December 31,
----------------------------------------
1998 1997 1996
-------------- ------------ ------------
Income tax benefit at statutory rate 34.0% 34.0% 34.0%
Operating losses with no current tax
benefit (34.0%) (34.0%) (34.0%)
-------------- ------------ ------------
Effective tax rate -- -- --
============== ============ ============
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets are presented below:
Year Ended December 31,
----------------------------------------
1998 1997 1996
-------------- ------------ ------------
Capitalized "start-up" expenses $457,000 $818,000 $1,217,000
Net operating losses 22,184,000 16,268,000 9,596,000
Accruals, reserves and other 3,275,000 6,289,000 1,027,000
-------------- ------------ ------------
25,916,000 23,375,000 11,840,000
Less valuation allowance 25,916,000 23,375,000 11,840,000
-------------- ------------ ------------
$ -- $ -- $ --
============== ============ ============
The Company has a valuation allowance as of December 31, 1998, which fully
offsets its gross deferred tax assets due to the Company's historical losses
and the fact that there is no guarantee the Company will generate sufficient
taxable income in the future to be able to realize any or all of the deferred
tax assets. The net change in the total valuation allowance for the year
ended December 31, 1998, was $2,541,000
As of December 31, 1998, the Company has approximately $61,000,000 of net
operating losses for federal income tax purposes, which expire between 2008 and
2018. The Company also has approximately $24,000,000 of net operating loss
carryforwards for state income tax purposes, which expire between 1999 and 2003.
Included in the deferred tax assets above is approximately $5,500,000 related
to stock option compensation for which the benefit, when realized, will be
an adjustment to equity.
The Company may have experienced an "ownership change" as defined by
section 382 of the Internal Revenue Code. If an ownership change has occurred,
the Company's ability to utilize its net operating losses may be limited.
(4) LEASES
The Company has several non-cancelable leases primarily for general office,
facilities, and equipment that expire over the next ten years. Future minimum
lease payments under these leases are as follows:
Capital Operating
YEAR ENDING DECEMBER 31, Leases Leases
----------------------- -------------- ------------
1999 $129,140 $4,548,163
2000 -- 3,519,185
2001 -- 2,396,254
2002 -- 1,421,819
2003 -- 981,674
Thereafter -- 598,910
-------------- ------------
Total minimum lease payments 129,140 $13,466,005
============
Less amount representing
interest 10,805
--------------
Capital lease obligation, all current $118,335
==============
Rental expense from operating leases amounted to $3,226,310, $2,242,186,
and $789,678 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK
On July 2, 1996, the Company effected an initial public offering (IPO) of
4,000,000 shares of its common stock for $8 per share. Simultaneously with
the IPO, the Company sold 1,200,000 shares of common stock to Intel Corporation
at 93% of the IPO price. The net proceeds from these two offerings (after
deducting underwriting discounts and commissions and offering expenses) were
$37.8 million, and were received on July 8, 1996.
On July 21, 1997, the Company sold 402,506 shares of common stock in
a private placement to Intel for aggregate proceeds of approximately $5.3
million. On December 18, 1997, the Company sold 1,466,000 shares of common
stock in a private placement to three "accredited investors" (as defined
in Rule 501(a) under the Securities Act of 1933) for aggregate net proceeds
of approximately $18.1 million.
On May 12, 1998, the Company completed the acquisition of
U.Vision, Inc., a California corporation ("U.Vision"), through a merger
between U.Vision and a wholly-owned acquisition subsidiary of the Company
("the merger"), in which the Company issued 1,089,930 shares of common stock
in exchange for all of the outstanding shares of U.Vision. U.Vision
owned and operated ComputerEsp, a pricing and availability engine for
buying computer products on the Internet. Subsequent to the merger, the
Company relaunched the service as Shopper.com. The Company recorded
this transaction using the pooling-of-interests accounting method and
recorded the financial results of U.Vision in its financial statements
effective April, 1, 1998. The financial statements of the Company prior
to April 1, 1998 have not been adjusted for the financial results of
U.Vision as the impact was not material. The shares used in calculating
the basic and diluted net loss per share data have been adjusted in
prior periods to reflect the U.Vision transaction as outstanding
for all periods.
In June of 1998, the Company completed the sale of 1,625,600 shares
of common stock to National Broadcasting Company, Inc., ("NBC"). The
aggregate purchase price for the shares sold was $26.2 million.
STOCK SPLIT
On March 8, 1999, the Company effected a two-for-one split of its
common stock. The accompanying consolidated financial statements
have been retroactively adjusted to reflect the stock split.
In May 1996, the Company effected a three-for-two split of its common
stock in connection with the IPO. The accompanying consolidated financial
statements have been retroactively adjusted to reflect the stock split.
STOCK OPTION PLAN
In 1994, the Board of Directors adopted a Stock Option Plan (the "1994
Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers and key employees. The 1994 Plan authorizes grants of
options to purchase up to 5,500,000 shares of authorized but unissued common
stock. In 1997, the stockholders approved the 1997 Stock Option Plan (the
1997 Plan"). The 1997 Plan authorizes grants of options to purchase up to
5,000,000 shares of authorized but unissued common stock. Stock options for
both the 1994 and 1997 Plans are granted with an exercise price equal to the
fair market value at the date of grant. All stock options have 10-year
terms and generally vest and become fully exercisable between three and
four years from the date of grant.
A summary of the status of the Company's stock option plans as of December
31, 1998, 1997 and 1996, and changes during each of the years then ended:
Weighted
Number Average
of Exercise
Shares Prices
-------------- ------------
Balance as of December 31, 1995 2,952,500 0.80
Granted 1,728,400 5.72
Exercised (1,393,934) 0.52
Cancelled (158,034) 2.73
-------------- ------------
Balance as of December 31, 1996 3,128,932 3.55
Granted 2,647,046 11.87
Exercised (889,392) 1.44
Cancelled (243,504) 7.04
-------------- ------------
Balance as of December 31, 1997 4,643,082 8.42
Granted 2,472,900 16.74
Exercised (920,638) 5.12
Cancelled (1,117,460) 11.60
-------------- ------------
Balance as of December 31, 1998 5,077,884 $12.37
============== ============
As of December 31, 1998, 1997 and 1996, the number of options
exercisable was 1,050,016, 858,888 and 804,794, respectively, and the
weighted average of those options was $7.01, $3.06, and $1.11, respectively.
As of December 31, 1998, there were 2,218,152 additional shares available
for grant under the Plans.
The Company applies APB Opinion No. 25 in accounting for the Plans and,
accordingly, no compensation cost has been recognized for the Plans in the
financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS 123,
the Company's net income(loss) and net income (loss) per share would have
been increased to the pro forma amounts indicated below:
Year Ended December 31,
----------------------------------------
1998 1997 1996
-------------- ------------ ------------
Net income(loss)
As reported $2,599,957 ($24,728,092)($16,948,662)
Pro forma ($13,130,574)($29,872,164)($18,259,031)
Basic net income(loss) per share
As reported $0.08 ($0.91) ($1.06)
Pro forma ($0.41) ($1.10) ($0.81)
Diluted net income(loss) per share
As reported $0.07 ($0.91) ($1.06)
Pro forma ($0.38) ($1.10) ($0.81)
The effects of applying SFAS 123 in this pro forma disclosure is
not indicative of the effects on reported results for future years. SFAS
No. 123 does not apply to awards prior to 1995.
The weighted-average fair value of options granted in 1998, 1997 and 1996,
was $16.74, $11.87 and $5.72, respectively.
The fair value of each option grant is estimated on the date of grant
using Black Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996,
respectively: no dividend yield, expected volatility of 75%, risk-free
interest rate of 6%, and an expected life of five years, five years
and one year.
The following table summarizes information about stock options
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Options Oustanding Options Exercisable
------------------------------------ ------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of As of Contractual Exercise As Of Exercise
Exercise Prices 12/31/98 Life Price 12/31/98 Price
- - ------------------ ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$0.6000 $4.2950 543,544 6.86 $2.5307 376,086 $1.9915
$6.0000 $7.3150 551,624 7.56 $6.5059 253,860 $6.4988
$7.7500 $10.0650 80,250 8.10 $8.9125 18,626 $8.4692
$10.3750 $10.3750 638,298 8.92 $6.9167 154,700 $10.3750
$10.6900 $12.0650 805,124 8.63 $11.7106 168,184 $11.6537
$12.1250 $13.7500 173,736 8.53 $13.3392 36,138 $13.3415
$13.9400 $13.9400 921,574 9.24 $13.9400 3,876 $13.9400
$14.0000 $14.7500 121,086 8.65 $14.2317 20,320 $14.0931
$16.1250 $16.1250 664,000 9.42 $16.1250 -- --
$16.4400 $34.2500 578,648 9.63 $23.3122 18,226 $22.6535
------------ ------------
$0.6000 $34.2500 5,077,884 8.68 $12.3702 1,050,016 $7.0065
============ ============
</TABLE>
401(k) PROFIT SHARING PLAN
In 1996, the Company adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") that is intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The 401(k) Plan covers substantially
all of the Company's employees. Participants may elect to contribute a
percentage of their compensation to this plan, up to the statutory
maximum amount. The Company may make discretionary contributions to the
401(k) Plan, but has not done so to date.
EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Company adopted an Employee Stock Purchase Plan
that covers substantially all employees. Participants may elect to
purchase the Company's stock at a 10% discount of the lower of the
closing price at the beginning or end of the quarter by contributing a.
percentage of their compensation. The maximum percentage allowed is 10%.
(6) MAJOR CUSTOMERS AND CONTRACTS
CUSTOMERS
For the year ended December 31, 1998, one customer, USA Networks,
accounted for approximately 10% of the Company's revenues. For the years
ended December 31, 1997 and 1996, two customers accounted for over 10%
of the Company's revenues with USA Networks accounting for approximately
16% and 19%, and Microsoft Corporation accounting for approximately 10%
and 12% of total revenues, respectively.
CONTRACTS
In February 1995, the Company entered into an agreement with USA
Networks to carry its television program, CNET CENTRAL. The contract
allowed the Company to sell the available advertising on the program. In
connection with this agreement, the Company issued 1,033,500 common stock
warrants at an exercise price of $1.21 per share to USA Networks. As of
December 31, 1998, all such warrants were exercised.
Effective July 1, 1996, the agreement with USA Networks was amended
to license to USA Networks the right to carry a two hour programming block
produced by the Company, called "Digital Domain" for broadcast on the USA
Network and The SciFi Channel for an initial term of one year. Under
the amended agreement, USA Networks licensed the rights to Digital
Domain for a fee equal to the cost of production of the programs
up to a maximum of $5,250,000 for the first year with an option to extend
the term for an additional year. In January 1997, USA Networks exercised
this option.
In addition, pursuant to the amended agreement, the Company agreed
to pay USA Networks a fee of $1.0 million for the right to cross-market
the Company's Internet channels on the television programs produced by the
Company for USA Networks. During the second year extension the Company
paid a fee of $750,000 for the right to continue such cross-
marketing activities. These fees are reported by the Company as
marketing expenses.
In January 1997, USA Networks exercised its option to extend its
agreement with the Company to carry Digital Domain through June 30,
1998. In connection with this extension to the agreement, the
Company agreed that the warrants held by USA Networks would vest in
full on December 31, 2006, to the extent they had not previously
vested. As a result of this change, the Company incurred a one-time
charge to earnings of approximately $7.0 million during the first
quarter of 1997.
In July 1998, the Company entered into an agreement with USA
Networks to again license to USA Networks the right to carry Digital
Domain for broadcast on the USA Network and The SciFi Channel for a
one year period. The Company agreed to pay USA Networks a fee of
$750,000 for the right to cross-market the Company's Internet
channels on the television programs produced by the Company for USA
Networks.
In January 1996, the Company entered into a joint venture agreement
with E! Entertainment Television, Inc. ("E! Entertainment") that
launched an Internet site in August 1996, called E! ONLINE, focusing on
entertainment, news, gossip, movies and television. The Company agreed
to provide $3,000,000 in debt financing to the joint venture during its
first two years of operations, which amount was advanced pursuant to a
seven year note, bearing interest at 9% per annum. In addition, the
Company agreed to provide up to an additional $3,000,000 in equity
capital to the joint venture through January 1999. The Company
accounted for its financing and investments under the modified equity
method. Accordingly, the Company recorded all of the losses incurred by
the joint venture through June 30, 1997, in its consolidated statement
of operations. The joint venture, E! Online LLC, was owned 50% by the
Company and 50% by E! Entertainment.
In June 1997, the Company sold its 50% equity position and certain
technology licenses and marketing and consulting services to its joint
venture partner for $10.0 million in cash and a $3.2 million note
receivable, which was included in other assets in the balance sheet and
certain additional payments for up to three years. The note receivable
was paid in full in November, 1998.
In August 1996, the Company entered into an agreement with GGP
whereby the Company produced a television program, TV.COM, which was
exclusively distributed by GGP. Any revenues from the distribution of
TV.COM were first used to offset costs of distribution and production
and thereafter were shared equally by CNET and GGP. In August 1997, the
assets of GGP were acquired by a third party who has agreed to
distribute the program through TWI under the same terms and conditions.
Beginning March 1, 1998, the Company assumed responsibility for the
sale of advertisements on TV.com and pays a distribution fee to TWI.
(7) UNUSUAL ITEMS
In the fourth quarter of 1997, the Company recognized an expense
of $1.3 million related to lease abandonment costs and recognized an
expense of $700,000 relating to a write off of Internet domain names that
the Company had determined that it would no longer use. Through the
fourth quarter of 1998, the Company had incurred expenses of $379,000
related to the abandonment of excess real estate and during the fourth
quarter the Company determined that it had completed the abandonment
of excess real estate. Accordingly, the Company reversed approximately
$922,000 of this expense in the fourth quarter of 1998.
In the first quarter of 1997, the Company incurred a one-time,
non-cash expense of $7.0 million related to an amendment to the warrant
agreement with USA Networks whereby the Company agreed that the warrants
held by USA would vest in full on December 31, 2006, to the extent that
they had not previously vested.
(8) RELATED PARTY TRANSACTIONS
Included in other assets on the accompanying balance sheets is an
advance to an officer of the Company for $26,250.
An affiliate of an officer and stockholder of the Company
loaned the Company $800,000 in 1996 at an interest rate
of 8% and was granted 9,800 warrants to purchase Series D Convertible
preferred stock at an exercise price of $12.88 per share. This loan was
subsequently converted to Series E convertible preferred stock, which
were subsequently converted to 29,400 warrants to purchase common stock.
at an exercise price of $4.29 per share. As of December 31, 1997,
all of these warrants were outstanding and exercisable and expire in
January 2001. Such warrants were valued at estimated fair market value
at the date of issuance.
A stockholder loaned the Company $3,000,000 in 1996 at an interest rate
of 8%. Interest expense related to the loan was $34,000 in 1996.
This loan was subsequently converted to Series E convertible preferred
stock. In connection with this loan agreement, the Company granted the
lender 36,750 warrants to purchase Series D convertible preferred
stock at an exercise price of $12.88 per share, which were subsequently
converted to 110,250 warrants to purchase common stock at an exercise
price of $4.29 per share. As of December 31, 1998, all of these warrants
were outstanding and exercisable and expire on dates from May 2000 to
February 2001. Such warrants were valued at estimated fair market value
at the date of issuance.
In April 1996, a stockholder exercised options to purchase 366,144
shares of Series B preferred stock and 273,000 shares of common stock
for an aggregate of $694,654. The consideration was paid by $100,000 in
cash and the issuance of a note for $594,654, which was repaid in July
1996. Such shares of Series B preferred stock were converted into
1,098,432 shares of common stock at the IPO.
In December 1997, an officer of the Company purchased 16,000 shares
of common stock for $198,000 as a participant in a private placement.
BUYDIRECT.COM (BuyDirect) was a wholly owned division of the Company
that distributed electronic software. On March 31, 1998, the Company
contributed its ownership in BuyDirect, and net assets related to
BuyDirect of approximately $744,000, to a new venture that is separately
owned and operated by BuyDirect's existing management group. As part of
the transaction, the Company received a 19% ownership interest in
the new venture. The Company uses the cost method of accounting for its
BuyDirect investment thus recorded an investment of approximately
$744,000 on its balance sheet. Initially, the Company also entered
into a multi-year arrangement with the new venture to provide marketing
and promotion through April 30, 2000. Effective October 31, 1998, the
Company terminated the inital contract and entered into a new agreement
in exhange for approximately $7.5 million for marketing and promotion
through September 30, 2000. In conjunction with the new agreement, the
Company received a promissory note maturing on October 31, 2002 in the
amount of $5.6 million.
For the year ended December 31, 1998, the Company recognized $2,510,422
in revenues related to advertising purchased by BuyDirect and to the
licensing of technology. As of December 31, 1998, the Company had a
$1.7 million receivable balance from BuyDirect related to
advertising purchased, licensing of technology and payments made by
CNET on behalf of the venture. The balance is included on the
balance sheet as a related party accounts receivable.
Pursuant to an agreement dated June 4, 1998 among the Company, NBC
Multimedia, Inc. a Delaware corporation ("NBC Multimedia"), and Snap
LLC, a Delaware limited liability company (the LLC), the Company and
NBC Multimedia agreed to form the LLC to operate the Snap Internet
portal service, which was previously operated as a division of
the Company. In connection with the formation and initial capitalization
of the LLC, which was completed on June 30, 1998, the Company
contributed to the LLC substantially all of its assets used exclusively
in the operation of the Snap service. Initially, the LLC will be owned
81% by the Company and 19% by NBC Multimedia, however, NBC Multimedia
has an option to increase its ownership stake in the LLC to 60% and
currently shares control of the LLC with the Company. The
accompanying financial statements present Snap's financial results using
the equity method of accounting effective January 1, 1998. Included in
equity losses on the accompanying 1998 statement of operations are losses
of $11,796,344 related to Snap. As of December 31, 1998 the Company's
investment in Snap has been reduced to zero.
(9) SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, "Disclosure
About Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the reporting by public business enterprises
of information about operating segments, products and services,
geographic areas and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operating decisions and
assessing financial performance.
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial
information presented on a consolidated basis accompanied by disaggregated
information about revenue and cost of revenue by operating segment for
purposes of making operating decisions and assessing financial performance.
The consolidated information reviewed by the CEO is identical to the
information presented in the accompanying financial statement of
operations. The Company operates in two segments, television and CNET
Online, the Company's Internet operation.
(10) SUBSEQUENT EVENTS
On February 9, 1999, the Company announced an agreement with America
Online, Inc., ("AOL"), whereby the Company will become the exclusive provider
of computer hardware and software buying guides on the AOL service and on
AOL.com, as well as the primary provider of computer buying guides on
CompuServe, Digital City, AOL Hometown and certain AOL international
properties. Under the terms of the agreement, AOL will receive
guaranteed payments from the Company in the amount of $14.5 million over
approximately 27 months.
On February 16, 1999, the Company acquired NetVentures, Inc., in a stock
("NetVentures"), in a stock-for-stock exhange valued at approximately $12.5
million. NetVentures owns and operates ShopBuilder, an online store-creation
system.
On February 19, 1999, the Company acquired AuctionGate Interactive, Inc.,
("AuctionGate"),in a stock-for-stock exchange valued at approximately $6.5
million. AuctionGate owns and operates AuctionGate.com, an auction site
specializing in computer products.
On February 26, 1999, the Company acquired the assets of Winfiles.com,
a leading downloading service, from Jenesys, LLC, for a total purchase price
of $11.5 million, payable in cash in two installments of $5.75 million
On March 8, 1999, the Company completed a private placement with
gross proceeds of $172,915,0000 of 5% converitble subordinated notes. The
placement will be subject to certain fees and expenses. The notes are
convertible, at the option of the noteholder, into shares of common stock.
On March 22, 1999, the Company acquired KillerApp Corporation in a
stock-for-stock exchange valued at approximately $46 million. KillerApp
owns and operates KillerApp.com, an online comparison shopping service
for computer and consumer related products.
In March 1999, BuyDirect entered into a merger agreement with
beyond.com. This merger will result in our owning approximately
800,000 shares of beyond.com as a result of our ownership interest
in BuyDirect.
<PAGE>
SCHEDULE II
CNET, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Numbers presented in thousands)
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Deductions at End
of Period Expenses Accounts Describe of Period
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1998
- - ------------------
Allowance for
doubtful accounts $461 $1,443 $621(3) $743 (1) $1,722
$60 (2)
1997
- - ------------------
Allowance for
doubtful accounts $100 $578 -- $217 (1) $461
1996
- - ------------------
Allowance for
doubtful accounts $25 $75 -- -- $100
</TABLE>
(1) Accounts written off.
(2) Part of sale of Buy Direct, Inc.
(3) Amounts charged to revenu to cover underdelivery of quaranteed impressions.
<PAGE>
S-2 Independent Auditors' Report on Schedule
The Board of Directors
CNET, Inc.
Under date of February 9, 1999, except as to paragraph 5 of footnote 5
and foonote 10, which are as of March 22, 1999, we reported on the
consolidated balance sheets of CNET, Inc., and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998, as contained
in the annual report on Form 10-K for the year 1998. In connection
with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial
statements schedule in the annual report on Form 10-K for the year
1998. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
San Francisco, California
March 22, 1999
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Registrant's definitive Proxy
Statement for its 1999 annual meeting, which will be filed pursuant
to Regulation 14A (the "1999 Proxy Statement"), under the caption
"Management."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the 1999 Proxy Statement, under
the caption "Executive Compensation and Other Information," but
specifically excluding the information under the captions "--
Performance Graph" and "-- Compensation Committee's Report on
Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the 1999 Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the 1999 Proxy Statement under
the caption "Certain Relationships and Related Transactions."
ITEM 14. EXHIBITS,FINANCIAL STATEMENT SCHEDULES LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS:
(1) Financial Statements. The following consolidated financial
statements are filed as a part of this report
under Item 8, "Financial Statements and Supplementary Data":
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flow for the years ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report of KPMG LLP
(2) Financial Statement Schedules. The following financial
statement schedules are filed as part of this report:
S-1 Schedule II Valuation and Qualifying Accounts
S-2 Independent auditors report on schedule
(3) Exhibits.
3.1(1) -- Finder.com, Inc. and Virtual Software Library, Inc. into
CNET, Inc.
3.2(2) -- Certificate of Amendment of Certificate of Incorporation
of the Company
3.3(3) -- Certificate of Ownership and Merger of Gamecenter.com,
Inc., Finder.com, Inc., Buyer.com, Inc. and Virtual
Software Library, Inc. into CNET, Inc.
3.4(1) -- Amended and Restated Bylaws of the Company
4.1(1) -- Specimen of Common Stock Certificate
10.1(1) -- CNET, Inc. Amended and Restated Stock Option Plan
10.2(1) -- Employment Agreement, dated as of October 19, 1994,
between the Company and Halsey M. Minor
10.3(3) -- Employment Agreement, dated as of October 19, 1994,
between the Company and Shelby W. Bonnie
10.4(1) -- Employment Agreement, dated to be effective as
of December 1, 1993 and amended as of August 1,
1995 and as of April 1, 1996, between the
Company and Kevin Wendle
10.5(1) -- Employment Agreement, dated to be effective as
of February 20, 1995 and amended as of September
19, 1995, between the Company and Jonathan
Rosenberg
10.6(1) -- Option Exercise Agreement, dated as of April 9,
1996, between the Company and Kevin Wendle
10.7(1) -- Promissory Note of Kevin Wendle, payable to the
Company, dated as of April 9, 1996
10.8(1) -- Lease Agreement, dated as of January 28, 1994,
between the Company and Montgomery/North
Associates and amended as of January 31, 1995
and as of October 19, 1995
10.9(1) -- Lease, dated as of October 19, 1995, between the
Company and The Ronald and Barbara Kaufman
Revocable Trust, et al.
10.10(1) -- Agreement, dated as of February 1, 1995, between the
Company to USA Networks.
10.11(1) -- Warrant to Purchase Common Stock, dated February 9
1995, issued by the Company to USA Networks
10.12(1) -- Series C Converible Preferred Stock Purchase Warrant,
dated as of May 25, 1995, issued by the Company to
Vulcan Ventures Incorporated
10.13(1) -- Series D Converible Preferred Stock Purchase Warrant,
dated as of January 23, 1996. issued by the Company to
the Bonnie Family Partnership
10.14(1) -- Operating Agreement of E! Online, LLC, dated as of January
30, 1996, between the Company and E! Entertainment
Television, Inc.
10.15(1) -- Series D Converible Preferred Stock Purchase Warrant,
dated as of February 20, 1996. issued by the Company to
Vulcan Ventures Incorporated
10.16(1) -- Amended and Restated Agreement , dated as of July 1, 1996,
between the Company and USA Networks
10.17(1) -- Subscription Agreement, dated as of April 26, 1996,
between the Company and the Series E Purchasers
identified therein
10.18(1) -- 1996 Employee Stock Purchase Plan of the Company
10.19(1) -- Stock Purchase Agreement between Intel Corporation and
the Company dated July 1, 1996
10.20(4) -- Stock Purchase Agreement betweenVignette Corporation and
the Company
10.21(5) -- Letter Agreement, dated February 20, 1997, between the
Company and Kevin Wendle.
10.22(2) -- CNET, Inc. 1997 Stock Option Plan
10.23(6) -- Stock Purchase Agreement, dated as of June 4, 1997, between
Intel Corporation and the Company
10.24(7) -- Master Agreement, dated as of June 30, 1997, amoung the
Company, E! Entertainment Television, Inc. and E! Online,
LLC
10.25(8) -- Security and Loan Agreement between Imperial Bank and the
Company, dated July 24, 1997
10.26(8) -- Note from the Company to Imperial Bank dated July 24, 1997
10.27(8) -- Loan and Security Agreement between The CIT Group and the
Company dated September 5, 1997
10.28(8) -- Office Lease between One Beach Street, LLC and the Company
dated September 24, 1997
10.29(9) -- Stock Purchase Agreement, dated as of December 18, 1997,
amoung the Company and the Purchasers identified therein
10.30(10) -- Agreement and Plan of Merger, dated as of May 7, 1998
by and among CNET, Inc., and CNET Acquisition Corp.,
U. Vision Inc. and the stockholders of U.Vision Inc.
10.31(11) -- Contribution Agreement, dated as of June 4, 1998,
by and among the Company, NBC and Snap! LLC.
10.32(11) -- Amended and Restated Limited Liability Company
Agreement of Snap! LLC, dated as of June 30, by and
among the Company and NBC Multimedia, Inc.
10.33(11) -- Stock Purchase Agreement, dated as of June 4, 1998,
by and between the Company and NBC
10.34(2) -- Agreement, dated as of July 1, 1998, between USA
Networks and the Company
10.35(12) -- Agreement and Plan of Merger, dated as of February 2,
1999, by and among CNET, Inc., NetVentures, Inc. and
the stockholders of NetVentures, Inc.
10.36(12) -- Purchase Agreement, dated as of December 18, 1998,
by and among Jenesys LLC and Steve Jenkins
10.37(12) -- Amendment No. 1 to Purchase Agreement, dated as of
January 22, 1999, by and among CNET, Inc. and Jenesys
LLC and Steve Jenkins
10.38(12) -- Amendment No. 2 to Purchase Agreement, dated as of
February 11, 1999, by and among CNET, Inc. and Jenesys
LLC and Steve Jenkins
10.39(12) -- Agreement and Plan of Merger, dated as of February 19,
1999, by and among CNET, Inc., AuctionGate Interactive,
Inc. and the stockholders of AuctionGate, Inc.
10.40* -- Indenture dated March 8, 1999 between the Company
and The Bank of New York, as trustee
10.41* -- Form of 5% Convertible Subordinated Note due 2006
10.42* -- Registration Agreement dated March 8, 1999 between the
Company and Salomon Smith Barney Inc. BancBoston
Robertson Stephens Inc. and Volpe Brown & Company, LLP,
as Representatives of the Initial Purchasers
21.1(1) -- List of Subsidiary Corporations
23.1* -- Consent of Independent Auditors
* Filed herewith.
(1) Incorporated by reference from a previously filed exhibit to
the Company's Registration Statement on Form SB-2, registration no.
333-4752-LA.
(2) Incorporated by reference from a previously filed exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
(3) Incorporated by reference from a previously filed exhibit to
the Company's Registration Statement on Form S-8, registration
no. 333-34491.
(4) Incorporated by reference from a previously filed exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1996.
(5) Incorporated by reference from an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
(6) Incorporated by reference from a previously filed exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1997.
(7) Incorporated by reference from a previously filed exhibit to
the Company's Current Report on Form 8-K dated July 11, 1997.
(8) Incorporated by reference from a previously filed exhibit to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1997.
(9) Incorporated by reference from a previously filed exhibit to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(10) Incorporated by reference from a previously filed exhibit to
the Company's Current Report on Form 8-K filed May 22, 1998.
(11) Incorporated by reference from a previously filed exhibit to
the Company's Current Report on Form 8-K filed July 15, 1998.
(12) Incorporated by reference from a previously filed exhibit to
the Company's Current Report on Form 8-K filed March 1,1999.
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By /s/ Halsey M. Minor
----------------------------------
Halsey M. Minor
Chairman of the Board, President
and Chief Executive Officer
Date March 31, 1999
----------------------------------
By /s/ Douglas N. Woodrum
----------------------------------
Douglas N. Woodrum
Chief Financial Officer
Date March 31, 1999
----------------------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By /s/ Halsey M. Minor
----------------------------------
Halsey M. Minor
Chairman of the Board, President
and Chief Executive Officer
Date March 31, 1999
----------------------------------
By /s/ Shelby W. Bonnie
----------------------------------
Shelby W. Bonnie
Director, Executive Vice President, Chief
Operating Officer and Secretary
Date March 31, 1999
----------------------------------
By /s/ Douglas N. Woodrum
----------------------------------
Douglas N. Woodrum
Chief Financial Officer
Date March 31, 1999
----------------------------------
By /s/ John C. "Bud" Colligan
----------------------------------
John C. "Bud" Colligan
Director
Date March 31, 1999
----------------------------------
By /s/ Mitchell Kertzman
----------------------------------
Mitchell Kertzman
Director
Date March 31, 1999
----------------------------------
By /s/ Eric Robison
----------------------------------
Eric Robison
Director
Date March 31, 1999
----------------------------------
EXHIBIT 10.40
CNET, Inc.
to
The Bank of New York,
as Trustee
___________
Indenture
Dated as of March 8, 1999
5% Convertible Subordinated Notes due 2006
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions. 1
Section 1.02. Other Definitions. 7
Section 1.03. Incorporation by Reference of Trust Indenture Act. 8
Section 1.04. Rules of Construction. 8
ARTICLE II
THE SECURITIES
Section 2.01. Form and Dating. 9
Section 2.02. Execution, Authentication and Delivery. 10
Section 2.03. Registrar, Paying Agent and Conversion Agent. 11
Section 2.04. Paying Agent to Hold Money in Trust. 11
Section 2.05. Noteholder Lists. 11
Section 2.06. Transfer and Exchange. 12
Section 2.07. Replacement Securities. 15
Section 2.08. Outstanding Securities. 16
Section 2.09. Treasury Securities. 16
Section 2.10. Temporary Securities; Exchange of Global Security for
Definitive
Securities. 16
Section 2.11. Cancellation. 17
Section 2.12. Payment of Interest: Interest Rights Preserved. 17
Section 2.13. Computation of Interest. 18
Section 2.14. CUSIP Number. 18
Section 2.15. Regulation S. 19
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee. 19
Section 3.02. Selection of Securities to be Redeemed. 19
Section 3.03. Notice of Redemption. 20
Section 3.04. Effect of Notice of Redemption. 21
Section 3.05. Deposit of Redemption Price. 21
Section 3.06. Securities Redeemed in Part. 22
Section 3.07. Optional Redemption. 22
Section 3.08. Designated Event Offer. 22
ARTICLE IV
COVENANTS
Section 4.01. Payment of Securities. 24
Section 4.02. SEC Reports. 24
Section 4.03. Compliance Certificate. 25
Section 4.04. Stay, Extension and Usury Law. 26
Section 4.05. Corporate Existence. 26
Section 4.06. Taxes. 26
Section 4.07. Designated Event. 26
Section 4.08. Investment Company Act. 26
ARTICLE V
CONVERSION
Section 5.01. Conversion Privilege. 27
Section 5.02. Conversion Procedure. 27
Section 5.03. Fractional Shares. 28
Section 5.04. Taxes on Conversion. 28
Section 5.05. Company to Provide Stock. 29
Section 5.06. Adjustment of Conversion Price. 29
Section 5.07. No Adjustment. 33
Section 5.08. Other Adjustments. 33
Section 5.09. Adjustments for Tax Purposes. 33
Section 5.10. Adjustments by the Company. 33
Section 5.11. Notice of Adjustment. 33
Section 5.12. Notice of Certain Transactions. 34
Section 5.13. Effect of Reclassifications, Consolidations, Mergers,
Continuances or Sales on Conversion Privilege.
34
Section 5.14. Trustee's Disclaimer. 35
Section 5.15. Cancellation of Converted Securities. 35
Section 5.16. Restriction on Common Stock Issuable Upon Conversion. 35
ARTICLE VI
SUBORDINATION
Section 6.01. Agreement to Subordinate. 36
Section 6.02. No Payment on Securities if Senior Debt in Default. 36
Section 6.03. Distribution on Acceleration of Securities; Dissolution and
Reorganization;
Subrogation of Securities. 37
Section 6.04. Reliance by Senior Debt on Subordination Provisions. 40
Section 6.05. No Waiver of Subordination Provisions. 40
Section 6.06. Trustee's Relation to Senior Debt. 41
Section 6.07. Other Provisions Subject Hereto. 41
ARTICLE VII
SUCCESSORS
Section 7.01. Merger, Consolidation or Sale of Assets. 42
Section 7.02. Successor Corporation Substituted. 43
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Events of Default. 43
Section 8.02. Acceleration. 45
Section 8.03. Other Remedies. 45
Section 8.04. Waiver of Past Defaults. 45
Section 8.05. Control by Majority. 45
Section 8.06. Limitation on Suits. 46
Section 8.07. Rights of Noteholders to Receive Payment. 46
Section 8.08. Collection Suit by Trustee. 46
Section 8.09. Trustee May File Proofs of Claim. 46
Section 8.10. Priorities. 47
Section 8.11. Undertaking for Costs. 48
Section 8.12. Restoration of Rights and Remedies. 48
Section 8.13. Rights and Remedies Cumulative. 48
Section 8.14. Delay or Omission Not Waiver. 48
ARTICLE IX
TRUSTEE
Section 9.01. Duties of Trustee. 49
Section 9.02. Rights of Trustee. 50
Section 9.03. Individual Rights of Trustee. 51
Section 9.04. Trustee's Disclaimer. 51
Section 9.05. Notice of Defaults. 51
Section 9.06. Reports by Trustee to Noteholders. 51
Section 9.07. Compensation and Indemnity. 51
Section 9.08. Replacement of Trustee. 52
Section 9.09. Successor Trustee by Merger, Etc. 53
Section 9.10. Eligibility; Disqualification. 53
Section 9.11. Preferential Collection of Claims Against Company. 54
ARTICLE X
DISCHARGE OF INDENTURE
Section 10.01. Termination of the Company's Obligations. 54
Section 10.02. Repayment to Company. 55
Section 10.03. Reinstatement. 55
ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.01. Without Consent of Noteholders. 56
Section 11.02. With Consent of Noteholders. 56
Section 11.03. Compliance with Trust Indenture Act. 58
Section 11.04. Revocation and Effect of Consents. 58
Section 11.05. Notation on or Exchange of Securities. 59
Section 11.06. Trustee Protected. 59
Section 11.07. Trustee to Sign Supplemental Indentures. 59
Section 11.08. Payment for Consent. 60
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls. 60
Section 12.02. Notices. 60
Section 12.03. Communication by Noteholders with Other Noteholders. 61
Section 12.04. Certificate and Opinion as to Conditions Precedent. 61
Section 12.05. Statements Required in Certificate or Opinion. 61
Section 12.06. Rules by Trustee and Agents. 62
Section 12.07. Legal Holidays. 62
Section 12.08. No Recourse Against Others. 62
Section 12.09. Counterparts. 62
Section 12.10. Variable Provisions. 62
Section 12.11. GOVERNING LAW. 63
Section 12.12. No Adverse Interpretation of Other Agreements. 63
Section 12.13. Successors. 63
Section 12.14. Severability. 63
Section 12.15. Table of Contents, Headings, Etc. 64
EXHIBIT A - FORM OF CONVERTIBLE SUBORDINATED NOTE A-1
EXHIBIT B - FORM OF TRANSFER CERTIFICATE B-1
EXHIBIT C - FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE C-1
EXHIBIT D - FORM OF RESTRICTED COMMON STOCK LEGEND D-1
EXHIBIT E - FORM OF TRANSFER CERTIFICATE FOR TRANSFER OF
RESTRICTED COMMON STOCK E-1
INDENTURE dated as of March 8, 1999 between CNET, Inc., a Delaware
corporation
(the "Company"), and The Bank of New York, a New York banking corporation,
as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and
ratable benefit of the holders of the Company's 5% Convertible Subordinated
Notes due 2006
(the "Securities"):
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
person, whether through the ownership of voting securities or by agreement
or otherwise.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Board of Directors" means the board of directors of the Company or any
authorized committee of such board of directors.
"Board Resolution" means a copy of a resolution of the Board of Directors
certified by the Secretary or an Assistant Secretary of the Company to have
been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification and delivery to the Trustee.
"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.
"Change of Control" means any event where: (i) 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 directors of the Company ("Voting Stock"), (ii) the Company
consolidates with or
merges into any other person, or any other person merges into the Company,
and, in the case of any such transaction, the outstanding Common Stock of
the Company is reclassified into or exchanged for any other property or
securities, unless the stockholders of the Company 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 the Voting Stock immediately
before such transaction, (iii) the Company or the Company and its
Subsidiaries, taken as a whole, sells, assigns, conveys, transfers or
leases all or substantially all
assets of the Company or of the Company and its Subsidiaries, taken as a
whole, as applicable, (other than to one or more wholly-owned Subsidiaries
of the Company) or (iv) any time the Continuing Directors do not constitute
a majority of the board of directors of the Company (or, if applicable, a
successor corporation to the Company); provided, however, that (a) a Change
of
Control under clause (i), (ii) or (iii) above shall not be deemed to have
occurred if 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 clause (i) 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 clause (ii) or (iii)
above) shall equal or exceed 105% of the Conversion Price of the Securities
in effect on the date of such Change of Control or the public announcement
of such Change of Control, as applicable, or (b) a Change of Control under
clause (i), (ii) or (iii) 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 NNM, and as a result of such transaction, the
Securities become convertible solely into such capital stock.
"Closing Date" means March 8, 1999.
"Common Stock" means the common stock of the Company as the same exists at
the date of this Indenture or as such stock may be constituted from time to
time.
"Company" means the party named as such above until a successor replaces it
in
accordance with Article VII and thereafter means the successor.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (i) was a member of such board
of directors on the date of this Indenture or (ii) was nominated for
election or elected to such board of directors with the approval of a
majority of the Continuing Directors who were members of such board of
directors
at the time of such nomination or election.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is
located at 101 Barclay Street, Floor 21 West, New York, New York 10286,
Attention: Corporate Trust Trustee Administration.
"Daily Market Price" means the price of a share of Common Stock on the
relevant date, determined (a) on the basis of the last reported sale price
regular way of the Common Stock as reported on the Nasdaq Stock Market's
National Market (the "NNM"), or if the Common Stock is not then listed on
the NNM, as reported on the principle national securities exchange upon
which the Common Stock is listed, or (b) if there is no such reported sale
on the day in question, on the basis of the average of the closing bid and
asked quotations regular way as so reported, or (c) if the Common Stock is
not listed on the NNM or on any national securities exchange, on the basis
of the average of the high bid and low asked quotations regular way on the
day in question in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System, or if not so
quoted, as reported by National Quotation Bureau,
Incorporated, or a similar organization.
"Damages Payment Date" has the meaning set forth in the Registration
Agreement.
"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.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Event" means the occurrence of a Change of Control or a
Termination of Trading.
"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 the Company in the instrument evidencing or governing such
Senior Debt as "Designated Senior Debt" for purposes of this Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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 such other
statements by such other entity as approved by a significant segment of the
accounting profession of the United States, which are in effect from time
to time. "Global Securities Legend" means the legend labeled as such and
that is set forth in Exhibit A hereto.
"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 correlative
meaning.
"Indebtedness" means, with respect to any Person, all Obligations, whether
or not contingent, of such Person (i)(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 such 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 of the foregoing), (e) 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 such Person are subject, whether or not the Obligation secured
thereby shall have been assumed or Guaranteed by or shall otherwise be such
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; (ii) with
respect to any Obligation of others of the type described in the preceding
clause (i) or under clause (iii) below assumed by or Guaranteed in any
manner by such Person or
in effect Guaranteed by such Person through an agreement to purchase
(including, without limitation, "take or pay" and similar arrangements),
contingent or otherwise (and the Obligations of such Person under any such
assumptions, Guarantees or other such arrangements); and (iii) any and all
deferrals, renewals, extensions, refinancings and refundings of, or
amendments,
modifications or supplements to, any of the foregoing.
"Indenture" means this Indenture, as amended or supplemented from time to
time by one or more indentures supplemental hereto entered into pursuant to
the applicable provisions hereof, including for all purposes of this
Indenture any supplemental indenture and the provisions of the TIA that are
deemed to be a part of and govern this Indenture and any supplemental
indenture."Initial Purchasers" means Salomon Smith Barney Inc., BancBoston
Robertson Stephens
Inc. and Volpe Brown Whelan & Company, LLC. "interest payment date" means,
when used with respect to the Securities, each March 1 and September 1.
"Issuance Date" means March 8, 1999.
"Junior Securities" means securities of the Company as reorganized or
readjusted or any other corporation provided for by a plan or
reorganization or readjustment the payment of which is subordinate, at
least to the extent provided for in this Indenture with respect to
Securities, to the payment in full without diminution or modification by
such plan of all Senior Debt.
"Liquidated Damages" has the meaning specified in paragraph 11 of the form
of Security which is attached as Exhibit A hereto.
"Material Subsidiary" means any Subsidiary of the Company 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 such
Regulation is in effect on March 3, 1999).
"maturity date" and "final maturity date" mean, when used with respect to
the Securities, March 1, 2006.
"NNM" has the meaning specified in the definition of "Daily Market Price".
"Noteholder" or "holder" means a person in whose name a Security is
registered.
"Obligations" means any principal, interest, penalties, fees,
indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offering Memorandum" means the offering memorandum relating to the
Securities
dated March 3, 1999.
"Officers' Certificate" means a certificate signed by two Officers, one of
whom must be the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or the Treasurer of the Company, and
delivered to the Trustee that meets the requirements of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee that meets the requirements of Sections 12.04 and
12.05 hereof. The counsel may be an employee of or counsel to the Company
or the Trustee unless otherwise expressly stated herein.
"Person" and "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.
"Registration Agreement" means the Registration Agreement relating to the
Securities and Common Stock issuable upon conversion of such Securities
dated March 8, 1999, between the Company and the Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Debt.
"Restricted Common Stock Legend" means the legend labeled as such and that
is set forth in Exhibit D hereto.
"Restricted Definitive Securities Legend" means the legend labeled as such
and that is set forth in Exhibit A hereto.
"Restricted Global Securities Legend" means the legend labeled as such and
that is set forth in Exhibit A hereto.
"Restricted Securities Legend" means the Restricted Definitive Securities
Legend or the Restricted Global Securities Legend or both, as the context
may require.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described in the preamble above that are
issued, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means the principal of, premium, if any, on, interest on and
other amounts due on Indebtedness of the Company, whether outstanding on
the date of this Indenture or thereafter created, incurred, assumed or
Guaranteed by the Company (including all deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or supplements
to, any of the foregoing), unless, in the instrument creating or evidencing
or
pursuant to which such Indebtedness is outstanding, it is expressly
provided that such Indebtedness is not senior in right of payment to, or
ranks pari passu in right of payment with, the Securities. Senior Debt
includes, with respect to the obligations described above, interest
accruing, pursuant to the terms of such Senior Debt, on or after the filing
of any petition in bankruptcy or for reorganization relating to the
Company, whether or not post-filing interest is
allowed in such proceeding, at the rate specified in the instrument
governing the relevant obligation. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include: (a) Indebtedness
of or amounts owed by the Company for compensation to employees, or for
goods, services or materials purchased in the ordinary course of business;
(b) Indebtedness
of the Company to a Subsidiary of the Company; or (c) any liability for
federal, state, local or other taxes owed or owing by the Company.
"Shelf Registration Statement" shall have the meaning set forth in the
Registration Agreement.
"Stock Split" means the two-for-one Common Stock split in the form of a
stock dividend to be distributed by the Company to its stockholders on or
about March 8, 1999.
"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 other Subsidiaries of that Person or a
combination thereof. "Termination of Trading" means an event where the
Common Stock (or other securities into which the Securities are then
convertible) is neither listed for trading on a United States national
securities exchange nor approved for trading on the NNM or other
established automated over-the-counter trading market in the United States.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code 77aaa-77bbbb)
and the rules and regulations thereunder as in effect on the date on which
this Indenture is qualified under the Trust Indenture Act of 1939 except as
required by Section 11.03 hereof, provided that if the Trust Indenture Act
of 1939 or the rules and regulations thereunder are amended after such
date, "TIA" means, if so required by such amendment, the Trust Indenture
Act of 1939, as so amended.
"Trading Day" shall mean (A) if the applicable security is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which the New York Stock Exchange or such
other national securities exchange is open for business, (B) if the
applicable security is quoted on the NNM, a day on which trades may be made
thereon or (C)
if the applicable security is not so listed, admitted for trading or
quoted, any day other than a Legal Holiday.
"Trustee" means the party named as such above until a successor replaces it
in
accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means any officer within the corporate trust department of
the Trustee, including any vice president, assistant vice president,
assistant secretary, assistant treasurer, trust officer or any other
officer of the Trustee who customarily performs functions similar to those
performed by the persons who at the time shall be such officers,
respectively, and who shall have
direct responsibility for the administration of this Indenture or to whom
any corporate trust matter is referred because of such person's knowledge
of and familiarity with the particular subject.
Section 1.02.
Other Definitions.
Term
Defined in
Section
"Agent Members"
2.01
"Bankruptcy Law"
8.01
"Cedel Bank"
2.01
"Commencement Date"
3.08
"Conversion Agent"
2.03
"Conversion Date"
5.02
"Conversion Price"
5.01
"Conversion Shares"
5.06
"Current Market Price"
5.06
"Custodian"
8.01
"Default Rate"
2.13
"Defaulted Interest
2.12
"Definitive Securities"
2.01
"Designated Event Offer"
4.07
"Designated Event Payment"
4.07
"Designated Event Payment Date"
3.08
"Distribution Date"
5.06
"Distribution Record Date"
5.06
"Excess Payment"
5.06
"Euroclear"
2.01
"Event of Default"
8.01
"Global Security"
2.01
"Legal Holiday"
12.07
"Non-Global Purchasers"
2.01
"Officer"
12.10
"Paying Agent"
2.03
"Payment Blockage Notice"
6.02
"Payment Blockage Period"
6.02
"Payment Default"
8.01
"Purchase Agreement"
2.01
"Purchase Date"
5.06
"QIBs"
2.01
"Registrar"
2.03
"Regulation S"
2.01
"Rights"
5.06
"Rule 144A"
2.01
"Tender Period"
3.08
Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever
this
Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities; "indenture security holder"
means a Noteholder; "indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Securities means the Company or any other obligor on the
Securities.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Rules of Construction. Unless the context otherwise
requires:
(a) a term has the meaning assigned to it; (b) an accounting term not
otherwise defined has the meaning assigned to it in accordance with GAAP
consistently applied; (c) "or" is not exclusive; (d) words in the singular
include the plural, and words in the plural include the singular; and (e)
provisions apply to successive events and transactions.
ARTICLE II
THE SECURITIES
Section 2.01. Form and Dating. The Securities and the Trustee's
certificate of
authentication shall be substantially in the form of Exhibit A which is
hereby incorporated in and expressly made a part of this Indenture.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Company is subject, if any, or
usage (provided that any such notation, legend or endorsement is in a form
acceptable to the Company). The Company shall furnish any such legend not
contained in Exhibit A to the Trustee in writing. Each Security shall be
dated the date of its authentication. The terms and provisions of the
Securities set forth in Exhibit A are part of the terms of this Indenture
and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
(a) Global Securities. The Securities are being offered and sold by the
Company
pursuant to a Purchase Agreement relating to the Securities, dated March 3,
1999, among the Company and the Initial Purchasers (the "Purchase
Agreement").
Securities offered and sold (i) in reliance on Regulation S under the
Securities Act ("Regulation S") or (ii) to "qualified institutional buyers"
as defined in Rule 144A ("QIBs") in reliance on Rule 144A under the
Securities Act ("Rule 144A"), each as provided in the Purchase Agreement,
shall be issued in the form of one or more permanent global Securities in
definitive, fully registered form without interest coupons with the Global
Securities Legend and Restricted
Global Securities Legend set forth in Exhibit A hereto (each, a "Global
Security"). Any Global Security shall be deposited on behalf of the
purchasers of the Securities represented thereby with the Trustee, at its
New York office, as custodian for the Depositary, and registered in the
name of the Depositary or a nominee of the Depositary for the accounts of
participants in the Depositary
(and, in the case of Securities held in accordance with Regulation S,
registered with the Depositary for the accounts of designated agents
holding on behalf of the Euroclear System ("Euroclear") or Cedel Bank,
soci,t, anonyme ("Cedel Bank")), duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of a Global Security may from time to time be increased or
decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as hereinafter
provided. (b) Book-Entry Provisions. This Section 2.01(b) shall apply only
to a Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b) and the written order of the Company, authenticate and
deliver initially one or more Global Securities that (i) shall be
registered in the name of Cede & Co. or other nominee of such Depositary
and (ii) shall be delivered by the Trustee to such Depositary or pursuant
to such Depositary's instructions or held by the Trustee as custodian for
the Depositary pursuant to a FAST Balance Certificate Agreement between the
Depositary and the Trustee.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as
the absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company,
the Trustee or any agent of the Company or the Trustee from giving effect
to any written certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices of such Depositary governing the exercise
of the rights of a holder of a beneficial interest in any Global Security.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations and Instructions to Participants" of Cedel shall be applicable
to interests in any Global Securities that are held by
participants through Euroclear or Cedel. The Trustee shall have no
obligation to notify holders of any such procedures or to monitor or
enforce compliance with the same.
(c) Definitive Securities. Except as provided in Section 2.06 and 2.10,
owners of beneficial interests in Global Securities will not be entitled to
receive physical delivery of certificated Securities in definitive form.
Purchasers of Securities who are not QIBs and did not purchase Securities
sold in reliance on Regulation S under the Securities Act (referred to
herein as the "Non-Global Purchasers") will receive certificated Securities
in definitive form bearing the
Restricted Definitive Securities Legend set forth in Exhibit A hereto
("Definitive Securities").
Definitive Securities will bear the Restricted Definitive Securities Legend
set forth on Exhibit A unless removed in accordance with Section 2.06(b).
Section 2.02. Execution, Authentication and Delivery. Two Officers shall
sign the Securities for the Company by manual or facsimile signature. The
Company's seal or a facsimile thereof shall be reproduced on the
Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless
be valid.
A Security shall not be entitled to any benefits under this Indenture or
the Registration Agreement or otherwise be valid until authenticated by the
manual signature of an authorized signatory of the Trustee. The signature
shall be conclusive evidence that the Security has been authenticated under
this Indenture.
Upon a written order of the Company signed by two Officers, the Trustee
shall
authenticate the Securities for original issue up to an aggregate principal
amount of $150,000,000 (plus up to an additional $37,500,000 aggregate
principal amount which may be issued from time to time upon exercise by the
Initial Purchasers of the over-allotment option set forth in the Purchase
Agreement) and deliver such authenticated Securities as directed in such
order. The aggregate principal amount of Securities outstanding at any
time shall not exceed
such amount except as provided in Section 2.07.
The Trustee may appoint one or more authenticating agents acceptable to the
Company to authenticate Securities. An authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to
deal with the Company or an Affiliate of the Company.
Section 2.03. Registrar, Paying Agent and Conversion Agent. The Company
shall
maintain in the Borough of Manhattan, The City of New York, State of New
York (i) an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar"), (ii) an office
or agency where Securities may be presented for payment (the "Paying
Agent"), (iii) an office or agency where Securities may be presented for
conversion (the "Conversion Agent") and (iv) an office or agency where
notices to or demands upon the Company in respect of the Securities and
this Indenture may be sent. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company has initially
appointed the Trustee (at 101 Barclay Street, Floor 21 West, New York, New
York 10286) as its Registrar, Paying Agent and Conversion Agent in New
York. The Company may appoint one or more co-registrars, one or more
additional paying agents and one or more additional conversion agents in
such other locations as it shall determine. The term "Registrar" includes
any co-registrar, the term "Paying Agent" includes any additional paying
agent and the term "Conversion Agent" includes any additional conversion
agent. The Company may change any Paying Agent, Registrar or Conversion
Agent without prior notice to any Noteholder. The Company shall notify the
Trustee of the name and address of any newly-appointed Agent not a party to
this Indenture. If the Company fails to appoint or maintain another entity
as Registrar, Paying Agent or Conversion Agent, the Trustee shall act as
such.
Section 2.04. Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that
the Paying Agent will hold in trust for the benefit of Noteholders or the
Trustee all money held by the Paying Agent for the payment of principal of,
premium, if any, on, interest and Liquidated Damages, if any, on, the
Securities, and will notify the Trustee of any default by the Company in
making any such payment. While
any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee and to account for
any money disbursed by it. Upon payment over to the Trustee, the Paying
Agent (if other than the Company or an Affiliate of the Company) shall have
no further liability for the money. If the Company or an Affiliate of the
Company acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the benefit
of the Noteholders all money held by it as Paying Agent.
Section 2.05. Noteholder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of
the names and addresses of Noteholders and shall otherwise comply with TIA
312(a). If the Trustee is not the Registrar, the Company shall furnish to
the Trustee at least seven Business Days before each interest payment date
and at such other times as the Trustee may request in writing a list in
such form and as of such date as the Trustee may reasonably require of the
names and addresses of
Noteholders, and the Company shall otherwise comply with TIA 312(a).
Section 2.06. Transfer and Exchange. Where Securities are presented to
the Registrar with a request to register a transfer or to exchange them for
an equal principal amount of Securities of other denominations, such
Registrar shall register the transfer or make the exchange if the
requirements set forth in this Indenture and as otherwise may be reasonably
required by the Registrar with respect to such transactions are met. To
permit registrations of transfers and
exchanges, the Company shall issue and the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for
any registration of transfer or exchange (except as otherwise expressly
permitted herein), but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer tax or similar
governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06, 3.08, 5.02 or 11.05 hereof not
involving any transfer of the Securities).
The Company shall not be required (i) to issue, register the transfer of,
or exchange Securities during a period beginning at the opening of business
15 days before the day of mailing of notice of redemption of Securities
under Section 3.03 hereof and ending at the close of business on the day of
such mailing, or (ii) to exchange or register the transfer of any Security
so
selected for redemption in whole or in part, except the unredeemed portion
of any Security being redeemed in part.
(a) Notwithstanding any provision to the contrary herein, so long as a
Global Security remains outstanding and is held by or on behalf of the
Depositary, transfers of a Global Security, in whole or in part, or of any
beneficial interest therein, shall only be made in accordance with Sections
2.01(b) and 2.10 and this Section 2.06(a); provided, however, that
beneficial interests in
a Global Security may be transferred to persons who take delivery thereof
in the form of a beneficial interest in the Global Security in accordance
with the transfer restrictions set forth under the heading "Notice to
Investors" in the Offering Memorandum and, if applicable, in the Restricted
Global Securities Legend.
(i) Except for transfers or exchanges made in accordance with any of
clauses
(ii) through (v) of this Section 2.06(a) and Section 2.10, transfers of a
Global Security shall be limited to transfers of such Global Security in
whole, but not in part, to nominees of the Depositary or to a successor of
the Depositary or such successor's nominee.
(ii) Global Security to Definitive Security. If an owner of a beneficial
interest in a Global Security deposited with the Depositary or with the
Trustee as custodian for the Depositary wishes at any time to transfer its
interest in such Global Security to a Person who is required to take
delivery thereof in the form of a Definitive Security, such owner may,
subject to the rules and procedures of Euroclear or Cedel Bank, if
applicable, and the Depositary, cause the exchange of such interest for one
or more Definitive
Securities of any authorized denomination or denominations and of the same
aggregate principal amount. Upon receipt by the Registrar of (1)
instructions from Euroclear or Cedel Bank, if applicable, and the
Depositary directing the Trustee to authenticate and deliver one or more
Definitive Securities of the same aggregate principal amount as the
beneficial interest in the Global Security to be exchanged, such
instructions to contain the name or names of the designated transferee or
transferees, the authorized denomination
or denominations of the Definitive Securities to be so issued and
appropriate delivery instructions, (2) a certificate substantially in the
form of Exhibit B attached hereto given by the owner of such beneficial
interest, (3) a certificate substantially in the form of Exhibit C attached
hereto given by the person acquiring the Definitive Securities for which
such interest is being exchanged, to the effect set forth therein, and (4)
such other certifications or other information and, in the case of
transfers pursuant to Rule 144 under
the Securities Act, legal opinions as the Company may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the
Securities Act, then Euroclear or Cedel Bank, if applicable, or the
Registrar, as the case may be, will instruct the Depositary to reduce or
cause to be reduced such Global Security by the aggregate principal amount
of the beneficial interest therein to be exchanged and to debit or cause to
be debited from the account of the Person making such transfer the
beneficial interest in the Global Security
that is being transferred, and concurrently with such reduction and debit
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Definitive Securities of the same aggregate principal amount in
accordance with the instructions referred to above.
(iii) Definitive Security to Definitive Security. If a holder of a
Definitive
Security wishes at any time to transfer such Definitive Security (or
portion thereof) to a Person who is required to take delivery thereof in
the form of a Definitive Security, such holder may, subject to the
restrictions on transfer set forth herein and in such Definitive Security,
cause the transfer of such Definitive Security (or any portion thereof in a
principal amount equal to an authorized denomination) to such transferee.
Upon receipt by the Registrar of (1) such Definitive Security, duly
endorsed as provided herein, (2) instructions from such holder directing
the Trustee to authenticate and deliver one or
more Definitive Securities of the same aggregate principal amount as the
Definitive Security (or portion thereof) to be transferred, such
instructions to contain the name or names of the designated tranferee or
transferees, the authorized denomination or denominations of the Definitive
Securities to be so issued and appropriate delivery instructions, (3) a
certificate from the holder of the Definitive Security to be transferred in
substantially the form of Exhibit B attached hereto, (4) a certificate
substantially in the form of Exhibit C attached hereto given by the person
acquiring the Definitive Securities (or portion thereof), to the effect set
forth therein, and (5) such other certifications or other information and,
in the case of transfers pursuant to Rule 144 under the Securities Act,
legal opinions as the Company may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act, then
the Registrar, shall cancel or cause to
be canceled such Definitive Security and concurrently therewith, the
Company shall execute, and the Trustee shall authenticate and deliver, one
or more Definitive Securities in the appropriate aggregate principal
amount, in accordance with the instructions referred to above and, if only
a portion of a Definitive Security is transferred as aforesaid,
concurrently therewith Company shall execute and the Trustee shall execute
and deliver to the transferor a Definitive Security in a principal amount
equal to the principal amount
which has not been transferred. A holder of a Definitive Security may at
any time exchange such Definitive Security for one or more Definitive
Securities of other authorized denominations and in the same aggregate
principal amount and registered in the same name by delivering such
Definitive Security, duly endorsed as provided herein, to the Registrar
together with instructions directing the Trustee to authenticate and
deliver one or more Definitive Securities in the same aggregate principal
amount and registered in the same name as the Definitive Security to be
exchanged, and the Registrar thereupon
shall cancel or caused to be cancelled such Definitive Security and
concurrently therewith the Company shall execute and Trustee shall
authenticate and deliver, one or more Definitive Securities in the same
aggregate principal amount and registered in the same name as the
Definitive Security being exchanged.
(iv) Definitive Security to Global Security. If a holder of a Definitive
Security wishes at any time to transfer such Definitive Security (or
portion thereof) to a Person who is not required to take delivery thereof
in the form of a Definitive Security, such holder shall, subject to the
restrictions on transfer set forth herein and in such Definitive Security
and the rules of the Depositary and Euroclear and Cedel Bank, as
applicable, cause the exchange of such Definitive Security for a beneficial
interest in the Global Security. Upon receipt by the Registrar of (1) such
Definitive Security, duly endorsed as
provided herein, (2) instructions from such holder directing the Trustee to
increase the aggregate principal amount of the Global Security deposited
with the Depository or with the Trustee as custodian for the Depository by
the same aggregate principal amount at maturity as the Definitive Security
to be exchanged, such instructions to contain the name or names of a member
of, or participant in, the Depository that is designated as the transferee,
the account of such member or participant and other appropriate delivery
instructions,
(3) the assignment form on the back of the Definitive Security completed in
full (certifying in effect that such transfer complies with Rule 144A or
Regulation S under the Securities Act or is otherwise being made to a
Person who is not required to take delivery of such Security in the form of
a Definitive Security) and (4) such other certifications or other
information and, in the case of transfers pursuant to Rule 144 under the
Securities Act, legal opinions as the Company may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or
in a transaction not subject
to, the registration requirements of the Securities Act, then the
Registrar, shall cancel or cause to be canceled such Definitive Security
and concurrently therewith shall increase the aggregate principal amount of
the Global Security by the same aggregate principal amount as the
Definitive Security canceled.
(v) Other Exchanges. In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.10, prior to
the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of clauses
(ii) and (iii) above (including the certification requirements
intended to ensure that such transfers comply with Rule 144A or Regulation
S under the Securities Act, as the case may be) and such other procedures
as may from time to time be adopted by the Company.
(b) Except in connection with a Shelf Registration Statement contemplated
by and in accordance with the terms of the Registration Agreement, if
Securities are issued upon the registration of transfer, exchange or
replacement of Securities bearing a Restricted Securities Legend, or if a
request is made to remove such a Definitive Securities Legend on
Securities, the Securities so issued shall bear the Restricted Securities
Legend, or a Restricted Securities Legend shall not be removed, as the case
may be, unless there is delivered to the Company such
satisfactory evidence, which, in the case of a transfer made pursuant to
Rule 144 under the Securities Act, may include an opinion of counsel
licensed to practice law in the State of New York, as may be reasonably
required by the Company, that neither the legend nor the restrictions on
transfer set forth therein are required to ensure that transfers thereof
comply with the
provisions of Rule 144A, Rule 144 or Regulation S under the Securities Act
or that such Securities are not "restricted" within the meaning of Rule 144
under the Securities Act. Upon provision to the Company of such
satisfactory evidence, the Trustee, at the written direction of the
Company, shall authenticate and deliver Securities that do not bear the
legend. The
Company shall not otherwise be entitled to require the delivery of a
legalopinion in connection with any transfer or exchange of Securities.
(c) Neither the Trustee nor any Agent shall have any responsibility for any
actions taken or not taken by the Depositary.
(d) The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under
this Indenture or under applicable law with respect to any transfer of any
interest in any Security (including any transfers between or among
Depositary's participants or beneficial owners of interests in any Global
Security) other
than to require delivery of such certificates and other documentation as is
expressly required by, and to do so if and when expressly required by, the
terms of this Indenture and to examine the same to determine substantial
compliance as to form with the express requirements hereof. Section 2.07.
Replacement Securities. If the holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken or if such Security
is mutilated and is surrendered to the Registrar, the Company shall issue
and the Trustee shall authenticate a replacement Security if the Trustee's
and the Company's requirements (as shall have been previously communicated
to
the Trustee in a written letter of standing instruction) are met. If
required by the Trustee, the Registrar or the Company, an indemnity bond
must be sufficient in the judgment of each of the
foregoing to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a
Security is replaced. The Company may charge for its expenses in replacing
a Security.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, or is about to be redeemed or
purchased by the Company pursuant to Article III hereof or converted into
shares of Common Stock pursuant to Article V hereof, the Company in its
discretion may, instead of issuing a new Security, pay, redeem or convert
such Security, as the case may be. Every replacement Security is an
additional obligation of the Company and shall be entitled to all of the
benefits of this Indenture equally and proportionately with all other
Securities duly issued hereunder. The provisions of this Section 2.07 are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement of mutilated, destroyed, lost or
stolen Securities. Section 2.08. Outstanding Securities. The Securities
outstanding at any time are all the Securities authenticated by the Trustee
except for those canceled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Security is replaced, paid, redeemed or converted, it ceases to be
outstanding unless, in the case of a replaced Security, the Trustee
receives proof satisfactory to it that the replaced Security is held by a
bona fide purchaser. If Securities are considered paid under Section 4.01
hereof, they cease to be outstanding and interest (and Liquidated Damages,
if any) on them ceases to accrue. Except as set forth in Section 2.09
hereof, a Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security. Section 2.09. Treasury
Securities. In determining whether the Noteholders of the required
principal amount of Securities have concurred in any direction, waiver or
consent, Securities owned by the Company or an Affiliate of the Company
shall be considered as though they are not outstanding, except that for the
purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only
Securities which a Trust Officer actually knows are so owned shall be so
disregarded.
Section 2.10. Temporary Securities; Exchange of Global Security for
Definitive
Securities.
(a) Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but
may have variations that the Company considers appropriate for temporary
Securities and shall be reasonably acceptable to the Trustee. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive
Securities in exchange for temporary Securities.
(b) Except for transfers made in accordance with Section 2.06 (a), a Global
Security deposited with the Depositary or with the Trustee as custodian for
the Depositary pursuant to Section 2.01 shall be transferred to the
beneficial owners thereof in the form of certificated Securities in
definitive form only if such transfer complies with Section 2.06 and (i)
the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such
Global Security or if at any time such Depositary ceases to be a "clearing
agency" registered under the Exchange Act and a successor Depositary is not
appointed by the Company within 90 days of such notice, or
(ii) an Event of Default has occurred and is continuing.
(c) Any Global Security or interest thereon that is transferable to the
beneficial owners thereof in the form of certificated Securities in
definitive form shall, if held by the Depository, be surrendered by the
Depositary to the Trustee, without charge, and the Trustee shall
authenticate and deliver, upon such transfer of each portion of such Global
Security, an equal aggregate principal amount of Securities of authorized
denominations in the form of
certificated Securities in definitive form. Any portion of a Global
Security transferred pursuant
to this Section shall be executed, authenticated and delivered only in
denominations of $1,000 and any integral multiple thereof and registered in
such names as the Depositary shall direct. Any Securities in the form of
certificated Securities in definitive form delivered in exchange for
an interest in the Global Security shall, except as otherwise provided by
Section 2.06(b), bear the Restricted Definitive Securities Legend set forth
in Exhibit A hereto.
(d) Prior to any transfer pursuant to Section 2.10(b), the registered
holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a holder is entitled to take under
this Indenture or the Securities.
(e) The Company will make available to the Trustee a reasonable supply of
certificated Securities in definitive form without interest coupons.
Section 2.11. Cancellation. The Company at any time may deliver
Securities to the Registrar for cancellation. The Registrar, Paying Agent
and Conversion Agent shall forward to the Trustee any Securities
surrendered to them for registration of transfer, redemption, conversion,
exchange or payment. The Trustee shall promptly cancel all Securities
surrendered for registration of transfer, redemption, conversion, exchange,
payment, replacement or cancellation and shall dispose of all such canceled
Securities in accordance with its customary procedures. The Company may
not issue new Securities to replace Securities that it has paid or that
have been delivered to the Registrar for cancellation or that any holder
has converted. All Securities which are redeemed, purchased or otherwise
acquired by the Company or any of its Subsidiaries or Affiliates prior to
the final maturity date of the Securities shall be delivered to the Trustee
for cancellation and the Company may not hold or resell any such Securities
or issue any new Securities to replace any such Securities or any
Securities that any holder has converted pursuant to this Indenture.
Section 2.12. Payment of Interest: Interest Rights Preserved. Interest
(including Liquidated Damages, if any) on any Security which is payable,
and is punctually paid or duly provided for on any March 1 or September 1
shall be paid to the Person in whose name such Security (or one or more
predecessor Securities) is registered at the close of business on the
record date for such interest payment, which shall be the February 15 or
August 15 (whether or not a Business Day) immediately preceding such
interest payment date. Any interest and Liquidated Damages, if any, on any
Security which is payable, but is not punctually paid or duly provided for,
on any interest payment date (herein collectively called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on
the relevant record date, and, except as hereinafter provided, such
Defaulted Interest and any interest payable
on such Defaulted Interest may be paid by the Company, at its election, as
provided in subsection
(a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest, and
any interest payable on such Defaulted Interest, to the Persons in whose
names the Securities are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on the
Securities and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
(including Liquidated Damages, if any) or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as
provided in this subsection (a). Thereupon, the Trustee shall fix a
special record date for the payment of such Defaulted Interest which shall
be not more than 15 calendar days and not less than 10 calendar days prior
to the date of the proposed payment and not less than 10 calendar days
after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such special record date
and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be sent, first
class mail, postage prepaid, to each holder at such holder's address as it
appears in the register for the Securities, not less than 10 calendar days
prior to such special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Securities are registered at the close of business on such
special record date and shall no
longer be payable pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest and any interest
payable on such Defaulted Interest, on the Securities in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each Security
delivered under this Indenture upon registration of transfer of, or in
exchange for, or in lieu of, or in substitution for, any other Security,
shall carry the rights to interest (and Liquidated Damages, if any) accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 2.13. Computation of Interest. Interest on the Securities shall
be computed on the basis of a 360-day year consisting of twelve 30-day
months. In the event that any principal of or premium, if any, or interest
or Liquidated Damages, if any, on the Securities is not paid when due, then
except to the extent permitted by law, such overdue principal, premium, if
any, interest and Liquidated Damages, if any, shall bear interest until
paid at the Default Rate, compounded semi-annually. As used herein, the
term "Default Rate" means, as of any date and
whether or not any Securities are outstanding on such date, a rate per
annum equal to (i) 5% per annum plus (ii) if a Registration Default (as
defined in the Registration Agreement) has occurred and is continuing on
such date, the per annum rate of interest at which Liquidated Damages on
the Securities are being computed on such date or, if no Securities are
outstanding on such date,
the per annum rate of interest at which Liquidated Damages on the
Securities would have been computed on such date if the Securities were
outstanding.
Section 2.14. CUSIP Number. The Company in issuing the Securities may use
a
"CUSIP" number in notices of redemption or exchange as a convenience to
holders; provided that any such notice may state that no representation is
made as to the correctness or accuracy of the CUSIP number printed in the
notice or on the Securities and that reliance may be placed only on the
other identification numbers printed on the Securities. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
Section 2.15. Regulation S. The Company agrees that it will refuse to
register any transfer of Securities or any shares of Common Stock issued
upon conversion of Securities that is not made in accordance with the
provisions of Regulation S under the Securities Act, pursuant to a
registration statement which has been declared effective under the
Securities Act or pursuant to an available exemption from the registration
requirements of the SecuritiesAct; provided that
the provisions of this paragraph shall not be applicable to any Securities
which do not bear a Restricted Securities Legend or to any shares of Common
Stock evidenced by certificates which do not bear a Restricted Common Stock
Legend.
Section 2.16. Persons Deemed Owners. Prior to due presentment of a
Security for registration of transfer, the Company, the Trustee and any
Agent of the Company may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving
payment of principal of and premium, if any, and (subject to Sections 2.06
and 2.13 above) interest and Liquidated Damages, if any, on such Security
and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the
Company, the Trustee nor any Agent shall be affected by notice to the
contrary.
ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to
Section 3.07 hereof, it shall notify the Trustee in writing of the
redemption date and the principal
amount of Securities to be redeemed. The Company shall give each notice
provided for in this
Section 3.01 at least 45 days before the redemption date (unless a shorter
notice period shall be
satisfactory to the Trustee).
Section 3.02. Selection of Securities to be Redeemed. If less than all
the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed by a method that complies with the requirements of the
principal national securities exchange, if any, on which the Securities are
listed, or, if the Securities are not so listed, on a pro rata basis, by
lot or by such
other method as the Trustee considers fair and appropriate. The Trustee
shall make the selection not more than 60 days and not less than 30 days
before the redemption date from Securities outstanding not previously
called for redemption. The Trustee may select for redemption portions of
the principal of Securities that have denominations larger than $1,000.
Securities and
portions of them it selects shall be in principal amounts of $1,000 or
integral multiples of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities
called for redemption. The Trustee shall notify the Company promptly of
the Securities or portions of Securities to be called for redemption. If
any Security selected for partial redemption is converted in part after
such selection, the converted portion of such Security shall be deemed (so
far as may be) to be the portion to be selected for redemption. The
Securities (or portions thereof) so selected shall be deemed duly selected
for redemption for all purposes hereof, notwithstanding that any such
Security is converted in whole or in part before the mailing of the notice
of redemption. Upon any redemption of less than all the Securities, the
Company and the Trustee may treat as outstanding
any Securities surrendered for conversion during the period 15 days next
preceding the mailing of a notice of redemption and need not treat as
outstanding any Security authenticated and delivered during such period in
exchange for the unconverted portion of any Security converted
in part during such period.
Section 3.03. Notice of Redemption. At least 30 days but not more than 60
days before a redemption date, the Company shall mail a notice of
redemption to each holder whose Securities are to be redeemed at such
holder's registered address.
The notice shall identify the Securities to be redeemed (including the
CUSIP number) and shall state:
(a) the redemption date;
(b) the redemption price and the amount accrued and unpaid interest and
Liquidated Damages, if any, to be paid;
(c) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the redemption date,
upon
cancellation of such Security, a new Security or Securities in principal
amount equal to the unredeemed portion will be issued in the name of the
holder thereof;
(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price plus accrued interest and Liquidated
Damages, if any;
(f) that, unless the Company defaults in making such redemption payment or
the Paying Agent is prohibited from making such payment pursuant to the
terms of this Indenture, by law or otherwise, interest and Liquidated
Damages, if applicable, on Securities called for redemption cease to accrue
on and after the redemption date;
(g) the paragraph of the Securities pursuant to which the Securities called
for
redemption are being redeemed; and
(h) any other information necessary to enable holders to comply with the
notice of redemption.
Such notice shall also state the current Conversion Price and the date on
which the right to convert such Securities or portions thereof into Common
Stock of the Company will expire. At the Company's request, the Trustee
shall give notice of redemption in the Company's name and at the Company's
expense. In such event, the Company shall provide the Trustee with the
information required by this Section 3.03 in a timely manner; provided that
the Company shall give the Trustee not less than 60 days' written notice
unless the Trustee consents to a
shorter period.
Section 3.04. Effect of Notice of Redemption. Once notice of redemption
is mailed, Securities called for redemption become due and payable on the
redemption date at the price set forth in the Security plus interest and
Liquidated Damages, if any, accrued and unpaid to the redemption date;
provided that accrued interest and Liquidated Damages which are due and
payable on any interest payment date which is on or prior to the redemption
date shall be payable to the holders of such Securities, or one or more
predecessor Securities, registered as such at the
close of business on the relevant record date; and provided, further, that
if a redemption date is not a Business Day, payment shall be made on that
next succeeding Business Day and no interest shall accrue for the period
from such redemption date to such succeeding Business Day unless the
Company shall default in the payment due on such Business Day. Upon
surrender to the Paying Agent, such Securities shall be paid at the
redemption price stated in such notice. Failure to give notice or any
defect in the notice to any holder shall not affect the validity of the
notice to any other holder. The notice if mailed in the manner herein
provided shall be conclusively presumed to have been given. In any case,
failure to give such notice to any holder or any defect in the notice to
any holder of any Security designated for redemption as a whole or in part
shall not affect the validity of the proceedings for the redemption of any
other Securities.
Section 3.05. Deposit of Redemption Price. Prior to 10:00 a.m. (New York
City time) on the redemption date, the Company shall deposit with the
Trustee or the Paying Agent in immediately available funds, money
sufficient to pay the redemption price of and accrued and unpaid interest
and Liquidated Damages, if applicable, to but not including the redemption
date on all Securities to be redeemed on that date (subject to the right of
holders of record on the
relevant record date to receive interest (and Liquidated Damages, if
applicable) due on an interest payment date) unless there to fore converted
into Common Stock pursuant to the provisions hereof. The Trustee or such
Paying Agent shall return to the Company any money not required for that
purpose. So long as the Company complies with the preceding paragraph and
the other provisions of this Article III and unless the Paying Agent is
prohibited from making such payment pursuant to the terms of this
Indenture, by law or otherwise, interest (and Liquidated Damages, if any)
on the Securities to be redeemed on the applicable redemption date shall
cease to accrue from and after such redemption date and such Securities or
portions thereof shall be deemed not to be entitled to any benefit under
this Indenture except to receive payment on the redemption date of
the redemption price plus interest and Liquidated Damages, if any, accrued
and unpaid to the redemption date. If any Security called for redemption
shall not be so paid upon surrender for redemption, then, from the
redemption date until such redemption price (including, without limitation,
accrued interest and Liquidated Damages, if any) is paid in full, the
Company shall pay interest, to the extent permitted by law, on the unpaid
principal of and premium, if any,
interest and Liquidated Damages, if any, on such Security at the Default
Rate, compounded semiannually.
Section 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Company shall issue and the Trustee shall
authenticate for the holder at the expense of the Company a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
Section 3.07. Optional Redemption. The Company may redeem all or any
portion of the Securities, upon the terms and at the redemption prices set
forth in each of the Securities. Any redemption pursuant to this Section
3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06
hereof.
Section 3.08. Designated Event Offer.
(a) In the event that, pursuant to Section 4.07 hereof, the Company shall
commence a Designated Event Offer, the Company shall follow the procedures
in this Section 3.08.
(b) The Designated Event Offer shall remain open for a period specified by
the
Company which shall be no less than 30 days and no more than 60 days from
and including the date of the mailing of notice in accordance with Section
3.08(d) hereof (the "Commencement Date"), except to the extent that a
longer period is required by applicable law (the "Tender Period"). On the
day (the "Designated Event Payment Date") immediately following the last
day of the Tender Period, the Company shall purchase the principal amount
of Securities duly
surrendered for repurchase and not withdrawn.
(c) If a Designated Event Payment Date is after a record date and before
the related interest payment date, accrued interest and Liquidated Damages,
if any, to the related interest payment date will be paid to the persons in
whose names the Securities (or one or more predecessor Securities) are
registered at the close of business on such record date, notwithstanding
the repurchase of any such Securities on such Designated Event Payment
Date, and no additional interest or Liquidated Damages, if any, will be
payable to Noteholders who
tender Securities for purchase on such Designated Event Payment Date.
(d) The Company shall provide the Trustee with written notice of the
Designated
Event Offer at least 10 Business Days before the Commencement Date.
(e) Within 30 days following any Designated Event, unless the Company is
entitled to and has previously elected to redeem all of the outstanding
Securities at its option and has previously given holders notice of its
intention to redeem all of the outstanding Securities in accordance with
Article III of this Indenture, the Company or the Trustee (at the request
and
expense of the Company) shall send, by first class mail, a notice to each
of the Noteholders, which shall govern the terms of the Designated Event
Offer and shall state:
(i) that the Designated Event Offer is being made pursuant to this
Section 3.08 and Section 4.07 hereof and that all Securities validly
tendered will be accepted for payment;
(ii) the purchase price (as determined in accordance with Section 4.07
hereof ,
subject to Section 3.08(c) hereof), the length of time the Designated Event
Offer will remain open and the Designated Event Payment Date;
(iii) that any Security or portion thereof not validly tendered or
accepted for
payment will continue to accrue interest and Liquidated Damages, if
applicable, and will continue to have conversion rights;
(iv) that, unless the Company defaults in the payment of the Designated
Event
Payment, any Security or portion thereof accepted for payment pursuant to
the
Designated Event Offer shall 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;
(v) that Noteholders electing to have a Security or portion thereof
purchased
pursuant to any Designated Event Offer will be required to surrender the
Security, with the form entitled "Option of Noteholder To Elect Purchase"
on the reverse of the Security completed, to a Paying Agent at the address
specified in the notice (which shall include and address in the Borough of
Manhattan, The City of New York) prior to the close of business on the
third Business Day preceding the Designated Event Payment Date;
(vi) that Noteholders 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 letter or facsimile
transmission setting forth the name of the Noteholder, the principal amount
of the Securities or portion thereof delivered for purchase and a statement
that such Noteholder is withdrawing his election to have such Securities or
portions thereof purchased; and
(vii) that Noteholders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof.In
addition, the notice shall contain all instructions, other information and
materials that the Company shall reasonably deem necessary to enable such
Noteholders to tender Securities pursuant to the Designated Event Offer or
to withdraw tendered Securities. If the Company is not required to mail
such notice because, as provided above, it has previously given notice of
its intention to redeem the Securities in whole but the Company thereafter
defaults in the payment of the redemption price (including accrued interest
and Liquidated Damages, if any) on any of the Securities on the relevant
redemption date, then the Company shall be required to give notice pursuant
to this Section 3.08(e) no later than the second Business Day following
such redemption date, in which case the Tender Period shall be 30 days
except to the extent that a longer period is required by applicable law.
In the event that the Company is required by
applicable law to extend the Tender Period beyond the Designated Event
Payment Date set forth in such notice, the Company will, as promptly as
possible, issue a press release and send notice to holders announcing such
extension and the new Designated Event Payment Date, which press release
and notice shall state the new deadlines for surrendering and withdrawing
Securities.
(f) Prior to 10:00 A.M. (New York City Time) on the Designated Event
Payment
Date, the Company shall irrevocably deposit with the Trustee or the Paying
Agent in immediately available funds an amount equal to the Designated
Event Payment in respect of all Securities or portions thereof validly
tendered and not withdrawn, such funds to be held for payment in accordance
with the terms of this Section 3.08. On the Designated Event Payment Date,
the Company shall, to the extent lawful, (i) accept for payment the
Securities or portions
thereof validly tendered pursuant to the Designated Event Offer, (ii)
deliver or cause to be delivered to the Trustee the Securities so accepted
and (iii) deliver to the Trustee an Officers' Certificate identifying the
Securities or portions thereof tendered and not withdrawn to the Company
and stating that such Securities have been accepted for payment by the
Company in accordance with the terms of this Section 3.08. The Paying
Agent shall promptly (but in any
case not later than five calendar days after the Designated Event Payment
Date) mail or deliver to each holder of Notes so accepted for payment an
amount equal to the Designated Event Payment for such Securities, and the
Trustee shall promptly authenticate and mail or otherwise deliver to each
such Noteholder a new Security equal in principal amount to any unpurchased
portion of the Security surrendered; provided that each new Security shall
be in a principal
amount of $1,000 or an integral multiple thereof. Any Securities not so
accepted shall be promptly mailed or otherwise delivered by or on behalf of
the Company to the holders thereof. The Company will publicly announce the
results of the Designated Event Offer on, or as soon as practicable after,
the Designated Event Payment Date.
(g) The Designated Event Offer shall be made by the Company in compliance
with
all applicable provisions of the Exchange Act and any other securities laws
and regulations (including, without limitation, Rules 13e-4 and 14e-1 under
the Exchange Act) to the extent such laws and regulations are applicable in
connection with the repurchase of the Securities in connection with a
Designated Event.
ARTICLE IV
COVENANTS
Section 4.01. Payment of Securities. The Company shall pay the principal
of, premium, if any, and interest (and Liquidated Damages, if applicable)
on the Securities on the dates and in the manner provided in the Securities
and this Indenture. Principal, premium, if any, and interest (and
Liquidated Damages, if applicable) shall be considered paid on the date due
if the Paying Agent (other than the Company or an Affiliate of the Company)
holds on that date money
designated for and sufficient to pay all principal, premium, if any and
interest (and Liquidated Damages, if any) then due and such Paying Agent is
not prohibited from paying such money to the Noteholders on that date
pursuant to the terms of this Indenture. To the extent lawful, the Company
shall pay interest (including post-petition interest in any proceeding
under any
Bankruptcy Law) on overdue installments of interest (and on overdue
principal, premium, if any, and Liquidated Damages, if applicable (in each
case without regard to any applicable grace period)), at the Default Rate,
compounded semiannually.
Section 4.02. SEC Reports. The Company will comply with the requirements
of TIA
Section 314(a). In addition, whether or not required by the rules and
regulations of the SEC, so long as any Securities are outstanding, the
Company will file with the SEC and furnish (without exhibits) to the
Trustee and to the holders of Securities all quarterly and annual financial
information required to be contained in a filing with the SEC on Forms 10-Q
and 10-K, including a "Management's Discussion and Analysis of Financial
Conditions and Results of
Operations" and, with respect to annual consolidated financial statements
only, a report on the annual consolidated financial statements by the
Company's certified independent accountants. The Company shall not be
required to file any report or other information with the SEC if the SEC
does not permit such filing. Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the
Trustee's receipt thereof shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants
hereunder.In addition, if the Company at any time is not subject to either
Section 13 or 15(d) of the Exchange Act, the Company will provide to each
holder and beneficial owner of Securities and
shares of Common Stock issued upon conversion of Securities, and to any
prospective purchaser designated by any such holder or beneficial owner,
upon request, the information required pursuant to Rule 144A(d)(4) of the
Securities Act.
Section 4.03. Compliance Certificate. The Company shall deliver to the
Trustee, within 120 days after the end of each fiscal year of the Company,
an Officers' Certificate stating that a review of the activities of the
Company and its subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining
whether the
Company has kept, observed, performed and fulfilled its obligations under,
and complied with the covenants and conditions contained in, this
Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of such Officer's knowledge the Company has
kept, observed, performed and fulfilled each and every covenant, and
complied with the covenants and conditions contained in this Indenture and
is not in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of
which such Officer may have knowledge) and that to the best of such
Officer's knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of, or premium, if
any, interest or Liquidated Damages, if any, on, the Securities are
prohibited.
One of the Officers signing such Officers' Certificate shall be either the
Company's principal executive officer, principal financial officer or
principal accounting officer.The Company will, so long as any of the
Securities are outstanding, deliver to the Trustee, forthwith upon, but in
any event within five Business Days after, becoming aware of:
(a) any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in this Indenture; or
(b) any default under any other mortgage, indenture or instrument of the
nature described in Section 8.01(e), an Officers' Certificate specifying
such Default, Event of Default or default and what action the Company is
taking or proposing to take with respect thereto. Immediately upon the
occurrence of any event giving rise to an obligation of the Company to pay
Liquidated Damages with respect to the Securities in accordance with
paragraph 11 of the form thereof and the Registration Agreement or the
termination of any such obligation, the Company shall give the Trustee
notice of such commencement or termination, of
the obligation to pay Liquidated Damages with regard to the Securities and
the amount thereof and of the event giving rise to such commencement or
termination (such notice to be contained in an Officers' Certificate), and
prior to receipt of such Officers' Certificate the Trustee shall be
entitled to assume that no such commencement or termination has occurred,
as the case may be.
Section 4.04. Stay, Extension and Usury Law. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law has been enacted.
Section 4.05. Corporate Existence. Except as provided in Article VII
hereof, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each Subsidiary of the Company
in accordance with the respective organizational documents of the Company
and each Subsidiary and the rights (charter and statutory), licenses and
franchises of the Company
and its Subsidiaries; provided, however, that the Company shall not be
required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any Subsidiary, if the Board of Directors shall determine that
the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole and that the
loss thereof is not adverse in any material respect to the Noteholders.
Section 4.06. Taxes. The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all taxes, assessments and
governmental levies, except such as are contested in good faith and by
appropriate proceedings and for which adequate reserves in accordance with
GAAP or other appropriate provisions have been made.
Section 4.07. Designated Event. Upon the occurrence of a Designated
Event, each holder of Securities shall have the right, in accordance with
this Section 4.07 and Section 3.08 hereof, to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Securities pursuant to the terms of an offer made
as provided in Section 3.08 (the "Designated Event Offer") at a purchase
price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the Designated
Event Payment Date (the "Designated Event Payment").
Section 4.08. Investment Company Act. As long as any Securities are
outstanding, the Company will conduct its business and operations so as not
to become an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and will
take all steps required in order for it to continue not to be an
"investment company" and not to be required to be registered under the
Investment Company Act, including, if necessary, redeployment of the assets
of the Company.
ARTICLE V
CONVERSION
Section 5.01. Conversion Privilege. A holder of any Security may convert
the principal amount thereof (or any portion thereof that is an integral
multiple of $1,000) into fully paid and nonassessable shares of Common
Stock of the Company at any time after 90 days following the Issuance Date
and prior to the close of business on the Business Day immediately
preceding the final maturity date of the Security at the Conversion Price
then in effect, except that, with respect
to any Security called for redemption, such conversion right shall
terminate at the close of business on the Business Day immediately
preceding the redemption date (unless the Company shall default in making
the redemption payment when it becomes due, in which case the conversion
right shall terminate at the close of business on the date on which such
default is cured). The number of shares of Common Stock issuable upon
conversion of a Security is determined by dividing the principal amount of
the Security converted by the Conversion Price
in effect on the Conversion Date. "Conversion Price" means $149.625, as the
same may be adjusted from time to time as provided in this Article V;
provided that, for purposes of clarity, it is hereby understood and agreed
that, upon the occurrence of the Stock Split (which it is currently
contemplated will occur
on the date of this Indenture), the Conversion Price will, pursuant to
Section 5.06(a) hereof, automatically be adjusted to $74.8125 per share.
Provisions of this Indenture that apply to conversion of all of a Security
also apply to
conversion of a portion of it. A holder of Securities is not entitled to
any rights of a holder of Common Stock until such holder of Securities has
converted such Securities into Common Stock, and only to the extent that
such Securities are deemed to have been converted into Common Stock under
this Article V.
Section 5.02. Conversion Procedure. To convert a Security, a holder must
satisfy the requirements in paragraph 10 of the Securities. The date on
which the holder satisfies all of those requirements is the conversion date
(the "Conversion Date"). As promptly as practicable on or after the
Conversion Date, the Company shall issue and deliver to the Trustee a
certificate or certificates for the number of whole shares of Common Stock
issuable upon the conversion
and a check or other payment for any fractional share in an amount
determined pursuant to Section 5.03. Such certificate or certificates will
be sent by the Trustee to the Conversion Agent for delivery to the holder.
The Person in whose name the certificate is registered shall become the
stockholder of record on the Conversion Date and, as of such date, such
Person's rights as a Noteholder with respect to the converted Security
shall cease; provided, however, that, except as otherwise provided in this
Section 5.02, no surrender of a Security on any date when the stock
transfer books of the Company shall be closed shall be effective to
constitute the Person entitled to receive the shares of Common Stock upon
such conversion as the stockholder of record of such shares of Common Stock
on such date, but such surrender shall be effective to constitute the
Person entitled to receive such shares of Common Stock as the stockholder
of record thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open; provided,
further, however, that such conversion shall be at the Conversion Price in
effect on the date that such Security shall have been surrendered for
conversion, as if the stock
transfer books of the Company had not been closed. No payment or adjustment
will be made for accrued and unpaid interest or Liquidated Damages on a
converted Security or for dividends or distributions on, or Liquidated
Damages, if
any, attributable to, shares of Common Stock issued upon conversion of a
Security, except that, if any holder surrenders a Security for conversion
after the close of business on any record date for the payment of an
installment of interest and prior to the opening of business on the next
succeeding interest payment date, then, notwithstanding such conversion,
accrued and unpaid
interest and Liquidated Damages, if applicable, payable on such Security on
such interest payment date shall be paid on such interest payment date to
the person who was the holder of such Security (or one or more predecessor
Securities) at the close of business on such record date. In the case of
any Security surrendered for conversion after the close of business on a
record date for the payment of an installment of interest and prior to the
opening of business on
the next succeeding interest payment date, then, unless such Security has
been called for redemption on a redemption date or is to be repurchased on
a Designated Event Payment Date after such record date and prior to such
interest payment date, such Security, when surrendered for conversion, must
be accompanied by payment in an amount equal to the interest and Liquidated
Damages, if applicable, payable on such interest payment date on the
principal
amount of such Security so converted. 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. If a holder converts more than one Security at the same
time, the number of whole shares of Common Stock issuable upon the
conversion shall be based on the total principal amount of Securities
converted. Upon surrender of a Security that is converted in part, the
Trustee shall authenticate for the holder a new Security equal in principal
amount to the unconverted portion of the Security surrendered. Section
5.03. Fractional Shares. The Company will not issue fractional shares of
Common Stock upon conversion of a Security. In lieu thereof, the Company
will pay an amount in cash based upon the Daily Market Price of the Common
Stock on the Trading Day prior to the Conversion Date. Section 5.04. Taxes
on Conversion. The issuance of certificates for shares of Common Stock
upon the conversion of any Security shall be made without charge to the
converting Noteholder for such certificates or for any tax in respect of
the issuance of such certificates, and such certificates shall be issued in
the respective names of, or in such names as may be directed by, the holder
or holders of the converted Security; provided, however, that in the event
that
certificates for shares of Common Stock are to be issued in a name other
than the name of the holder of the Security converted, such Security, when
surrendered for conversion, shall be accompanied by an instrument of
assignment or transfer, in form satisfactory to the Company, duly executed
by the registered holder thereof or his duly authorized attorney; and
provided,
further, however, that the Company shall not be required to pay anyy tax
which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the
holder of the converted Security, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid
or is not applicable. Section 5.05. Company to Provide Stock. The Company
shall at all times reserve and keep available, free from preemptive rights,
out of its authorized but unissued Common Stock, solely for the purpose of
issuance upon conversion of Securities as herein provided, a sufficient
number of shares of Common Stock to permit the conversion of all
outstanding Securities for
shares of Common Stock. All shares of Common Stock which may be issued upon
conversion of the Securities shall be duly authorized, validly issued,
fully paid and nonassessable when so issued. The Company shall take such
action from time to time as shall be necessary so that par value of the
Common Stock shall at all times be equal to or less than the Conversion
Price then in effect.
The Company shall from time to time take all action necessary so that the
Common Stock which may be issued upon conversion of Securities, immediately
upon their issuance (or, if such Common Stock is subject to restrictions on
transfer under the Securities Act, upon their resale pursuant to an
effective Shelf Registration Statement or in a transaction pursuant to
which the certificate evidencing such Common Stock shall no longer bear the
Restricted Common Stock
Legend), will be listed on the principal securities exchanges, interdealer
quotation systems (including the NNM) and markets, if any, on which other
shares of Common Stock of the Company are then listed or quoted.
Section 5.06. Adjustment of Conversion Price. The Conversion Price shall
be subject to adjustment from time to time as follows:
(a) In case the Company shall (1) pay a dividend in shares of Common Stock
to
holders of Common Stock, (2) make a distribution in shares of Common Stock
to holders of Common Stock, (3) subdivide its outstanding shares of Common
Stock into a greater number of shares of Common Stock or (4) combine its
outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of any Security thereafter
surrendered for conversion
shall be entitled to receive the number of shares of Common Stock which he
would have owned immediately following such action had such Securities been
converted immediately prior thereto. Any adjustment made pursuant to this
subsection (a) shall become effective immediately after the record date in
the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination.(b) In case the Company shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price
per share (or having a conversion price per share) less than the Current
Market Price per share (as determined pursuant to subsection (f) below) of
the Common Stock on the record date for determining the holders of the
Common Stock entitled to receive such rights or warrants, the Conversion
Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to such record date by a fraction of which the numerator
shall be thhe number of shares of Common Stock outstanding as of the close
of business on such record date plus the number of shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so offered for subscription or purchase (or the aggregate conversion
price of the
convertible securities so offered) would purchase at such Current Market
Price, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of additional shares
of Common Stock so offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustments shall
become effective immediately after such record date. For the purposes of
this subsection (b), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued
in lieu of fractions of shares of such Common Stock. The Company shall not
issue any rights, options or warrants in respect of shares of Common Stock
held in the treasury of the Company.
(c) In case the Company shall distribute to all holders of Common Stock
shares of Capital Stock of the Company (other than Common Stock), evidences
of indebtedness, cash, rights or warrants entitling the holders thereof to
subscribe for or purchase securities (other than rights or warrants
described in subsection (b) above) or other assets (including securities of
Persons other than the Company but excluding (i) dividends or distributions
paid exclusively in cash , (ii) dividends and distributions described in
subsection (b) above and (iii) distributions in connection with the
consolidation, merger or transfer of assets covered by Section 5.13), then
in each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in subsection (f) below) of the Common
Stock on the record date mentioned below less the fair market value on such
record date (as determined by the Board of Directors, whose determination
shall be conclusive evidence of such fair market value and described in a
Board
Resolution delivered to the Trustee) of the portion of the evidences of
indebtedness, shares of Capital Stock, cash, rights, warrants or other
assets so distributed applicable to one share of Common Stock (determined
on the basis of the number of shares of the Common Stock outstanding on the
record date), and of which the denominator shall be such Current Market
Price of the Common Stock. Such adjustment shall become effective
immediately after the record date for the determination of the holders of
Common Stock entitled to receive such distribution. Notwithstanding the
foregoing, in case the Company shall distribute rights or warrants to
subscribe for additional shares of the Company's Capital Stock (other than
rights or warrants referred to in subsection (b) above) ("Rights") to all
holders of Common Stock, the Company may, in lieu of making any adjustment
pursuant to the foregoing provisions of this Section 5.06(c), make proper
provision so that each holder of a Security who converts such Security (or
any portion thereof) after the record date for such distribution and prior
to the expiration or redemption of the Rights shall be entitled to receive
upon such conversion, in addition to the shares of Common Stock issuable
upon such conversion (the "Conversion Shares"), a number of Rights to be
determined as follows: (i) if such conversion occurs on or
prior to the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same
number of Rights to which a holder of a number of shares of Common Stock
equal to the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and applicable to
the Rights; and
(ii) if such conversion occurs after the Distribution Date, the same number
of Rights to which a holder of the number of shares of Common Stock into
which the principal amount of the Security so converted was convertible
immediately prior to the Distribution Date would have been entitled on the
Distribution Date in accordance with the terms and provisions of and
applicable to the Rights.
(d) In case the Company shall, by dividend or otherwise, at any time make a
distribution to all holders of its Common Stock exclusively in cash
(including any distributions of cash out of current or retained earnings of
the Company but excluding any cash that is distributed as part of a
distribution requiring a Conversion Price adjustment pursuant to
paragraph (c) of this Section) in an aggregate amount that, together with
the sum of (x) the aggregate amount of any other distributions made
exclusively in cash to all holders of Common Stock within the 12 months
preceding the date fixed for determining the stockholders entitled to such
distribution (the "Distribution Record Date") and in respect of which no
Conversion Price
adjustment pursuant to paragraph (c) or (e) of this Section or this
paragraph (d) has been made plus (y) the aggregate amount of all Excess
Payments in respect of any tender offers or other negotiated transactions
by the Company or any of its Subsidiaries for Common Stock concluded within
the 12 months preceding the Distribution Record Date and in respect of
which no
Conversion Price adjustment pursuant to paragraphs (c) or (e) of this
Section or this paragraph (d) has been made, exceeds 12(r)% of the product of
the Current Market Price per share (determined as provided in paragraph (f)
of this Section) of the Common Stock on the Distribution Record Date
multiplied by the number of shares of Common Stock outstanding on the
Distribution Record Date (excluding shares held in the treasury of the
Company), the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying such Conversion Price in effect
immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this paragraph (d) by a fraction
of which the numerator shall be the Current Market Price per share
(determined as provided in paragraph (f) of this Section) of the Common
Stock on the Distribution Record Date less the sum of the aggregate amount
of cash and the aggregate Excess Payments so distributed, paid or payable
within such 12 month period (including, without limitation, the
distribution in respect of which
such adjustment is being made) applicable to one share of Common Stock
(which shall be determined by dividing the sum of the aggregate amount of
cash and the aggregate Excess Payments so distributed, paid or payable
within such 12 months (including, without limitation, the distribution in
respect of which such adjustment is being made) by the number of shares of
Common Stock outstanding on the Distribution Record Date and the
denominator shall be such Current Market Price per share (determined as
provided in paragraph (f) of this Section) of the
Common Stock on the Distribution Record Date, such reduction to become
effective
immediately prior to the opening of business on the day following the
Distribution Record Date.
(e) In case a tender offer or other negotiated transaction made by the
Company or any Subsidiary of the Company for all or any portion of the
Common Stock shall be consummated, if an Excess Payment is made in respect
of such tender offer or other negotiated transaction and the aggregate
amount of such Excess Payment, together with the sum of (x) the aggregate
amount of
any distributions, by dividend or otherwise, to all holders of the Common
Stock made in cash (including any distributions of cash out of current or
retained earnings of the Company) within the 12 months preceding the date
of payment of such current negotiated transaction consideration or
expiration of such current tender offer, as the case may be (the "Purchase
Date"), and as to which no adjustment in the Conversion Price pursuant to
paragraph (c) or paragraph (d) of this Section or this paragraph (e) has
been made plus (y) the aggregate amount of all Excess Payments in respect
of any other tender offers or other negotiated transactions by the Company
or any of its Subsidiaries for Common Stock concluded within the 12 months
preceding the Purchase Date and in respect of which no adjustment in the
Conversion Price pursuant to paragraph (c) or (d) of this Section or this
paragraph (e) has been made, exceeds 12(r)% of the
product of the Current Market Price per share (determined as provided in
paragraph (f) of this Section) of the Common Stock on the Purchase Date
multiplied by the number of shares of Common Stock outstanding on the
Purchase Date (including any tendered shares but excluding any shares held
in the treasury of the Company), the Conversion Price shall be reduced so
that
the same shall equal the price determined by multiplying such Conversion
Price in effect immediately prior to the effectiveness of the Conversion
Price reduction contemplated by this paragraph (e) by a fraction of which
the numerator shall be the Current Market Price per share (determined as
provided in paragraph (f) of this Section) of the Common Stock on the
Purchase Date less the sum of the aggregate amount of cash and the
aggregate Excess Payments so
distributed, paid or payable within such 12 month period (including,
without limitation, the Excess Payment in respect of which such adjustment
is being made) applicable to one share of Common Stock (which shall be
determined by dividing the sum of the aggregate amount of cash and the
aggregate Excess Payments so distributed, paid or payable within such 12
months (including, without limitation, the Excess Payment in respect of
which such adjustment is being made) by the number of shares of Common
Stock outstanding on the Purchase Date and the denominator shall be such
Current Market Price per share (determined as provided in paragraph (f) of
this Section) of the Common Stock on the Purchase Date, such reduction to
become
effective immediately prior to the opening of business on the day following
the Purchase Date.(f) The "Current Market Price" per share of Common Stock
on any date shall be deemed to be the average of the Daily Market Prices
for the shorter of (i) 30 consecutive Business Days ending on the last full
Trading Day on the exchange or market referred to in determining such Daily
Market Prices prior to the time of determination or (ii) the period
commencing on the date next succeeding the first public announcement of the
issuance of such rights or such warrants or such other distribution or such
tender offer or other negotiated transaction through such last full Trading
Day on the exchange or market referred to in determining such Daily Market
Prices prior to the time of determination.(g) "Excess Payment" means the
excess of (A) the aggregate of the cash and fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and described in a Board
Resolution delivered to the Trustee) of other consideration paid by the
Company or any of its 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.(h) In any case in which this Section 5.06 shall
require that an adjustment be made immediately following a record date for
an event, the Company may elect to defer, until such event, issuing to the
holder of any Security converted after such record date the shares of
Common Stock and other Capital Stock of the Company issuable upon such
conversion over and above the shares of Common Stock and other Capital
Stock of the Company issuable upon such conversion on the basis of the
Conversion Price prior to adjustment; and, in lieu of the shares the
issuance of which is so deferred, the Company shall issueor cause its
transfer agents to issue due bills or other appropriate evidence of the
right to receive such shares. Section 5.07. No Adjustment. No adjustment
in the Conversion Price shall be required until cumulative adjustments
amount to 1% or more of the Conversion Price as last adjusted;
provided, however, that any adjustments which by reason of this Section
5.07 are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Article
V shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. No adjustment need be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. No adjustment need
be made for a change in the par value or no par value of the Common Stock.
Section 5.08. Other Adjustments.
(a) In the event that, as a result of an adjustment made pursuant to
Section 5.06 above, the holder of any Security thereafter surrendered for
conversion shall become entitled to receive any shares of Capital Stock of
the Company other than shares of its Common Stock, thereafter the
Conversion Price of such other shares so receivable upon conversion of any
Securities shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to Common Stock contained in this
Article V.
(b) In the event that any shares of Common Stock issuable upon exercise of
any of the rights, options or warrants referred to in Section 5.06(b) and
Section 5.06(c) hereof are not delivered prior to the expiration of such
rights, options, or warrants, the Conversion Price shall be readjusted to
the Conversion Price which would otherwise have been in effect had the
adjustment made upon the issuance of such rights, options or warrants been
made on the basis of delivery of only the number of such rights, options
and warrants which were actually exercised.
Section 5.09. Adjustments for Tax Purposes. The Company may, at its
option, make
such reductions in the Conversion Price, in addition to those required by
Section 5.06 above, as
the 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 from any event treated as such for
federal income tax purposes. Section 5.10. Adjustments by the Company.
The Company from time to time may, to the extent permitted by law, reduce
the Conversion Price by any amount for any period of at least 20 days, in
which case the Company shall give at least 15 days' notice of such
reduction in accordance with Section 5.11, if the Board of Directors has
made a determination that such reduction would be in the best interests of
the Company, which determination shall be conclusive.
Section 5.11. Notice of Adjustment. Whenever the Conversion Price is
adjusted, the Company shall promptly mail to Noteholders at the addresses
appearing on the Registrar's books a notice of the adjustment and file with
the Trustee an Officers' Certificate briefly stating the facts requiring
the adjustment and the manner of computing it.
Section 5.12. Notice of Certain Transactions. In the event that:
(a) the Company takes any action which would require an adjustment in the
Conversion Price;
(b) the Company takes any action that would require a supplemental
indenture
pursuant to Section 5.13; or
(c) there is a dissolution or liquidation of the Company;
the Company shall mail to Noteholders at the addresses appearing on the
Registrar's books and the Trustee a notice stating the proposed record or
effective date, as the case may be. The Company shall mail the notice at
least 15 days before such date; however, failure to mail such notice or any
defect therein shall not affect the validity of any transaction referred to
in clause
(a), (b), (c), (d) or (e) of this Section 5.12.Section 5.13. Effect of
Reclassifications, Consolidations, Mergers, Continuances or Sales on
Conversion Privilege. If any of the following shall occur, namely: (i) any
reclassification or change of outstanding shares of Common Stockk issuable
upon conversion of Securities (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger
to which the Company is a party other than a merger in which the Company is
the continuing corporation and which does not result in any
reclassification of, or change (other than
a change in name, or par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination)
in, outstanding shares of Common Stock,
(iii) any continuance in a new jurisdiction which does not result in any
reclassification of, or change (other than a change in name, or par value,
or from par value to no par value, or from no par value to par value) in,
outstanding shares of Common Stock, or (iv) any sale or conveyance of all
or substantially all of the property of the Company (determined on a
consolidated basis), then the Company, or such successor or purchasing
corporation, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, continuance, sale or
conveyance, execute and deliver to the Trustee a supplemental indenture in
form satisfactory to the Trustee providing that the holder of each Security
then outstanding shall have the right to convert such Security into the
kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reclassification, change,
consolidation, merger, continuance, sale or conveyance by a holder of the
number of shares of Common Stock deliverable upon conversion of such
Security immediately prior to such reclassification, change, consolidation,
merger, continuance, sale or conveyance. Such supplemental indenture shall
provide for adjustments of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
provided for in this Article V. The foregoing, however, shall not in any
way affect the right a holder of a Security may otherwise have, pursuant to
clause (ii) of the last sentence of subsection (c) of Section 5.06, to
receive
Rights upon conversion of a Security. If, in the case of any such
consolidation, merger, continuance, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a holder
of Common Stock includes shares of stock or other securities and property
of a corporation or other business entity other than the successor or
purchasing
corporation, as the case may be, in such consolidation, merger,
continuance, sale or conveyance, then such supplemental indenture shall
also be executed by such other corporation or other business entity and
shall contain such additional provisions to protect the interests of the
holders of the Securities as the Board of Directors of the Company shall
reasonably consider necessary
by reason of the foregoing. The provision of this Section 5.13 shall
similarly apply to successive consolidations, mergers, continuances, sales
or conveyances.
In the event the Company shall execute a supplemental indenture pursuant to
this
Section 5.13, the Company shall promptly file with the Trustee (x) an
Officers' Certificate briefly stating the reasons therefor, the kind or
amount of shares of stock or securities or property (including cash)
receivable by holders of the Securities upon the conversion of their
Securities after any such reclassification, change, consolidation, merger,
continuance, sale or conveyance
and any adjustment to be made with respect thereto (y) and Opinion of
Counsel stating that all
conditions precedent relating to such transaction have been complied with,
and shall promptly mail notice thereof to all holders.Section 5.14.
Trustee's Disclaimer. The Trustee has no duty to determine when an
adjustment under this Article V should be made, how it should be made or
what such adjustment should be or whether a supplemental indenture is
required by this Article V, but may accept as conclusive evidence of the
correctness of any such adjustment, and shall be protected in relying upon
the Officers' Certificate with respect thereto which the Company is
obligated to file with the Trustee pursuant to Section 5.11. The Trustee
makes no representation as to the validity or
value of any securities or assets issued upon conversion of Securities, and
the Trustee shall not be responsible for the Company's failure to comply
with any provisions of this Article V. The Trustee shall not be under any
responsibility to determine the correctness of any provisions contained in
any supplemental indenture executed pursuant to Section 5.13, but may
accept as conclusive evidence of the correctness thereof, and shall be
protected in relying upon,
the Officers' Certificate with respect thereto which the Company is
obligated to file with the Trustee pursuant to Section 5.13. Section 5.15.
Cancellation of Converted Securities. All Securities delivered for
conversion shall be delivered to the Trustee to be canceled by or at the
direction of the Trustee,
which shall dispose of the same as provided in Section 2.11. Section 5.16.
Restriction on Common Stock Issuable Upon Conversion. (a) Shares of
Common Stock to be issued upon conversion of Securities prior to the
effectiveness of a Shelf Registration Statement shall be physically
delivered in certificated form to the holders converting such Securities
and the certificate representing such shares of Common Stock shall bear the
Restricted Common Stock Legend unless removed in accordance with Section
5.16(c).
(b) If (i) shares of Common Stock to be issued upon conversion of a
Security prior to the effectiveness of a Shelf Registration Statement are
to be registered in a name other than that of the holder of such Security
or (ii) shares of Common Stock represented by a certificate bearing the
Restricted Common Stock Legend are transferred subsequently by such holder,
then, unless the Shelf Registration Statement has become effective and such
shares are being
transferred pursuant to the Shelf Registration Statement, the holder must
deliver to the transfer agent for the Common Stock a certificate in
substantially the form of Exhibit E as to compliance with the restrictions
on transfer applicable to such shares of Common Stock and neither the
transfer agent nor the registrar for the Common Stock shall be required to
register any transfer of such Common Stock not so accompanied by a properly
completed certificate.
(c) Except in connection with a Shelf Registration Statement, if
certificates
representing shares of Common Stock are issued upon the registration of
transfer, exchange or replacement of any other certificate representing
shares of Common Stock bearing the Restricted Common Stock Legend, or if a
request is made to remove such Restricted Common Stock Legend from
certificates representing shares of Common Stock, the certificates so
issued shall bear the Restricted Common Stock Legend, or the Restricted
Common Stock Legend shall not be removed, as the case may be, unless there
is delivered to the Company such satisfactory evidence, which, in the case
of a transfer made pursuant to Rule 144 under the Securities Act, may
include an opinion of counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company, that neither the legend
nor the restrictions on transfer set
forth therein are required to ensure that transfers thereof comply with the
provisions of Rule 144A, Rule 144 or Regulation S under the Securities Act
or that such shares of Common Stock are securities that are not
"restricted" within the meaning of Rule 144 under the Securities Act. Upon
provision to the Company of such reasonably satisfactory evidence, the
Company shall cause the transfer agent for the Common Stock to countersign
and deliver certificates representing shares of Common Stock that do not
bear the legend.
ARTICLE VI
SUBORDINATION
Section 6.01. Agreement to Subordinate. The Company, for itself and its
successors, and each Noteholder, by his acceptance of Securities, agree
that the payment of the principal of and premium, if any, interest,
Liquidated Damages, if any, and any other amounts due on the Securities is
subordinated in right of payment, to the extent and in the manner stated in
this Article VI, to the prior payment in full of all existing and future
Senior Debt. Anything herein to
the contrary notwithstanding, the provisions of this Article VI shall not
be applicable with respect to any Liquidated Damages payable in respect of
shares of Common Stock issued on conversion of Securities.
Section 6.02. No Payment on Securities if Senior Debt in Default.
Anything in this Indenture to the contrary notwithstanding, no payment on
account of principal of or premium, if any, interest or Liquidated Damages,
if any on or other amounts due on the Securities (including the making of a
deposit pursuant to Section 3.05 or 3.08(f)), and no redemption, purchase,
or other acquisition of the Securities, shall be made by or on behalf of
the Company unless (i) full
payment of all amounts then due for principal of and interest on, and of
all other amounts then due on, all Senior Debt has been made or duly
provided for pursuant to the terms of the instruments governing such Senior
Debt and (ii) at the time for, and immediately after giving effect to, such
payment, redemption, purchase or other acquisition, there shall not exist
under any Senior Debt, or any agreement pursuant to which any Senior Debt
is issued, any default which
shall not have been cured or waived and which default shall have resulted
in the full amount of such Senior Debt being declared due and payable. In
addition, if the Trustee shall receive written notice from the holders of
Designated Senior Debt or their Representative (a "Payment Blockage
Notice") that there has occurred and is continuing under such Designated
Senior Debt, or any agreement pursuant to which such Designated Senior Debt
is issued, any default, which
default shall not have been cured or waived, giving the holders of such
Designated Senior Debt the right to declare such Designated Senior Debt
immediately due and payable, then, anything in this Indenture to the
contrary notwithstanding, no payment on account of the principal of or
premium, if any, interest or Liquidated Damages, if any, on or any other
amounts due on the
Securities (including, without limitation, the making of a deposit pursuant
to Section 3.05 or 3.08(f)), and no redemption, purchase or other
acquisition of the Securities, shall be made by or on behalf of the Company
during the period (the "Payment Blockage Period") commencing on the date of
receipt of the Payment Blockage Notice and ending (unless earlier
terminated by notice given to the Trustee by the holders or the
Representative of the holders of such Designated
Senior Debt) on the earlier of (a) the date on which such default shall
have been cured or waived or (b) 180 days from the receipt of the Payment
Blockage Notice. Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in
Section 6.01 and the first sentence of this Section 6.02), unless the
holders of such Designated Senior Debt or the Representative of such
holders shall have accelerated the maturity
of such Designated Senior Debt, the Company may resume payments on the
Securities after the end of such Payment Blockage Period. Not more than one
Payment Blockage Notice may be given in any consecutive 365-day period,
irrespective of the number of defaults with respect to Senior Debt during
such period. In the event that, notwithstanding the provisions of this
Section 6.02, payments are made by or on behalf of the Company in
contravention of the provisions of this Section 6.02, such payments shall
be held by the Trustee, any Paying Agent or the holders, as applicable, in
trust for the benefit of, and shall be paid over to and delivered to, the
Representative of the holders of
Senior Debt or the trustee under the indenture or other agreement (if any),
pursuant to which any instruments evidencing any Senior Debt may have been
issued for application to the payment of all Senior Debt ratably according
to the aggregate amounts remaining unpaid to the extent necessary to pay
all Senior Debt in full in accordance with the terms of such Senior Debt,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Debt.The Company shall give prompt written notice to the
Trustee and any Paying Agent of any default or event of default under any
Senior Debt or under any agreement pursuant to which any Senior Debt may
have been issued.
Section 6.03. Distribution on Acceleration of Securities; Dissolution and
Reorganization; Subrogation of Securities.
(a) If the Securities are declared due and payable because of the
occurrence of an Event of Default, the Company shall give prompt written
notice to the holders of all Senior Debt or to the trustee(s) for such
Senior Debt of such acceleration. The Company may not pay the
principal of, or premium, if any, interest or Liquidated Damages, if any,
on, or any other amounts due on, the Securities until five Business Days
after such holders or trustee(s) of Senior Debt receive such notice and,
thereafter, the Company may pay the principal of, and premium, if any,
interest and Liquidated Damages, if any, on, and any other amounts due on,
the Securities only if
the provisions of this Article VI permit such payment.
(b) Upon (i) any acceleration of the principal amount due on the Securities
because of an Event of Default or (ii) any direct or indirect distribution
of assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors
or any other dissolution, winding up, liquidation or reorganization of the
Company):
(1) the holders of all Senior Debt shall first be entitled to receive
payment in full of the principal thereof, the interest thereon and any
other amounts due thereon before the holders are entitled to receive
payment on account of the principal of , or premium, if any, interest or
Liquidated Damages, if any, on, or any other amounts due on, the Securities
(other than payments of Junior Securities);
(2) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than Junior
Securities), to which the holders or the Trustee would be entitled (other
than in respect of amounts payable to the Trustee pursuant to Section 9.07)
except for the provisions of this Article, shall be paid by the liquidating
trustee or agent or other Person making such a payment or distribution,
directly to the holders of Senior Debt (or their representative(s) or
trustee(s) acting on their behalf), ratably according to the aggregate
amounts remaining unpaid on account of the principal of and interest on and
other amounts due on the Senior Debt held or represented by each, to the
extent necessary to make payment in full of all Senior Debt remaining
unpaid, after giving effect to any concurrent payment or distribution to
the holders of such Senior Debt; and
(3) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property
or securities (other than Junior Securities), shall be received by the
Trustee (other than in respect of amounts payable to the Trustee pursuant
to Section 9.07) or the holders before all Senior Debt is paid in full,
such payment or distribution shall be held in trust for the benefit of, and
be paid over to upon request by a holder of Senior Debt, to the holders of
the Senior Debt remaining unpaid or their representatives or trustee(s)
acting on their behalf, ratably as aforesaid, for application to the
payment of such Senior Debt until all
such Senior Debt shall have been paid in full, after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
Subject to the payment in full of all Senior Debt, the holders shall be
subrogated to the rights of the holders of Senior Debt to receive payments
and distributions of cash, property or securities of the Company applicable
to the Senior Debt until the principal of, and premium, if any, interest
and Liquidated Damages, if any on, and all other amounts payable in respect
of the Securities shall be paid in full and, for purposes of such
subrogation, no such payments or
distributions to the holders of Senior Debt of cash, property or securities
which otherwise would have been payable or distributable to holders shall,
as between the Company, its creditors other than the holders of Senior
Debt, and the holders, be deemed to be a payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article are and
are intended solely for the purpose of defining the relative rights of the
holders, on the one hand, and the holders of Senior Debt, on the other
hand.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (i) impair, as between the Company and
its creditors other than the holders of Senior Debt, the obligation of the
Company, which is absolute and unconditional, to pay to the holders the
principal of, premium, if any, on, and interest and Liquidated Damages, if
any, on, the Securities as and when the same shall become due and payable
in accordance with the terms of the Securities, (ii) affect the relative
rights of the holders and creditors of the Company other than holders of
Senior Debt or, as between the Company and the Trustee, the obligations of
the Company to the Trustee, or (iii) prevent the Trustee or the holders
from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Debt in respect of cash, property and
securities of the Company received upon the exercise of any such remedy.
Upon distribution of assets of the Company referred to in this Article, the
Trustee, subject to the provisions of Section 9.01 hereof, and the holders
shall be entitled to rely upon a certificate of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the
holders for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto
or to this Article. The Trustee, however, shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt. Nothing contained in this
Article or elsewhere in
this Indenture, or in any of the Securities, shall prevent the good faith
application by the Trustee of any moneys which were deposited with it
hereunder, prior to its receipt of written notice of facts which would
prohibit such application, for the purpose of the payment of or on account
of the principal of, premium, if any, on, interest or Liquidated Damages,
if any, on, the Securities unless, prior to the date on which such
application is made by the TTrustee, the Trustee shall becharged with
actual notice under Section 6.03(d) hereof of the facts which would
prohibit the making of such application.
(c) The provisions of this Article shall not be applicable to any cash,
properties or securities received by the Trustee or by any holder when
received as a holder of Senior Debt and nothing in Section 9.11 hereof or
elsewhere in this Indenture shall deprive the Trustee or such holder of any
of its rights as such holder.
(d) The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment of
money to or by the Trustee in respect of the Securities pursuant to the
provisions of this Article. The Trustee, subject to the provisions of
Section 9.01 hereof, shall be entitled to assume that no such fact exists
unless the Company or any holder of Senior Debt or any trustee therefor has
given actual notice thereof to
the Trustee. Notwithstanding the provisions of this Article or any other
provisions of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any fact which would prohibit the making of
any payment of moneys to or by the Trustee in respect of the Securities
pursuant to the provisions in this Article, unless, and until three
Business Days after,
the Trustee shall have received written notice thereof from the Company or
any holder or holders of Senior Debt or from any trustee or Representative
therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.01 hereof, shall be
entitled in all respects conclusively to assume that no such facts exist;
provided that if on a date not less than three Business Days immediately
preceding the date upon which, by the terms hereof, any such moneys may
become payable for any purpose (including, without limitation, to pay the
principal of, premium, if any, on, interest or Liquidated Damages, if any,
on, any Security), the Trustee shall not have received with respect to such
moneys the notice provided for in this Section 6.03(d), then anything
herein contained to the contrary notwithstanding, the Trustee shall have
full power and authority to receive such moneys and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior
date. The Trustee shall be entitled to rely conclusively on the delivery to
it of a written notice by a Person representing himself to be a holder of
Senior Debt (or a trustee or Representative on behalf of such holder) to
establish that such notice has been given by a holder of Senior Debt (or a
trustee or Representative on behalf of any such holder or holders). In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior Debt
to participate in any payment or distribution pursuant to this Article, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Debt held by such
Person, the extent to which such person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination
as to the right of such Person to receive such payment; nor shall the
Trustee be charged with knowledge or the curing or waiving of any
default of the character specified in Section 6.02 hereof or that any event
or any condition preventing any payment in respect of the Securities shall
have ceased to exist, unless and until the Trustee shall have received
written notice to such effect.
(e) The provisions of this Section 6.03 applicable to the Trustee shall
(unless the context requires otherwise) also apply to any Paying Agent for
the Company.
Section 6.04. Reliance by Senior Debt on Subordination Provisions. Each
holder of any Security by his acceptance thereof acknowledges and agrees
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration for each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the issuance of
the Securities, to acquire and continue to hold, or to continue to hold,
such Senior Debt, and such
holder of Senior Debt shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt. Notice of any default in the payment
of any Senior Debt, except as expressly stated in this Article, and notice
of acceptance of the provisions hereof are, to the extent permitted by law,
hereby expressly waived. Except as otherwise expressly provided herein, no
waiver, forbearance
or release by any holder of Senior Debt under such Senior Debt or under
this Article shall constitute a release of any of the obligations or
liabilities of the Trustee or holders of the Securities provided in this
Article.
Section 6.05. No Waiver of Subordination Provisions. Except as otherwise
expressly provided herein, no right of any present or future holder of any
Senior Debt to enforce subordination as herein provided shall at any time
in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms,
provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with. Without in
any way limiting the generality of the foregoing paragraph, the holders of
Senior Debt may, at any time and from time to time, without the consent of,
or notice to, the Trustee or the holders of the Securities, without
incurring responsibility to the holders of the Securities and without
impairing or releasing the subordination provided in this Article VI or the
obligations hereunder of the holders of the Securities to the holders of
Senior Debt, do any one or more of the following: (i) change the manner,
place or terms of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing
the same or any agreement under which Senior Debt is outstanding; (ii)
sell, exchange, release or otherwise dispose of any property pledged,
mortgaged or otherwise securing Senior Debt; (iii) release any person
liable in any manner for the collection of Senior Debt; and (iv) exercise
or refrain from exercising any rights against the Company or any other
Person. Section 6.06. Trustee's Relation to Senior Debt. The Trustee in
its individual capacity shall be entitled to all the rights set forth in
this Article in respect of any Senior Debt at any time held by it, to the
same extent as any holder of Senior Debt, and nothing in Section 9.11
hereof or elsewhere in this Indenture shall deprive the Trustee of any of
its rights as such holder. With respect to the holders of Senior Debt, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations, as are specifically set forth in this Article,
and no implied covenants or obligations with respect to the holders of
Senior Debt shall be read into this Indenture against the Trustee. The
Trustee shall not owe any fiduciary duty to the holders of Senior Debt but
shall have only such obligations to such holders as are expressly set forth
in this Article.
Each holder of a Security by his acceptance thereof authorizes and directs
the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding up or liquidation or
reorganization under any
applicable bankruptcy law of the Company (whether in bankruptcy, insolvency
or
receivership proceedings or otherwise), the timely filing of a claim for
the unpaid balance of such holder's Securities in the form required in such
proceedings and the causing of such claim to be approved. If the Trustee
does not file a claim or proof of debt in the form required in such
proceedings prior to 30 days before the expiration of the time to file such
claims or proofs, then any holder or holders of Senior Debt or their
Representative or Representatives shall have the right to demand, sue for,
collect, receive and receipt for the payments and distributions in respect
of the Securities which are required to be paid or delivered to the holders
of Senior Debt as provided in this Article and to file and prove all claims
therefor and to take all such other action in the name of the holders or
otherwise, as such holders of Senior Debt or Representative thereof may
determine to be necessary or appropriate for the enforcement of the
provisions of this Article.
Section 6.07. Other Provisions Subject Hereto. Except as expressly stated
in this Article, notwithstanding anything contained in this Indenture to
the contrary, all the provisions of this Indenture and the Securities are
subject to the provisions of this Article VI. However, nothing in this
Article shall apply to or adversely affect the claims of, or payment to,
the Trustee pursuant to
Section 9.07 or the right of any holder of Common Stock issued upon
conversion of Securities to receive Liquidated Damages, if any, in respect
of such shares of Common Stock. Notwithstanding the foregoing, the failure
to make a payment on account of principal of, premium, if any, on, or
interest or Liquidated Damages, if any, on, the Securities by reason of any
provision of this Article VI shall not be construed as preventing the
occurrence of an Event
of Default under Section 8.01.
ARTICLE VII
SUCCESSORS
Section 7.01. Merger, Consolidation or Sale of Assets. The Company will
not
consolidate or merge with or into any person (whether or not the 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
its properties or assets unless:(a) the Company is the surviving
corporation (in the case of a merger) or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or the Person
which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia; provided that in the event of the
continuation of the Company in the new jurisdiction, the Company must
remain a corporation organized and existing under the laws of the United
States, any state thereof or the District of Columbia:(b) the corporation
formed by or surviving any such consolidation or merger (if other than the
Company) or the corporation to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Securities, the
Registration Agreement and the Indenture;(c) such sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially
all of the Company's properties or assets shall be as an entirety or
virtually as an entirety to one corporation and such corporation shall have
assumed all the obligations of the Company, pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee, under the
Securities, the Registration Agreement and the
Indenture;(d) immediately after such transaction no Default or Event of
Default exists; and(e) the Company or such corporation shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such transaction and the supplemental indenture, if required,
comply with the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied. Section 7.02.
Successor Corporation Substituted. Upon any consolidation or merger or any
sale, assignment, transfer, lease, conveyance or other disposition of all
or substantially all of
the assets of the Company in accordance with Section 7.01 hereof, the
successor corporation (if other than the Company) formed by such
consolidation or into or with which the Company is merged or the
corporation to which such sale, assignment, transfer, lease, conveyance or
other disposition is made shall succeed to, and be substituted for and may
exercise every right and power of, the Company under this Indenture with
the same effect as if such successor Person has been named as the Company
herein; provided, however, that the predecessor Company in the case of a
sale, assignment, transfer, lease, conveyance or other disposition shall
not be released from the obligation to pay the principal of, premium, if
any, on and interest and Liquidated Damages, if any, on the Securities.
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of any interest or Liquidated
Damages on any Security when the same becomes due and payable and the
default
continues for a period of 30 days; or
(b) the Company defaults in the payment of any principal of or premium, if
any, on any Security when the same becomes due and payable, whether at
maturity, upon
redemption or otherwise (including, without limitation, failure by the
Company to
purchase Securities tendered for purchase pursuant to a Designated Event
Offer as and
when required pursuant to Section 3.08 or Section 4.07 hereof); or
(c) the Company fails to observe or perform any covenant or agreement
contained in Section 3.08 or Section 4.07 hereof; or
(d) the Company fails to observe or perform any other covenant or agreement
contained in this Indenture or the Securities required by it to be
performed and the failure
continues for a period of 60 days after the receipt of written notice by
the Company from
the Trustee or by the Company and the Trustee from the holders of at least
25% in
aggregate principal amount of the then outstanding Securities stating that
such notice is a
"Notice of Default"; or
(e) a 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 the Company or any Material Subsidiary of the Company (or
the
payment of which is Guaranteed by the Company or any of its Material
Subsidiaries),
whether such Indebtedness or Guarantee exists on the date of this Indenture
or is created
thereafter, which default (i) is caused by a failure to pay when due any
principal of or
interest on such Indebtedness within the grace period provided for in such
Indebtedness
(which failure continues beyond any applicable grace period) (a "Payment
Default") or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity (without
such acceleration being rescinded or annulled) and, in each case, the
principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness
under which there is a Payment Default or the maturity of which has been so
accelerated,
aggregates $15,000,000 or more and which Payment Default is not cured or
which
acceleration is not annulled within 30 days after written receipt by the
Company from the
Trustee or by the Company and the Trustee from any holder of Securities
stating that
such notice is a "Notice of Default"; or
(f) a final, non-appealable judgment or final non-appealable judgments
(other
than any judgment as to which a reputable insurance company has accepted
full liability)
for the payment of money are entered by a court or courts of competent
jurisdiction
against the Company or any Material Subsidiaries of the Company and remain
unstayed,
unbonded or undischarged for a period (during which execution shall not be
effectively
stayed) of 60 days, provided that the aggregate of all such judgments
exceeds
$15,000,000; or
(g) the Company or any Material Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding; or
(B) consents to the entry of an order for relief against the Company or
any Material Subsidiary in an involuntary case or proceeding; or
(C) consents to the appointment of a Custodian of the Company or any
Material Subsidiary or for all or any substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors; or
(E) take corporate or similar action in respect of any of the foregoing;
or
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Material Subsidiary in an
involuntary case or proceeding; or
(B) appoints a Custodian of the Company or any Material Subsidiary
or for all or any substantial part of the property of the Company or any
Material
Subsidiary; or
(C) orders the liquidation of the Company or any Material Subsidiary;
and in each case referred to in this paragraph (h) the order or decree
remains unstayed
and in effect for 60 days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or
foreign bankruptcy, insolvency or similar law. The term "Custodian" means
any custodian,
receiver, trustee, assignee, sequestor, liquidator or similar official
under any Bankruptcy Law.
Section 8.02. Acceleration. If an Event of Default (other than an Event
of Default
specified in clauses (g) and (h) of Section 8.01 hereof) occurs and is
continuing, the Trustee by
notice to the Company, or the Noteholders of at least 25% in principal
amount of the then
outstanding Securities by notice to the Company and the Trustee, may
declare all the Securities
to be due and payable. Upon such declaration, the principal of, premium,
if any, on and accrued
and unpaid interest and Liquidated Damages, if applicable, on the
Securities shall be due and
payable immediately. If an Event of Default specified in clause (g) or (h)
of Section 8.01 hereof
occurs, the principal of, premium, if any, on and accrued and unpaid
interest and Liquidated
Damages, if any, on the Securities shall ipso facto become and be
immediately due and payable
without any declaration or other act on the part of the Trustee or any
Noteholder. The
Noteholders of a majority in aggregate principal amount of the then
outstanding Securities by
notice to the Trustee may rescind an acceleration and its consequences if
the rescission would
not conflict with any judgment or decree, if all amounts payable to the
Trustee pursuant to
Section 9.07 hereof have been paid and if all existing Events of Default
have been cured or
waived as provided for herein except nonpayment of principal, premium, if
any, interest or
Liquidated Damages, if any, that has become due solely because of the
acceleration.
Section 8.03. Other Remedies. If an Event of Default occurs and is
continuing, the
Trustee may pursue any available remedy to collect the payment of principal
of, premium, if any,
on or interest and Liquidated Damages, if any, on, the Securities or to
enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities
or does not produce any of them in the proceeding. A delay or omission by
the Trustee or any
Noteholder in exercising any right or remedy accruing upon an Event of
Default shall not impair
the right or remedy or constitute a waiver of or acquiescence in the Event
of Default. All
remedies are cumulative to the extent permitted by law.
Section 8.04. Waiver of Past Defaults. Subject to Section 8.07 hereof,
the Noteholders
of a majority in aggregate principal amount of the then outstanding
Securities by notice to the
Trustee may waive an existing Default or Event of Default and its
consequences except a
continuing Default or Event of Default in the payment of the Designated
Event Payment or the
principal of, premium, if any, on, or interest or Liquidated Damages, if
any, on, any Security or
in respect of a covenant in or other provision of this Indenture or the
Securities which cannot be
amended or waived without the consent of each Noteholder affected. When a
Default or Event
of Default is waived, it is cured and ceases; but no such waiver shall
extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
Section 8.05. Control by Majority. The Noteholders of a majority in
principal amount of
the then outstanding Securities may direct the time, method and place of
conducting any
proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts
with law or this
Indenture, that may be unduly prejudicial to the rights of other
Noteholders, or that may involve
the Trustee in personal liability; provided that the Trustee may take any
other action deemed by
the Trustee that is not inconsistent with such direction. Prior to taking
any action hereunder, the
Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all
losses and expenses caused by taking or not taking such action.
Section 8.06. Limitation on Suits. A Noteholder may pursue a remedy with
respect to
this Indenture or the Securities only if:
(a) the Noteholder gives to the Trustee a written notice of a continuing
Event
of Default;
(b) the Noteholders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(c) such Noteholder or Noteholders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt
of the request and the offer of indemnity; and
(e) during such 60-day period the Noteholders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction inconsistent
with the request.
A Noteholder may not use this Indenture to prejudice the rights of another
Noteholder or
to obtain a preference or priority over another Noteholder.
Section 8.07. Rights of Noteholders to Receive Payment. Notwithstanding
any other
provision of this Indenture, the right of any Noteholder of a Security to
receive payment of
principal of, premium, if any on, and interest and Liquidated Damages, if
any, on the Security,
on or after the respective due dates expressed in the Security and this
Indenture, or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired
or affected without the consent of the Noteholder made pursuant to this
Section.
Section 8.08. Collection Suit by Trustee. If an Event of Default
specified in Section
8.01(a) or (b) occurs and is continuing, the Trustee may recover judgment
in its own name and as
trustee of an express trust against the Company for the whole amount of
principal, premium, if
any, interest and Liquidated Damages, if any, remaining unpaid on the
Securities and, to the
extent permitted by law, interest on overdue principal, premium, if any,
interest and Liquidated
Damages, if any and such further amount as shall be sufficient to cover the
costs and, to the
extent lawful, expenses of collection, including the reasonable
compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due
under Section 9.07 hereof.
Section 8.09. Trustee May File Proofs of Claim. The Trustee shall be
entitled and
empowered, without regard to whether the Trustee or any holder shall have
made any demand or
performed any other act pursuant to the provisions of this Article and
without regard to whether
the principal of the Securities shall then be due and payable as therein
expressed or by
declaration or otherwise, by intervention in any proceedings relative to
the Company or any
other obligor upon the Securities, or to the creditors or property or
assets of the Company or any
such other obligor or otherwise, to take any and all actions authorized
under the TIA in order to
have claims of the holders and the Trustee allowed in any such proceeding.
In particular, the
Trustee shall be entitled and empowered in such instances:
(a) to file and prove a claim or claims for the whole amount of principal
and
premium, if any, interest, Liquidated Damages, if any, and any other
amounts owing and
unpaid in respect of the Securities, and to file such other papers or
documents as may be
necessary or advisable in order to have the claims of the Trustee
(including all amounts
owing to the Trustee and each predecessor Trustee pursuant to Section 9.07
hereof) and
of the holders allowed in any judicial proceedings relating to the Company
or other
obligor upon the Securities property of the Company or any such other
obligor,
(b) unless prohibited by applicable law and regulations, to vote on behalf
of
the holders of the Securities in any election of a trustee or a standby
trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings
or Person performing similar functions in comparable proceedings, and
(c) to collect and receive any moneys or other property or assets payable
or
deliverable on any such claims, and to distribute all amounts received with
respect to the
claims of the holders and of the Trustee on their behalf; and any trustee,
receiver, or
liquidator, custodian or other similar official is hereby authorized by
each of the holders
to make payments to the Trustee, and, in the event that the Trustee shall
consent to the
making of payments directly to the holders, to pay to the Trustee such
amounts as shall
be sufficient to cover all amounts owing to the Trustee and each
predecessor Trustee
pursuant to Section 9.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent
to or vote for or accept or adopt on behalf of any holder any plan of
reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any
holder thereof, or to
authorize the Trustee to vote in respect of the claim of any holder of any
such proceeding except,
as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
In any proceedings brought by the Trustee (and also any proceedings
involving the
interpretation of any provision of this Indenture to which the Trustee
shall be a party), the
Trustee shall be held to represent all the holders of the Securities, and
it shall not be necessary to
make any holders of the Securities parties to any such proceedings.
Section 8.10. Priorities. If the Trustee collects any money pursuant to
this Article, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 9.07 hereof, including
payment of all compensation, expense and liabilities incurred, and all
advances made, by
the Trustee and the costs and expenses of collection;
Second: to the holders of Senior Debt to the extent required by Article
VI;
Third: to the Noteholders, for amounts due and unpaid on the Securities
for
principal, premium, if any, interest and Liquidated Damages, if any,
ratably, without
preference or priority of any kind, according to the amounts due and
payable on the
Securities for principal, premium, if any, interest and Liquidated Damages,
if any; and
Fourth: to the Company or to such other party as a court of competent
jurisdiction shall direct.
Except as otherwise provided in Section 2.12 hereof, the Trustee may fix a
record date
and payment date for any payment to Noteholders made pursuant to this
Section 8.10. At least
15 days before such record date, the Company shall mail to each holder and
the Trustee a notice
that states the record date, the payment date and amount to be paid. The
Trustee may mail such
notice in the name and at the expense of the Company.
Section 8.11. Undertaking for Costs. In any suit for the enforcement of
any right or
remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit,
having due regard to the merits and good faith of the claims or defenses
made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by
a holder pursuant to
Section 8.07 hereof, or a suit by Noteholders of more than 10% in principal
amount of the then
outstanding Securities.
Section 8.12. Restoration of Rights and Remedies. If the Trustee or any
holder of
Securities has instituted any proceeding to enforce any right or remedy
under this Indenture and
such proceeding has been discontinued or abandoned for any reason, or has
been determined
adversely to the Trustee or to such holder, then and in every such case the
Company, the Trustee
and the holders shall, subject to any determination in such proceeding, be
restored severally and
respectively to their former positions hereunder, and thereafter all rights
and remedies of the
Trustee and the holders shall continue as though no such proceeding has
been instituted.
Section 8.13. Rights and Remedies Cumulative. Except as otherwise
provided in
Section 2.07 hereof, no right or remedy conferred herein, upon or reserved
to the Trustee or to
the holders is intended to be exclusive of any other right or remedy, and
every right and remedy
shall, to the extent permitted by law, be cumulative and in addition to
every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent (to the
extent permitted by law) the concurrent assertion or employment of any
other appropriate right
or remedy.
Section 8.14. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of
any holder of any Security to exercise any right or remedy accruing upon
any Event of Default
shall (to the extent permitted by law) impair any such right or remedy or
constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and
remedy given by this
Article VIII or by law to the Trustee or to the holders may (to the extent
permitted by law) be
exercised from time to time and as often as may be deemed expedient, by the
Trustee or by the
holders, as the case may be.
ARTICLE IX
TRUSTEE
Section 9.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise
such of the rights and powers vested in it by this Indenture, and use the
same degree of care and
skill in their exercise, as a prudent Person would exercise or use under
the circumstances in the
conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the Trustee
need
perform only those duties that are specifically set forth in this Indenture
and no others; and (ii) in
the absence of bad faith on its part, the Trustee may conclusively rely, as
to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions
furnished to the Trustee and, if required by the terms hereof, conforming
to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine
whether or not they conform to the applicable requirements, if any, of this
Indenture. During the
continuance of an Event of Default, the Trustee may consult with its legal
counsel and rely upon
advice from such counsel with respect to legal matters.
(c) The Trustee may not be relieved from liability for its own negligent
action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) this paragraph does
not limit the effect of paragraph (b) of this Section 9.01; (ii) the
Trustee shall not be liable for
any error of judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee
was negligent in ascertaining the pertinent facts and (iii) the Trustee
shall not be liable with
respect to any action it takes or omits to take in good faith in accordance
with a direction
received by it pursuant to Section 8.05 hereof.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject
to paragraphs (a), (b) and (c) of this Section 9.01.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own
funds or incur any liability. The Trustee shall be under no obligation to
exercise any of its rights
and powers under this Indenture at the request of any holders, unless such
holder shall have
offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as
the Trustee may agree in writing with the Company. Money held in trust by
the Trustee need not
be segregated from other funds except to the extent required by law.
Section 9.02. Rights of Trustee.
(a) Subject to the provisions of Section 9.01(a) hereof, the Trustee may
rely on any
document believed by it to be genuine and to have been signed or presented
by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers'
Certificate or an Opinion of Counsel, or both. The Trustee shall not be
liable for any action it
takes or omits to take in good faith in reliance on such Officers'
Certificate or Opinion of
Counsel. The Trustee may consult with counsel of its choice and the advice
of such counsel or
any Opinion of Counsel with respect to legal matters relating to this
Indenture and the Securities
shall be full and complete authorization and protection from liability in
respect of any action
taken, suffered or omitted by it hereunder in good faith and in accordance
with the advice or
opinion of such counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith
which it believes to be authorized or within its rights or powers;
provided, however, that the
Trustee's conduct does not constitute willful misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any Event of Default
under
subsection (c), (d), (e), (f), (g) or (h) of Section 8.01 unless either (1)
a Trust Officer assigned to
its corporate trust department shall have actual knowledge thereof, or (2)
the Trustee shall have
received notice thereof in accordance with Section 12.02 hereof from the
Company or any
holder; provided that the Trustee shall comply with the "automatic stay"
provisions contained in
U.S. Bankruptcy Law, if applicable.
(f) Prior to the occurrence of an Event of Default hereunder and after the
curing and
waiving of all Events of Default, the Trustee shall not be bound to make
any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report,
notice, request, direction, consent, order, bond, debentures, note, other
evidence of indebtedness
or other paper or document unless requested in writing to do so by the
holders of not less than a
majority in aggregate principal amount of the Securities then outstanding;
provided that if the
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably
assured to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee
may require reasonable indemnity against expenses or liabilities as a
condition to proceeding; the
reasonable expenses of every such examination shall be paid by the Company
or, if advanced by
the Trustee, shall be repaid by the Company upon demand. The Trustee shall
not be bound to
ascertain or inquire as to the performance or observance of any covenants,
conditions, or
agreements on the part of the Company, except as otherwise set forth
herein, but the Trustee
may, in its discretion, make such further inquiry or investigation into
such facts or matters as it
may see fit and if the Trustee shall determine to make such further inquiry
or investigation, it
shall be entitled to examine the books, records and premises of the Company
personally or by
agent or attorney at the sole cost of the Company.
(g) The Trustee shall not be required to give any bond or surety in respect
of the
performance of its powers and duties hereunder.
(h) The rights, privileges, protections, immunities and benefits given to
the Trustee,
including, without limitation, its right to be indemnified, are extended
to, and shall be
enforceable by, the Trustee in each of its capacities hereunder and to each
Agent employed to act
hereunder.
Section 9.03. Individual Rights of Trustee. The Trustee in its individual
or any other
capacity may become the owner or pledgee of Securities and may otherwise
deal with the
Company or an Affiliate with the same rights it would have if it were not
Trustee. Any Agent
may do the same with like rights. However, in the event that the Trustee
acquires any conflicting
interest (as defined in the TIA) it must eliminate such conflict within 90
days, apply to the
Commission for permission to continue as Trustee or resign. Any Agent may
do the same with
like rights and duties. The Trustee is also subject to Sections 9.10 and
9.11 hereof.
Section 9.04. Trustee's Disclaimer. The Trustee makes no representation
as to the
validity or adequacy of this Indenture or the Securities, it shall not be
accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any
statement of the Company in this Indenture or any statement in the
Securities (other than its
certificate of authentication) or for compliance by the Company with the
Registration
Agreement.
Section 9.05. Notice of Defaults. If a Default or Event of Default occurs
and is
continuing and if it is known to the Trustee, the Trustee shall mail to
Noteholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or
Event of Default relating to the failure to pay any principal of or
premium, if any, interest or
Liquidated Damages, if any, on any Security, the Trustee may withhold the
notice if and so long
as a committee of its Trust Officers in good faith determines that
withholding the notice is in the
interests of Noteholders.
Section 9.06. Reports by Trustee to Noteholders. Within 60 days after the
reporting date
stated in Section 12.10, the Trustee shall mail to Noteholders a brief
report dated as of such
reporting date that complies with TIA 313(a) if and to the extent
required by such 313(a).
The Trustee also shall comply with TIA 313(b)(2). The Trustee shall also
transmit by mail all
reports as required by TIA 313(c).
A copy of each report at the time of its mailing to Noteholders shall be
filed with the SEC
and each stock exchange on which the Securities are listed. The Company
shall notify the
Trustee when the Securities are listed on any stock exchange and of any
delisting thereof.
Section 9.07. Compensation and Indemnity. The Company shall pay to the
Trustee from
time to time such compensation for its services hereunder as shall be
agreed upon from time to
time in writing by the Company and the Trustee. The Trustee's compensation
shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall
reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances
incurred or made by it in connection with the performance of its duties
hereunder. Such
disbursements and expenses may include the reasonable disbursements,
compensation and
expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and each predecessor
Trustee against
any and all loss, damage, claim, liability or expense incurred by it in
connection with the
performance of its duties hereunder except as set forth in the next
paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the
Trustee to notify the Company shall not release the Company of its
obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the
defense. If in the
reasonable opinion of Trustee's counsel, a conflict of interest exists
between the Trustee and the
Company with respect to such claim, the Trustee may have separate counsel
and the Company
shall pay the reasonable fees, disbursements and expenses of such counsel.
The Company need
not pay for any settlement made without its consent, which consent shall
not be unreasonably
withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability
incurred by the Trustee through the Trustee's negligence or bad faith.
The obligations of the Company under this Section 9.07 shall survive the
resignation or
removal of the Trustee and the satisfaction and discharge of the Indenture.
To secure the Company's payment obligations in this Section, the Trustee
shall have a
lien on all money or property held or collected by the Trustee, except
money or property held in
trust to pay principal of, or premium, if any, interest or Liquidated
Damages, if any, on,
particular Securities. Such lien shall survive the satisfaction or
discharge of the indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified
in Section 8.01(g) or (h) occurs, the expenses and the compensation for the
services are intended
to constitute expenses of administration under any Bankruptcy Law.
Section 9.08. Replacement of Trustee. A resignation or removal of the
Trustee and
appointment of a successor Trustee shall become effective only upon the
successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby
created by so notifying the Company. The Noteholders of a majority in
principal amount of the
then outstanding Securities may remove the Trustee by so notifying the
Trustee and the
Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 9.10 hereof, unless the
Trustee's
duty to resign is stayed as provided in TIA 310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is
entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any
reason, the Company shall promptly appoint a successor Trustee. Within one
year after the
successor Trustee takes office, the Noteholders of a majority in principal
amount of the then
outstanding Securities may appoint a successor Trustee to replace the
successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee
resigns or is removed, the retiring Trustee, the Company or the Noteholders
of at least 10% in
principal amount of the then outstanding Securities may petition, at the
expense of the Company,
any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 9.10 hereof, unless the
Trustee's duty to resign
is stayed as provided in TIA 310(b), any Noteholder who has been a bona
fide holder of a
Security for at least six months may petition any court of competent
jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring
Trustee and to the Company. Thereupon the resignation or removal of the
retiring Trustee shall
become effective, and the successor Trustee shall have all the rights,
powers and duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of
its succession to
Noteholders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the
successor Trustee, subject to the lien provided for in Section 9.07 hereof.
Notwithstanding the
resignation or replacement of the Trustee pursuant to this Section 9.08,
the Company's
obligations under Section 9.07 hereof shall continue for the benefit of the
retiring trustee with
respect to expenses and liabilities incurred by it prior to such
resignation or replacement.
Section 9.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to
the Trustee shall succeed to the trusts created by this Indenture any of
the Securities shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate
of authentication of any predecessor trustee, and deliver such Securities
so authenticated; and in
case at that time any of the Securities shall not have been authenticated,
any successor to the
Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in
the name of the successor to the Trustee; and in all such cases such
certificates shall have the full
force which it is anywhere in the Securities or in this Indenture provided
that the certificate of
the Trustee shall have.
Section 9.10. Eligibility; Disqualification. This Indenture shall always
have a Trustee
who satisfies the requirements of TIA 310(a)(1), (2) and (5). The
Trustee shall always have a
combined capital and surplus as stated in Section 12.10 hereof. The
Trustee is subject to TIA
310(b); provided, however, that there shall be excluded from the operation
of TIA 310(b)(1)
any indenture or indentures under which other securities or certificates of
interest or participation
in other securities of the Company are outstanding if the requirements for
such exclusion set
forth in TIA 310(b)(1) are met.
Section 9.11. Preferential Collection of Claims Against Company. The
Trustee is
subject to TIA 311(a), excluding any creditor relationship listed in TIA
311(b). A Trustee
who has resigned or been removed shall be subject to TIA 311(a) to the
extent indicated
therein.
ARTICLE X
DISCHARGE OF INDENTURE
Section 10.01. Termination of the Company's Obligations. This Indenture
shall cease to
be of further effect (except as to any surviving rights of conversion,
registration of transfer or
exchange of Securities herein expressly provided for and except as further
provided below), and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(a) either
(i) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or
paid as provided in Section 2.07 and (ii) Securities for whose payment
money has
theretofore been deposited in trust and thereafter repaid to the Company as
provided in
Section 10.02) have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore delivered to the Trustee for
cancellation
(A) have become due and payable, or
(B) will become due and payable at the final maturity date within one
year, or
(C) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in
the name, and at the expense, of the Company,
and the Company, in the case of clause (A), (B) or (C) above, has
irrevocably deposited
or caused to be irrevocably deposited with the Trustee as trust funds in
trust for the
purpose cash in an amount sufficient to pay and discharge the entire
indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal,
premium, if any, interest and Liquidated Damages, if any, to the date of
such deposit (in
the case of Securities which have become due and payable) or to the final
maturity date
or redemption date, as the case may be, in all other cases;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by
the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion
of Counsel, each stating that all conditions precedent herein provided for
relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the
Company to the Trustee under Section 9.07, the obligations of the Company
to pay Liquidated
Damages under this Indenture, the Securities and the Registration Agreement
and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause
(a) of this Section, the
provisions of Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.11 (second
paragraph only), 2.13,
2.15, 3.08, 4.02 (second paragraph only), 4.04, 4.07 and 4.08, Article V
and this Article X, shall
survive; and, notwithstanding the satisfaction and discharge of this
Indenture, the Company
agrees to reimburse the Trustee for any costs or expenses thereafter
reasonably and properly
incurred by the Trustee and to compensate the Trustee for any services
thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture, the
Registration Agreement
or the Securities. Thereupon, the Trustee upon request of the Company,
shall acknowledge in
writing the discharge of the Company's obligations under this Indenture,
except for those
surviving obligations specified above.
Subject to the provisions of Section 10.02, the Trustee shall hold in
trust, for the benefit
of the holders, all money deposited with it pursuant to this Section 10.01
and shall apply the
deposited money in accordance with this Indenture and the Securities to the
payment of the
principal of, and premium, if any, interest and Liquidated Damages, if any,
on the Securities.
Money so held in trust shall not be subject to the subordination provisions
of Article VI.
Section 10.02. Repayment to Company. The Trustee and the Paying Agent
shall
promptly pay to the Company upon request any excess money or securities
held by them at any
time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any
money held by them for the payment of principal or interest that remains
unclaimed for two
years after the date upon which such payment shall have become due;
provided, however, that
the Company shall have first caused notice of such payment to the Company
to be mailed to each
Noteholder entitled thereto no less than 30 days prior to such payment or
within such period shall
have published such notice in a financial newspaper of widespread
circulation published in The
City of New York, including, without limitation, The Wall Street Journal
(national edition).
After payment to the Company, the Trustee and the Paying Agent shall have
no further liability
with respect to such money and Noteholders entitled to the money must look
to the Company for
payment as general creditors unless any applicable abandoned property law
designates another
person.
Section 10.03. Reinstatement. If the Trustee or any Paying Agent is
unable to apply any
money in accordance with the second paragraph of Section 10.01 by reason of
any legal
proceeding or by reason of any order or judgment of any court or
governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had
occurred pursuant to Section 10.01 until such time as the Trustee or such
Paying Agent is
permitted to apply all such money in accordance with Section 10.01;
provided, however, that if
the Company has made any payment of the principal of or premium, if any,
interest or
Liquidated Damages, if any, on any Securities because of the reinstatement
of its obligations, the
Company shall be subrogated to the rights of the holders of such Securities
to receive any such
payment from the money held by the Trustee or such Paying Agent.
ARTICLE XI
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 11.01. Without Consent of Noteholders. The Company and the
Trustee may
amend or supplement this Indenture or the Securities without the consent of
any Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Sections 5.13 and 7.01 hereof;
(c) to provide for uncertificated Securities in addition to certificated
Securities;
(d) to make any change that does not adversely affect the legal rights
hereunder of any Noteholder;
(e) to qualify this Indenture under the TIA or to comply with the
requirements
of the SEC in order to maintain the qualification of the Indenture under
the TIA;
(f) to make any change that provides any additional rights or benefits to
the
holders of Securities; or
(g) to evidence and provide for the acceptance under the Indenture of a
successor Trustee.
Upon the request of the Company accompanied by a Board Resolution
authorizing the
execution of any such amended or supplemental Indenture, and upon receipt
by the Trustee of
the documents described in Section 11.07 hereof, the Trustee shall join
with the Company in the
execution of any amended or supplemental Indenture authorized or permitted
by the terms of this
Indenture and to make any further appropriate agreements and stipulations
that may be therein
contained, but the Trustee shall not be obligated to enter into such
amended or supplemental
Indenture that affects its own rights, duties or immunities under this
Indenture or otherwise.
An amendment under this Section may not make any change that adversely
affects the
rights under Article VI of any holder of Senior Debt then outstanding
unless the holders of such
Senior Debt (or any group or representative thereof authorized to give a
consent) consent to such
change.
Section 11.02. With Consent of Noteholders. Except as provided below in
this
Section 11.02, the Company and the Trustee may amend or supplement this
Indenture or the
Securities with the written consent (including consents obtained in
connection with any tender or
exchange offer for Securities) of the Noteholders of at least a majority in
principal amount of the
then outstanding Securities. Subject to Sections 8.04 and 8.07 hereof, the
Noteholders of a
majority in principal amount of the Securities then outstanding may also by
their written consent
(including consents obtained in connection with any tender offer or
exchange offer for
Securities) waive any existing Default or Event of Default as provided in
Section 8.04 or waive
compliance in a particular instance by the Company with any provision of
this Indenture or the
Securities. However, without the consent of each Noteholder affected, an
amendment,
supplement or waiver under this Section may not (with respect to any
Securities held by a
nonconsenting Noteholder):
(a) reduce the amount of Securities whose Noteholders must consent to an
amendment, supplement or waiver;
(b) reduce the rate of, or change the time for payment of, interest or
Liquidated Damages on any Security;
(c) reduce the principal of or change the fixed maturity of any Security or
alter the redemption provisions with respect thereto (including, without
limitation, the
amount of any premium payable upon redemption);
(d) make any Security payable in money other than that stated in the
Security;
(e) make any change in Section 8.04, 8.07 or 11.02 hereof (this sentence);
(f) waive a default in the payment of the Designated Event Payment or any
principal of, or premium, if any, or interest or Liquidated Damages, if
any, on, any
Security (other than a rescission of acceleration pursuant to Section 8.02
hereof and a
waiver of nonpayment of principal, premium, if any, interest or Liquidated
Damages, if
any, that have become due solely because of such acceleration of the
Securities);
(g) waive a redemption payment payable on any Security; or
(h) make any change in the rights of holders of Securities to receive
payment
of principal of, or premium, if any, or interest or Liquidated Damages, if
any, on, the
Securities;
(i) modify the conversion or subordination provisions in a manner adverse
to
the holders of the Securities; and
(j) impair the right of Noteholders to convert Securities into Common Stock
of the Company or otherwise to receive any cash, securities or other
property receivable
by a holder upon conversion of Securities.
Upon the request of the Company accompanied by a Board Resolution
authorizing the
execution of any such amended or supplemental Indenture, and upon the
filing with the Trustee
of evidence satisfactory to the Trustee of the consent of the Holders of
Securities as aforesaid,
and upon receipt by the Trustee of the documents described in Section 11.07
hereof, the Trustee
shall join with the Company in the execution of such amended or
supplemental Indenture unless
such amended or supplemental Indenture affects the Trustee's own rights,
duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
To secure a consent of the Noteholders under this Section 11.02, it shall
not be necessary
for the Noteholders to approve the particular form of any proposed
amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
Section 11.03. Compliance with Trust Indenture Act. Every amendment to
this
Indenture or the Securities shall be set forth in a supplemental indenture
that complies with the
TIA as then in effect.
Section 11.04. Revocation and Effect of Consents. Until an amendment,
supplement or
waiver becomes effective, a consent to it by a Noteholder of a Security is
a continuing consent
by the Noteholder and every subsequent Noteholder of a Security or portion
of a Security that
evidences the same debt as the consenting Noteholder's Security, even if
notation of the consent
is not made on any Security. However, any such Noteholder or subsequent
Noteholder may
revoke the consent as to such Noteholder's Security or portion of a
Security if the Trustee
receives the notice of revocation before the date on which the Trustee
receives an Officers'
Certificate certifying that the Noteholders of the requisite principal
amount of Securities have
consented to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of
determining the Noteholders entitled to consent to any amendment,
supplement or waiver. If a
record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph,
those persons who were Noteholders at such record date (or their duly
designated proxies), and
only those persons, shall be entitled to consent to such amendment,
supplement or waiver or to
revoke any consent previously given, whether or not such persons continue
to be Noteholders
after such record date. No consent shall be valid or effective for more
than 90 days after such
record date unless consents from Noteholders of the principal amount of
Securities required
hereunder for such amendment, supplement or waiver to be effective shall
have also been given
and not revoked within such 90-day period.
After an amendment, supplement or waiver becomes effective it shall bind
every
Noteholder, unless it is of the type described in any of clauses (a)
through (j) of Section 11.02
hereof. In such case, the amendment, supplement or waiver shall bind each
Noteholder who has
consented to it and every subsequent Noteholder that evidences the same
debt as the consenting
Noteholder's Security.
Upon the execution of any supplemental indenture under this Article XI,
this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of
this Indenture for all purposes; and every holder of Securities theretofore
or thereafter
authenticated and delivered hereunder shall be bound thereby. After a
supplemental indenture
becomes effective, the Company shall mail to holders a notice briefly
describing such
amendment. The failure to give such notice to all holders, or any defect
therein, shall not impair
or affect the validity of an amendment under this Article.
Section 11.05. Notation on or Exchange of Securities. The Trustee may
place an
appropriate notation about an amendment, supplement or waiver on any
Security thereafter
authenticated. The Company in exchange for all Securities may issue and
the Trustee shall
authenticate new Securities that reflect the amendment, supplement or
waiver.
Failure to make the appropriate notation or issue a new security shall not
affect validity
and effect of such amendment, supplement or waiver.
Section 11.06. Trustee Protected. The Trustee shall sign all supplemental
indentures,
except that the Trustee may, but need not, sign any supplemental indenture
that adversely affects
its rights.
Section 11.07. Trustee to Sign Supplemental Indentures. The Company may
not sign a
supplemental Indenture until the Board of Directors approves it. In
executing any supplemental
indenture, the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to
receive and (subject to Section 9.01) shall be fully protected in relying
upon, in addition to the
documents required by Section 12.04, an Officers' Certificate and an
Opinion of Counsel stating
that:
(a) such supplemental indenture is authorized or permitted by this
Indenture
and that all conditions precedent to the execution, delivery and
performance of such
supplemental indenture have been satisfied;
(b) the Company has all necessary corporate power and authority to execute
and deliver the supplemental indenture and that the execution, delivery and
performance
of such supplemental indenture has been duly authorized by all necessary
corporate
action of the Company;
(c) the execution, delivery and performance of the supplemental indenture
do
not conflict with, or result in the breach of or constitute a default under
any of the terms,
conditions or provisions of (i) this Indenture, (ii) the charter documents
or by-laws of the
Company, or (iii) any material agreement or instrument to which the Company
is subject
and of which such counsel is aware;
(d) to the knowledge of legal counsel writing such Opinion of Counsel, the
execution, delivery and performance of the supplemental indenture do not
conflict with,
or result in the breach of any of the terms, conditions or provisions of
(i) any law or
regulation applicable to the Company, or (ii) any material order, writ,
injunction or
decree of any court or governmental instrumentality applicable to the
Company;
(e) such supplemental indenture has been duly and validly executed and
delivered by the Company, and this Indenture together with such
supplemental indenture
constitutes a legal, valid and binding obligation of the Company
enforceable against the
Company, in accordance with its terms, except as such enforceability may be
limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and
general equitable principles (whether considered in a proceeding at law or
in equity); and
(f) this Indenture together with such amendment or supplement complies with
the TIA.
Section 11.08. Payment for Consent. Neither the Company nor any Affiliate
of the
Company shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way
of interest, fee or otherwise, to any holder for or as an inducement to any
consent, waiver or
amendment of any of the terms or provisions of this Indenture or the
Securities unless such
consideration is offered to be paid to all holders that so consent, waive
or agree to amend in the
time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls. If any provision of this
Indenture limits,
qualifies, or conflicts with another provision which is automatically
deemed to be incorporated in
this Indenture by the TIA, the incorporated provision shall control. If
any provision of this
Indenture modifies or excludes any provision of the TIA that may be so
modified or excluded,
the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the
case may be.
Section 12.02. Notices. Any notice or communication by the Company or the
Trustee to
the other is duly given if in writing and delivered in person or mailed by
first-class mail
(registered or certified, return receipt requested), telecopier (promptly
confirmed in writing) or
overnight air courier guaranteeing next day delivery to the other's address
stated in Section 12.10
hereof. The Company or the Trustee by notice to the other may designate
additional or different
addresses for subsequent notices or communications.
Any notice or communication to a Noteholder shall be mailed by first-class
mail, postage
prepaid to his address shown on the register kept by the Registrar. Any
notice or communication
shall also be so mailed to any Person described in TIA 313(c), to the
extent required by the
TIA. Failure to mail a notice or communication to a Noteholder or any
defect in it shall not
affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above within
the time
prescribed, it is duly given, whether or not the addressee receives it; a
notice or communication,
however, shall not be effective unless, in the case of the Trustee,
actually received.
If the Company mails a notice or communication to Noteholders, it shall
mail a copy to
the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
In case by reason of the suspension of regular mail service, or by reason
of any other
cause, it shall be impossible to mail any notice as required by the
Indenture, then such method of
notification as shall be made with the approval of the Trustee shall
constitute a sufficient mailing
of such notice.
Section 12.03. Communication by Noteholders with Other Noteholders.
Noteholders
may communicate pursuant to TIA 312(b) with other Noteholders with
respect to their rights
under this Indenture or the Securities. The Company, the Trustee, the
Registrar and anyone else
shall have the protection of TIA 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon
any request or
application by the Company to the Trustee to take any action under this
Indenture, the Company
shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to
the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating
that, in the opinion of the signers, all conditions precedent and
covenants, if any,
provided for in this Indenture relating to the proposed action have been
satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section 12.05
hereof) stating
that, in the opinion of such counsel, all such conditions precedent and
covenants have
been satisfied.
In any case where several matters are required by, or covered by an opinion
of, any
specified Person, it is not necessary that all such matters be certified
by, or covered by the
opinion of, only one such Person, or that they be so certified or covered
by only one document,
but one such Person may certify or give an opinion with respect to some
matters and one or more
such Persons as to other matters, and any such Person may certify or give
an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it
relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless
such Officer knows, or in the exercise of reasonable care should know, that
the certificate or
opinion or representations by, an Officer or Officer of the Company stating
that the information
with respect to such factual matters is in the possession of the Company,
unless such counsel
knows, or in the exercise of reasonable care should know, that the
certificate of opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications,
requests, consents, certificates, statements, opinions or other instruments
under this Indenture,
they may, but need not, be consolidated and form one instrument.
Any Officers' Certificate, statement or Opinion of Counsel may be based,
insofar as it
relates to accounting matters, upon a certificate or opinion of or
representation by an accountant
(who may be an employee of the Company), or firm of accountants, unless
such Officer or
counsel, as the case may be, knows, or in the exercise of reasonable care
should know, that the
certificate or opinion or representation with respect to the accounting
matters upon which his or
her certificate, statement or opinion may be based as aforesaid is
erroneous.
Section 12.05. Statements Required in Certificate or Opinion. Each
certificate or
opinion with respect to compliance with a condition or covenant provided
for in this Indenture
(other than pursuant to Section 4.03) shall include:
(a) a statement that the Persons signing such certificate or rendering such
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or
opinion are based;
(c) a statement that, in the opinion of such Person, such Person has made
such
examination or investigation as is necessary to enable such Person to
express an informed
opinion as to whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been complied with.
Section 12.06. Rules by Trustee and Agents. The Trustee may make
reasonable rules for
action by, or a meeting of, Noteholders. The Registrar or Paying Agent may
make reasonable
rules and set reasonable requirements for its functions.
Section 12.07. Legal Holidays. A "Legal Holiday" is 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, payment may be made at that
place on the next
succeeding day that is not a Legal Holiday, and no interest or Liquidated
Damages shall accrue
for the intervening period unless the Company shall default in making the
payment due on such
next succeeding day. If any other operative date for purposes of this
Indenture shall occur on a
Legal Holiday then for all purposes the next succeeding day that is not a
Legal Holiday shall be
such operative date.
Section 12.08. No Recourse Against Others. A director, officer, employee
or stock-
holder, as such, of the Company shall not have any liability for any
obligations of the Company
under the Securities or this Indenture or for any claim based on, in
respect of or by reason of
such obligations or their creation. Each Noteholder by accepting a
Security waives and releases
all such liability. The waiver and release are part of the consideration
for the issue of the
Securities.
Section 12.09. Counterparts. This Indenture may be executed in any number
of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the
same agreement.
Section 12.10. Variable Provisions. "Officer" means the Chairman of the
Board, the
Chief Executive Officer, the President, any Vice-President, the Chief
Financial Officer, the
Treasurer, the Secretary, any Assistant Treasurer, any Assistant Secretary
or the Controller of the
Company.
The Company initially appoints the Trustee as Paying Agent, Registrar and
Conversion
Agent, and the Trustee hereby accepts such appointments.
The first certificate pursuant to Section 4.03 hereof shall be for the
fiscal year ending on
December 31, 2000.
The reporting date for Section 9.06 hereof is February 15 of each year.
The first
reporting date is February 15, 2000.
The Trustee shall always have a combined capital and surplus of at least
$50,000,000 as
set forth in its most recent published annual report of condition.
The Company's address for purposes of the Indenture is:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attention: Chief Financial Officer
Telephone No.: (415) 395-7800
Telecopier No.: (415) 395-9330
The Trustee's address is:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Trustee Administration
Telephone No.: (212) 815-5763
Telecopier No.: (212) 815-5915
The Company or the Trustee may change its address for purposes of this
Indenture by
written notice to the other.
Section 12.11. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF
NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT
REGARD, TO THE EXTENT PERMITTED BY LAW, TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
Section 12.12. No Adverse Interpretation of Other Agreements. This
Indenture may not
be used to interpret another indenture, loan or debt agreement of the
Company or an Affiliate.
Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
Section 12.13. Successors. All agreements of the Company in this
Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its
successor.
Section 12.14. Severability. In case any provision in this Indenture or
in the Securities
shall be invalid, illegal or unenforceable, then (to the extent permitted
by law) the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or
impaired thereby.
Section 12.15. Table of Contents, Headings, Etc. The Table of Contents
and headings of
the Articles and Sections of this Indenture and the Securities have been
inserted for convenience
of reference only, are not to be considered a part hereof or thereof, and
shall in no way modify or
restrict any of the terms or provisions hereof or thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly
executed, all as of the date first written above.
CNET, Inc., as Company,
By /s/ Douglas N. Woodrum
Name: Douglas N. Woodrum
Title: Executive Vice President and
Chief Financial Officer
The Bank of New York, as Trustee,
By /s/ Michele L. Russo
Name: Michele L. Russo
Title: Assistant Treasurer
EXHIBIT A
FORM OF CONVERTIBLE SUBORDINATED NOTE
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
[Restricted Global Securities Legend-For Inclusion in Global Securities
Only]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER
RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH
IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN
"AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY,
(2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION
S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES
ACT ("INSTITUTIONAL ACCREDITED INVESTOR") THAT IS ACQUIRING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION AND THAT,
PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY AND THE TRUSTEE A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED
HEREBY (THE FORM OF WHICH LETTER MAY BE OBTAINED FROM THE TRUSTEE),
(5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF,
BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT
OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN
INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NOT
A U.S. PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
(OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE
THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY
HEDGING TRANSACTIONS WITH REGARD TO THIS SECURITY OR ANY COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED
BY THE SECURITIES ACT.
[Restricted Definitive Security Legend-For Inclusion in Definitive
Securities Only]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER
RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH
IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN
"AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY,
(2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN
OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL
ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS
TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER
MAY BE OBTAINED FROM THE TRUSTEE), (5) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY) OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT
TO CLAUSE (6) ABOVE), THE HOLDER OF THIS SECURITY MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES
AND OTHER INFORMATION AND, IN THE CASE OF A TRANSFER PURSUANT TO
CLAUSE (5) ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO
CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE
FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT
IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN INSTITUTIONAL
ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON
AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902
UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER
HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING
TRANSACTIONS WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE
SECURITIES ACT.
No. CUSIP No. [Global Security: 125945 AA 3]
[Definitive Security: 125945 AB 1]
5% Convertible Subordinated Note due 2006
CNET, Inc.
CNET, Inc., a Delaware corporation (the "Company"), promises to pay to
_________________________________________________________________ or
registered
assigns, the principal sum [indicated on Schedule A hereof]* [of _________
Dollars
($_________)]** on March 1, 2006.
Interest Payment Dates: March 1 and September 1, commencing September 1,
1999.
Record Dates: February 15 and August 15.
Reference is hereby made to the further provisions of this Security set
forth on the
reverse hereof which further provisions shall for all purposes have the
same effect as if set forth
at this place.
[Signature Page Follows]
IN WITNESS WHEREOF, CNET, Inc. has caused this Security to be signed
manually or
by facsimile by its duly authorized Officers and its corporate seal or a
facsimile thereof to be
affixed hereto or imprinted hereon.
CNET, INC.,
By:
Name:
Title:
[Seal]
By:
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities described in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee,
by ______________________________________
Authorized Signatory
CNET, Inc.
5% Convertible Subordinated Note due 2006
1. Interest. CNET, Inc., a Delaware corporation (the "Company"), is the
issuer of the
5% Convertible Subordinated Notes due 2006 (the "Securities"), of which
this Security is a part.
The Company promises to pay interest on the Securities in cash semiannually
on each March 1
and September 1, commencing on September 1, 1999, to holders of record at
the close of
business on the immediately preceding February 15 or August 15, as the case
may be.
Interest on the Securities will accrue from the most recent date to which
interest has been
paid, or if no interest has been paid, from March 8, 1999. Interest will
be computed on the basis
of a 360-day year of twelve 30-day months. To the extent lawful, the
Company shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy
Law) on overdue
principal of and premium, if any, interest, and Liquidated Damages, if any,
on the Securities (in
each case without regard to any applicable grace period) at the Default
Rate, compounded semi-
annually.
2. Method of Payment. The Company will pay interest and Liquidated
Damages, if
any, on the Securities (except Defaulted Interest) to the Persons who are
registered holders of the
Securities at the close of business on the record date for the applicable
interest payment date
even though Securities are canceled after the record date and on or before
the interest payment
date. The Noteholder hereof must surrender Securities to a Paying Agent to
collect principal
payments. The Company will pay principal, premium, if any, interest and
Liquidated Damages,
if any, in money of the United States that at the time of payment is legal
tender for payment of
public and private debts. However, the Company may pay interest by check
payable in such
money. It may mail an interest check to a holder's registered address.
3. Paying Agent and Registrar. The Trustee will act as Paying Agent,
Registrar and
Conversion Agent. The Company may change any Paying Agent, Registrar, or
Conversion
Agent without prior notice.
4. Indenture. The Company issued the Securities under an indenture, dated
as of
March 8, 1999 (the "Indenture"), between the Company and The Bank of New
York, as Trustee.
The terms of the Securities include those stated in the Indenture and those
made part of the
Indenture by the Trust Indenture Act of 1939 (15 U.S. Code 77aaa-77bbbb)
as in effect on the
date of the Indenture. The Securities are subject to, and qualified by,
all such terms, certain of
which are summarized hereon, and Noteholders are referred to the Indenture
and such Act for a
statement of such terms. The Securities are general unsecured obligations
of the Company
limited to an aggregate principal amount of up to $187,500,000. The
Indenture does not limit the
ability of the Company or any of its Subsidiaries to incur indebtedness or
to grant security
interests or liens in respect of their assets.
5. Optional Redemption. The Securities are not redeemable at the Company's
option
prior to March 6, 2002. On such date and thereafter, the Securities will
be subject to redemption
at the option of the Company, in whole or from time to time in part (in any
integral multiple of
$1,000), at the following redemption prices (expressed as percentages of
the principal amount), if
redeemed during the 12-month period beginning March 1 of the years
indicated (or March 6 in
the case of 2002):
Year
Redemption Price
2002
102.857%
2003
102.143%
2004
101.429%
2005
100.714%
in each case together with accrued interest and Liquidated Damages, if any,
to (but excluding)
the redemption date (subject to the right of holders of record on the
relevant record date to
receive interest and Liquidated Damages, if any, due on the corresponding
interest payment
date). On or after the redemption date, interest and Liquidated Damages,
if any, will cease to
accrue on the Securities, or portions thereof, called for redemption unless
the Company shall
default in the payment of the redemption price and accrued interest and
Liquidated Damages, if
any, payable on the redemption date on the Securities to be redeemed.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
days but
not more than 60 days before the redemption date to each holder of the
Securities to be redeemed
at his address of record. Securities in denominations larger than $1,000
may be redeemed in part
but only in integral multiples of $1,000. In the event of a redemption of
less than all of the
Securities, the Securities will be chosen for redemption by the Trustee in
accordance with the
Indenture. Unless the Company defaults in making such redemption payment
(including accrued
interest and Liquidated Damages, if any), or a Paying Agent is prohibited
from making such
payment pursuant to the Indenture, by law or otherwise, interest and
Liquidated Damages, if
applicable cease to accrue on the Securities or portions of them called for
redemption on and
after the redemption date.
If this Security is redeemed subsequent to a record date with respect to
any interest
payment date specified above and on or prior to such interest payment date,
then any accrued
interest and Liquidated Damages, if any, will be paid to the person in
whose name this Security
is registered at the close of business on such record date.
7. Mandatory Redemption. The Company will not be required to make
mandatory
redemption payments with respect to the Securities. There are no sinking
fund payments with
respect to the Securities.
8. Repurchase at Option of Holder. If there is a Designated Event, the
Company
shall be required to offer to purchase on the Designated Event Payment Date
all outstanding
Securities at a purchase price equal to 100% of the principal amount
thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the Designated Event
Payment Date;
provided that, on the terms and subject to the conditions set forth in the
Indenture, the Company
shall not be required to offer to purchase the Securities as aforesaid if
the Company has given
notice of redemption of all of the outstanding Securities to holders in
accordance with the
Indenture. Holders of Securities that are subject to an offer to purchase
will receive a Designated
Event Offer from the Company prior to any related Designated Event Payment
Date and may
elect to have such Securities or portions thereof in authorized
denominations purchased by
completing the form entitled "Option of Noteholder To Elect Purchase"
appearing below.
Noteholders have the right to withdraw their election by delivering a
written notice of
withdrawal to the Company or the Paying Agent in accordance with the terms
of the Indenture.
9. Subordination. The payment of the principal of, premium, if any, on,
interest and
Liquidated Damages, if any, on and any other amounts due on the Securities
is subordinated in
right of payment to all existing and future Senior Debt of the Company, as
described in the
Indenture. Each Noteholder, by accepting a Security, agrees to such
subordination and
authorizes and directs the Trustee on its behalf to take such action as may
be necessary or
appropriate to effectuate the subordination so provided and appoints the
Trustee as its attorney-
in-fact for such purpose.
10. Conversion. The holder of any Security has the right, exercisable at
any time
after 90 days following the Issuance Date and prior to the close of
business on the Business Day
immediately preceding the final maturity date of the Security, to convert
the principal amount
thereof (or any portion thereof that is an integral multiple of $1,000)
into shares of Common
Stock at the initial Conversion Price of $149.625 per share, subject to
adjustment under certain
circumstances as provided in the Indenture, except that if a Security is
called for redemption, the
conversion right will terminate at the close of business on the Business
Day immediately
preceding the date fixed for redemption (unless the Company shall default
in making the
redemption payment, including interest and Liquidated Damages, if any, when
it becomes due, in
which case the conversion right shall terminate at the close of business on
the date on which such
default is cured). As further provided in the Indenture, the Company agrees
that, upon the
occurrence of the Stock Split (which it is currently contemplated will
occur on the date of the
Indenture), the Conversion Price shall be automatically adjusted to
$74.8125 per share.
Beneficial owners of interests in Global Securities may exercise their
right of conversion
by delivering to the Depositary the appropriate instructions for conversion
pursuant to the
Depositary's procedures. To convert a certificated Security, the holder
must (1) complete and
sign a notice of election to convert substantially in the form set forth
below (or complete and
manually sign a facsimile thereof) and deliver such notice to a Conversion
Agent, (2) surrender
the Security to a Conversion Agent, (3) furnish appropriate endorsements or
transfer documents
if required by the Conversion Agent and (4) pay any transfer or similar
tax, if required by the
Conversion Agent. Upon conversion, no adjustment or payment will be made
for accrued and
unpaid interest or Liquidated Damages, if any, on the Securities so
converted or for dividends or
distributions on, or Liquidated Damages, if any, attributable to, any
Common Stock issued on
conversion of the Securities, except that, if any Noteholder surrenders a
Security for conversion
after the close of business on a record date for the payment of interest
and prior to the opening of
business on the next interest payment date, then, notwithstanding such
conversion, the interest
payable on such interest payment date will be paid on such interest payment
date to the person
who was the registered holder of such Security on such record date. Any
Securities surrendered
for conversion during the period after the close of business on any record
date for the payment of
interest and before the opening of business on the next succeeding interest
payment date (except
Securities called for redemption on a redemption date or to be repurchased
on a Designated
Event Payment Date during such period) must be accompanied by payment in an
amount equal
to the interest and Liquidated Damages, if any, payable on such interest
payment date on the
principal amount of Securities so converted. The number of shares of
Common Stock issuable
upon conversion of a Security is determined by dividing the principal
amount of the Security
converted by the Conversion Price in effect on the Conversion Date. No
fractional shares will be
issued upon conversion but a cash adjustment will be made for any
fractional interest.
A Security in respect of which a holder has delivered an "Option of
Noteholder to Elect
Purchase" form appearing below exercising the option of such holder to
require the Company to
purchase such Security may be converted only if the notice of exercise is
withdrawn as provided
above and in accordance with the terms of the Indenture. The above
description of conversion of
the Securities is qualified by reference to, and is subject in its entirety
to, the more complete
description thereof contained in the Indenture.
11. Registration Agreement. The holder of this Security is entitled to the
benefits of a
Registration Agreement, dated March 8, 1999, between the Company and the
Initial Purchasers
(the "Registration Agreement"). Pursuant to the Registration Agreement the
Company has
agreed for the benefit of the holders of the Securities and the Common
Stock issued and issuable
upon conversion of the Securities, that (i) it will, at its cost, within 60
days after the Closing
Date, file a shelf registration statement (the "Shelf Registration
Statement") with the Securities
and Exchange Commission (the "Commission") with respect to resales of the
Securities and the
Common Stock issuable upon conversion thereof, (ii) the Company will use
its reasonable best
efforts to cause such Shelf Registration Statement to be declared effective
by the Commission
under the Securities Act within 150 days after the Closing Date and (iii)
the Company will keep
such Shelf Registration Statement continuously effective under the
Securities Act until the
earliest of (a) the second anniversary of the Closing Date or, if later,
the second anniversary of
the last date on which any Securities are issued upon exercise of the
Initial Purchasers' over-
allotment option, (b) the date on which the Securities or the Common Stock
issuable upon
conversion thereof may be sold to Persons who are not "affiliates" (as
defined in Rule 144) of the
Company pursuant to paragraph (k) of Rule 144 (or any successor provision)
promulgated by the
Commission under the Securities Act, (c) the date as of which the
Securities or the Common
Stock issuable upon conversion thereof have been transferred pursuant to
Rule 144 under the
Securities Act (or any similar provision then in force) and (d) the date as
of which all the
Securities or the Common Stock issuable upon conversion thereof have been
sold pursuant to
such Shelf Registration Statement.
If the Shelf Registration Statement (i) is not filed with the Commission on
or prior to 60
days, or has not been declared effective by the Commission within 150 days,
after the Closing
Date or (ii) is filed and declared effective but shall thereafter cease to
be effective (without being
succeeded immediately by a replacement shelf registration statement filed
and declared
effective) or cease to be usable (including, without limitation, as a
result of a Suspension Period
as defined below) for the offer and sale of Transfer Restricted Securities
(as defined below) for a
period of time (including any Suspension Period) which shall exceed 60 days
in the aggregate in
any 12-month period during the period beginning on the Closing Date and
ending on the second
anniversary of the Closing Date or, if later, the second anniversary of the
last date on which any
Securities are issued upon exercise of the Initial Purchasers' over-
allotment option (each such
event referred to in clauses (i) and (ii) being referred to herein as a
"Registration Default"), the
Company will pay liquidated damages ("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 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 Securities and
$2.50 per annum per
6.68338 shares of Common Stock (subject to adjustment from time to time 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 Securities and $5.00 per annum per 6.68338 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; provided
that, as further
provided in the Registration Agreement, the Company hereby agrees that,
upon the occurrence of
the Stock Split (which it is currently contemplated will occur on the date
of the Indenture), the
Liquidated Damages payable in respect of Common Stock shall be
automatically adjusted to
$2.50 per annum per 13.36675 shares of Common Stock for the first such 90
days during which
a Registration Default has occurred and is continuing and $5.00 per annum
per 13.36675 shares
of Common Stock for any additional days during which such Registration
Default has occurred
and is continuing (in each case subject to further adjustment from time to
time in the event of a
stock split, stock recombination, stock dividend and the like). The Company
will pay all accrued
Liquidated Damages by wire transfer of immediately available funds or by
federal funds check
on each Damages Payment Date, and Liquidated Damages will be calculated on
the basis of a
360-day year consisting of twelve 30-day months. Following the cure of a
Registration Default,
Liquidated Damages will cease to accrue with respect to such Registration
Default.
"Transfer Restricted Securities" means each Security and each share of
Common Stock
issued on conversion thereof until the date on which such Security or
share, as the case may be,
(i) has been transferred pursuant to the Shelf Registration Statement or
another registration
statement covering such Security or share which has been filed with the
Commission pursuant to
the Securities Act, in either case after such registration statement has
become and while such
registration statement is effective under the Securities Act, (ii) has been
transferred pursuant to
Rule 144 under the Securities Act (or any similar provision then in force),
or (iii) may be sold or
transferred pursuant to Rule 144(k) under the Securities Act (or any
similar provision then in
force).
Pursuant to the Registration Agreement, the Company may 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 (each, a "Suspension
Period"); provided that
the existence of a Suspension Period will not prevent the occurrence of a
Registration Default or
otherwise limit the obligation of the Company to pay Liquidated Damages.
The above description of certain provisions of the Registration
Agreement is
qualified by reference to, and is subject in its entirety to, the more
complete description thereof
contained in the Registration Agreement.
12. Denominations, Transfer, Exchange and Replacement. The Securities are
in
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000.
The transfer of Securities may be registered, and Securities may be
exchanged, as provided in the
Indenture. The Registrar may require a Noteholder, among other things, to
furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required
by law or permitted
by the Indenture. The Registrar need not exchange or register the transfer
of any Security or
portion of a Security selected for redemption (except the unredeemed
portion of any Security
being redeemed in part). Also, it need not exchange or register the
transfer of any Security for a
period beginning at the opening of business 15 days before the day of
mailing of a notice of
redemption of Securities and ending at the close of business on the day of
such mailing.
Replacement Securities for lost, stolen or mutilated Securities may be
issued in accordance with
the terms of the Indenture.
13. Persons Deemed Owners. The registered Noteholder of a Security may be
treated
as its owner for all purposes.
14. Unclaimed Money. If money for the payment of principal of or premium,
if any,
interest or Liquidated Damages, if any, on Securities remains unclaimed for
two years, the
Trustee and the Paying Agent shall pay the money back to the Company at its
written request.
After that, Noteholders of Securities entitled to the money must look to
the Company for
payment, unless an abandoned property law designates another person, and
all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
15. Defaults and Remedies. The Securities shall have the Events of Default
as set
forth in Section 8.01 of the Indenture. Subject to certain limitations in
the Indenture, if an Event
of Default occurs and is continuing, the Trustee by notice to the Company
or the Noteholders of
at least 25% in aggregate principal amount of the then outstanding
Securities by notice to the
Company and the Trustee may declare all the Securities to be due and
payable immediately,
except that in the case of an Event of Default arising from certain events
of bankruptcy or
insolvency, all unpaid principal, premium, if any, and accrued and unpaid
interest and Liquidated
Damages, if any, on the Securities shall become due and payable immediately
without further
action or notice. Upon acceleration as described in either of the
preceding sentences, the
subordination provisions of the Indenture preclude any payment being made
to Noteholders for
at least 5 Business Days except as otherwise provided in the Indenture.
The Noteholders of a majority in principal amount of the Securities then
outstanding by
written notice to the Trustee may rescind an acceleration and its
consequences if the rescission
would not conflict with any judgment or decree and if all existing Events
of Default have been
cured or waived except nonpayment of principal, premium, if any, Liquidated
Damages, if any,
and interest that has become due solely because of the acceleration.
Noteholders may not
enforce the Indenture or the Securities except as provided in the
Indenture. Subject to certain
limitations, Noteholders of a majority in principal amount of the then
outstanding Securities
issued under the Indenture may direct the Trustee in its exercise of any
trust or power. The
Company must furnish compliance certificates to the Trustee annually. The
above description of
Events of Default and remedies is qualified by reference to, and subject in
its entirety to, the
more complete description thereof contained in the Indenture.
16. Amendments, Supplements and Waivers. Subject to certain exceptions,
the
Indenture or the Securities may be amended or supplemented with the consent
of the Noteholders
of at least a majority in principal amount of the then outstanding
Securities (including consents
obtained in connection with a tender offer or exchange offer for
Securities), and any existing
default may be waived with the consent of the Noteholders of a majority in
principal amount of
the then outstanding Securities (including consents obtained in connection
with a tender offer or
exchange offer for Securities). Without the consent of any Noteholder, the
Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
defect or inconsistency,
to provide for assumption by a successor of the Company's obligations to
Noteholders, to make
any change that does not adversely affect the rights of any Noteholder, to
qualify the Indenture
under the TIA, or to comply with the requirements of the SEC in order to
maintain the
qualification of the Indenture under the TIA.
17. Trustee Dealings with the Company. The Trustee, in its individual or
any other
capacity, may become the owner or pledgee of the Securities and may
otherwise deal with the
Company or an Affiliate of the Company with the same rights it would have,
as if it were not
Trustee, subject to certain limitations provided for in the Indenture and
in the TIA. Any Agent
may do the same with like rights.
18. No Recourse Against Others. A director, officer, employee or
stockholder, as
such, of the Company shall not have any liability for any obligations of
the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such
obligations or their creation. Each Noteholder, by accepting a Security,
waives and releases all
such liability. The waiver and release are part of the consideration for
the issue of the Securities.
19. Governing Law; Indenture to Control. THE INTERNAL LAWS OF THE
STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE SECURITIES
WITHOUT REGARD, TO THE EXTENT PERMITTED BY LAW, TO CONFLICT OF LAW
PROVISIONS THEREOF. IN THE EVENT OF ANY CONFLICT BETWEEN THE
PROVISIONS OF THIS SECURITY ON THE ONE HAND AND THE INDENTURE OR THE
REGISTRATION AGREEMENT, ON THE OTHER HAND, THE PROVISIONS OF THE
INDENTURE OR THE REGISTRATION AGREEMENT, AS THE CASE MAY BE, SHALL
CONTROL.
20. Authentication. The Securities shall not be valid until authenticated
by the
manual signature of an authorized signatory of the Trustee or an
authenticating agent.
21. Abbreviations. Customary abbreviations may be used in the name of a
Noteholder or an assignee, such as: TEN COM (for tenants in common), TEN
ENT (for tenants
by the entireties), JT TEN (for joint tenants with right of survivorship
and not as tenants in
common), CUST (for Custodian), and U/G/M/A (for Uniform Gifts to Minors
Act).
22. Definitions. Capitalized terms not defined in this Security have the
meanings
given to them in the Indenture.
The Company will furnish to any Noteholder of the Securities upon written
request and
without charge a copy of the Indenture and the Registration Agreement.
Request may be made
to:
CNET, Inc.
Attention: Chief Financial Officer
150 Chestnut Street
San Francisco, California 94111
CERTIFICATE OF TRANSFER
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
___________________________________________________________________________
__
(Insert assignee's social security or tax I.D. no.)
___________________________________________________________________________
__
___________________________________________________________________________
__
___________________________________________________________________________
__
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ agent to
transfer this
Security on the books of the Company. The agent may substitute another to
act for him.
Your Signature:
(Sign exactly as your name appears on the other side of
this Security)
Date: ___________________
Medallion Signature Guarantee: _____________________________
[For inclusion only if this Security bears a Restricted Securities Legend]
In connection with
any transfer of any of the Securities evidenced by this certificate which
are "restricted securities"
(as defined in Rule 144 (or any successor thereto) under the Securities
Act), the undersigned
confirms that such Securities are being transferred:
CHECK ONE BOX BELOW
(1) ? to the Company; or
(2) ? pursuant to and in compliance with Rule 144A under the
Securities
Act of 1933; or
(3) ? pursuant to and in compliance with Regulation S under the
Securities
Act of 1933; or
(4) ? to an institutional "accredited investor" (as defined in Rule
501(a)(1),
(2), (3) or (7) under the Securities Act of 1933) that has furnished to
the Trustee a signed letter containing certain representations and
agreements (the form of which letter can be obtained from the
Trustee); or
(5) ? pursuant to an exemption from registration under the Securities
Act of
1933 provided by Rule 144 thereunder.
Unless one of the boxes is checked, the Registrar will refuse to register
any of the
Securities evidenced by this certificate in the name of any person other
than the
registered holder thereof; provided, however, that if box (3), (4) or (5)
is checked,
the Trustee may require, prior to registering any such transfer of the
Securities,
such certifications and other information, and if box (5) is checked such
legal
opinions, as the Company has reasonably requested in writing, by delivery
to the
Trustee of a standing letter of instruction, to confirm that such transfer
is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933; provided that this
paragraph shall not be applicable to any Securities which are not
"restricted
securities" (as defined in Rule 144 (or any successor thereto) under the
Securities
Act).
Your Signature:
(Sign exactly as your name appears on the other side of
this Security)
Date: __________________
Medallion Signature Guarantee:
________________________________
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $?. The
following increases
or decreases in the principal amount of this Global Security have been
made:
Date Made
Amount of
increase in
Principal
Amount of this
Global Security
including upon
exercise of over-
allotment option
Amount of
decrease in
Principal Amount
of this Global
Security
Principal Amount
of this Global
Security following
such decrease or
increase
Signature of
authorized
signatory of
Trustee or
Securities
Custodian
OPTION OF NOTEHOLDER TO ELECT PURCHASE
If you want to elect to have this Security or a portion thereof repurchased
by the
Company pursuant to Section 3.08 or 4.07 of the Indenture, check the box: ?
If the purchase is in part, indicate the portion ($1,000 or any integral
multiple thereof) to
be purchased: ____________
Your Signature:
(Sign exactly as your name appears on the other
side of this Security)
Date: ____________
Medallion Signature Guarantee: _______________________
ELECTION TO CONVERT
To CNET, Inc.:
The undersigned owner of this Security hereby irrevocably exercises the
option to
convert this Security, or the portion below designated, into Common Stock
of CNET, Inc. in
accordance with the terms of the Indenture referred to in this Security,
and directs that the shares
issuable and deliverable upon conversion, together with any check in
payment for fractional
shares, be issued in the name of and delivered to the undersigned, unless a
different name has
been indicated below. If shares are to be issued in the name of a person
other than the
undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
The undersigned agrees to be bound by the terms of the Registration
Agreement relating
to the Common Stock issued upon conversion of the Securities.
If you want to convert this Security in whole, check the box below. If you
want to
convert this Security in part, indicate the portion of this Security to be
converted in the space
provided below.
In whole ? or Portion of Security to be
converted ($1,000 or any integral
multiple thereof):
$______________
Date: ______________ Your Signature:
(Sign exactly as your name appears on the
other side of this Security)
Medallion Signature Guarantee:
__________________________________________
Please print or typewrite your name and address, including zip code, and
social security or other
identifying number:
If the Common Stock is to be issued and delivered to someone other than
you, please print or
typewrite the name and address, including zip code, and social security or
other identifying
number of that person:
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL SECURITY OR DEFINITIVE SECURITY
TO DEFINITIVE SECURITY
(Transfers pursuant to 2.06(a)(ii) or 2.06(a)(iii) of the Indenture)
The Bank of New York, as Registrar
Attn: Corporate Trust Trustee Administration
Re: CNET, Inc. 5% Convertible Subordinated Notes
due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of March 8, 1999 (the
"Indenture")
between CNET, Inc. and The Bank of New York, as Trustee. Capitalized terms
used but not
defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S. $ aggregate
principal amount of Securities
which are held [in the form of a [Definitive] [Global Security (CUSIP No.
_____________)]* in
the name of [name of transferor] (the "Transferor") to effect the transfer
of the Securities.
In connection with such request, and in respect of such Securities, the
Transferor does
hereby certify that such Securities are being transferred in accordance
with (i) the transfer
restrictions set forth in the Securities and the Indenture and (ii) to a
transferee that the Transferor
reasonably believes is an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3)
or (7) of Regulation D under the U.S. Securities Act of 1933, as amended)
(an "Institutional
Accredited Investor") which is acquiring such Securities for its own
account or for one or more
accounts, each of which is an Institutional Accredited Investors, over
which it exercises sole
investment discretion and (iii) in accordance with applicable securities
laws of any state of the
United States; and further certifies that the transferee and each such
account, if any, is acquiring
at least $100,000 principal amount of Securities.
[Name of Transferor],
By
Name:
Title:
Dated:
cc: CNET, Inc.
Attn: Secretary
EXHIBIT C
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant to 2.06(a)(ii) and 2.06(a)(iii))
The Bank of New York, as Registrar
Attn: Corporate Trust Trustee Administration
Re: CNET, Inc. 5% Convertible Subordinated Notes
due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of March 8, 1999 (the
"Indenture")
between CNET, Inc., a Delaware corporation (the "Company"), and The Bank of
New York, as
Trustee (the "Trustee"). Capitalized terms used but not defined herein
shall have the meanings
given them in the Indenture.
In connection with our proposed purchase of $ aggregate
principal amount of
the Securities, which are convertible into shares of common stock ("Common
Stock") of the
Company, we confirm that:
1. We understand that the Securities and the Common Stock issuable upon
conversion thereof have not been registered under the Securities Act of
1933, as amended
(the "Securities Act"), and may not be sold except as permitted in the
following sentence.
We understand and agree, on our own behalf and on behalf of any accounts
for which we
are acting as hereinafter stated, (x) that such Securities are being
transferred to us in a
transaction not involving any public offering within the meaning of the
Securities Act,
(y) that if we should resell, pledge or otherwise transfer any such
Securities or any shares
of Common Stock issuable upon conversion thereof prior to the later of (I)
the expiration
of the holding period under Rule 144(k) (or any successor thereto) under
the Securities
Act which is applicable to such Securities or shares of Common Stock, as
the case may
be, or (II) within three months after we cease to be an affiliate (within
the meaning of
Rule 144 under the Securities Act) of the Company, such Securities or the
Common
Stock issuable upon conversion thereof may be resold, pledged or
transferred only (i) to
the Company, (ii) so long as such Securities are eligible for resale
pursuant to Rule 144A
under the Securities Act ("Rule 144A"), to a person whom we reasonably
believe is a
"qualified institutional buyer" (as defined in Rule 144A) ("QIB") that
purchases for its
own account or for the account of a QIB to whom notice is given that the
resale, pledge
or transfer is being made in reliance on Rule 144A (as indicated by the box
checked by
the transferor on the Certificate of Transfer on the reverse of the
certificate for the
Securities), it being understood that the Common Stock is not eligible for
resale pursuant
to Rule 144A, (iii) in an offshore transaction (as defined in Regulation S
under the
Securities Act) in accordance with Regulation S under the Securities Act
(as indicated by
the box checked by the transferor on the Certificate of Transfer on the
reverse of the certificate for the Securities or on a comparable
Certificate of Transfer for the Common Stock issuable upon conversion
thereof), (iv) to an institution that is an "accredited investor" as
defined in Rule 501 (a) (1), (2), (3) or (7) under the Securities Act (an
"Institutional Accredited Investor") (as indicated by the box checked by
the transferor on the Certificate of Transfer on the reverse of the
certificate for the Securities or on a comparable Certificate of Transfer
for the Common Stock issuable upon conversion thereof) that is acquiring
the securities for its own account or for the account of one or
more other Institutional Accredited Investors over which it exercises sole
investment discretion and that prior to such transfer, delivers a signed
letter to the Company and the Trustee (or the transfer agent in the case of
Common Stock issuable upon conversion thereof) certifying that it and each
such account is such an Institutional Accredited Investor and is acquiring
the Securities or the Common Stock issuable upon conversion thereof for
investment purposes and not for distribution and agreeing to the
restrictions on transfer of the Securities or the Common Stock issuable
upon conversion thereof, (v) pursuant to an exemption from registration
under the Securities Act provided by Rule
144 (if applicable) under the Securities Act (as indicated by the box
checked transferor on the Certificate of Transfer on the reverse of the
certificate for the Securities or a comparable Certificate of Transfer for
the Common Stock issuable upon conversion thereof), or (vi) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States, and we will notify any purchaser of the Securities or the Common
Stock issuable upon conversion thereof from us of the above resale
restrictions, if then applicable. We
further understand that in connection with any transfer of the Securities
or the Common Stock issuable upon conversion thereof (other than a transfer
pursuant to clause (vi) above) by us that the Company and the Trustee (or
the transfer agent in the case of Common Stock issuable upon conversion
thereof) may request, and if so requested we will furnish, such
certificates and other information and, in the case of a transfer pursuant
to clause (v) above, a legal opinion as they may reasonably require to
confirm that any such transfer complies with the foregoing restrictions.
Finally, we understand that in any case we will not directly or indirectly
engage in any hedging transactions with regard to the Securities or the
Common Stock issuable upon conversion of the Securities except as
permitted by the Securities Act.
2. We are able to fend for ourselves in connection with our purchase of the
Securities, we have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its investment and
can afford the complete loss of such investment.
3. We understand that the minimum principal amount of Securities that may
be purchased by an Institutional Accredited Investor is $100,000 and also
represent that we and any accounts for which we are purchasing Securities
are each purchasing at least such minimum principal amount of Securities.
4. We understand that the Company and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations, agreements and
warranties and we agree that if any of the acknowledgments,
representations, agreements or warranties made or deemed to have been made
by us by our purchase of the Securities, for our own account or for one or
more accounts as to each of which we exercise sole investment discretion,
are no longer accurate, we shall promptly notify the Company.
5. With respect to the certificates representing Securities we are
purchasing,
we understand that such certificates will be in definitive registered form
and that the notification requirement referred to in (1) above requires
that, until the expiration of the holding period with respect to sales of
the Securities under clause (k) of Rule 144 under the Securities Act, that
such Securities will bear a legend substantially to the following effect:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER
RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH
IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN
"AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY,
(2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE
ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN
OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL
ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES
AND NOT FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS
TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER
MAY BE OBTAINED FROM THE TRUSTEE), (5) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY) OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT
TO CLAUSE (6) ABOVE), THE HOLDER OF THIS SECURITY MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES
AND OTHER INFORMATION AND, IN THE CASE OF A TRANSFER PURSUANT TO
CLAUSE (5) ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO
CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE
FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT
IT IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN INSTITUTIONAL
ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON
AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902
UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER
HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING
TRANSACTIONS WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE
SECURITIES ACT."
6. With respect to certificates representing shares of Common Stock
issuable
upon conversion of the Securities, we understand that the notification
requirement referred to in (1) above requires that, until the expiration of
the holding period with respect to sales of such Common Stock under clause
(k) of Rule 144 under the Securities Act, such certificates will bear a
legend substantially to the effect set forth as Exhibit D to the Indenture
and that a copy of such legend may be obtained from the Trustee.
7. We are acquiring the Securities purchased by us for investment purposes,
and not for distribution, for our own account or for one or more accounts
as to each of which we exercise sole investment discretion and we are and
each such account is an Institutional Accredited Investor.
8. You and the Company are entitled to rely on this letter and you and the
Company are irrevocably authorized to produce this letter or a copy hereof
to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
(Name of Purchaser)
By:
Dated:
cc: CNET, Inc.
Attn: Chief Financial Officer
150 Chestnut Street
San Francisco, California 94111
EXHIBIT D
FORM OF RESTRICTED COMMON STOCK LEGEND
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER
RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH
IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN
"AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT)
OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY,
(2) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER APPLICABLE TO THIS SECURITY, THE FORM OF
WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER AGENT),
(3) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL
ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPLICABLE TO THIS
SECURITY, THE FORM OF WHICH MAY BE OBTAINED FROM THE COMPANY OR
THE TRANSFER AGENT) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION, AND THAT, PRIOR TO SUCH TRANSFER,
DELIVERS TO THE COMPANY AND THE TRANSFER AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM
OF WHICH LETTER MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER
AGENT), (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER APPLICABLE TO THIS SECURITY, THE FORM OF
WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER AGENT) OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. PRIOR TO A
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE (5) ABOVE), THE HOLDER OF THIS SECURITY MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH
CERTIFICATES AND OTHER INFORMATION AND, IN THE CASE OF A TRANSFER
PURSUANT TO CLAUSE (4) ABOVE, A LEGAL OPINION AS THEY MAY
REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS
SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE
BENEFIT OF THE COMPANY THAT IT IS (1) AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER
THE
SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION OR (2) NOT A U.S. PERSON AND IS
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT
SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF
WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION
WITH REGARD TO THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES
ACT."
EXHIBIT E
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
OF RESTRICTED COMMON STOCK
(Transfers pursuant to 5.16(c) of the Indenture)
[Name and Address of Common Stock Transfer Agent]
Re: CNET, Inc. 5% Convertible Subordinated Notes
due 2006 (the "Securities")
Reference is hereby made to the Indenture dated as of March 8, 1999 (the
"Indenture") between CNET, Inc. and The Bank of New York, as Trustee.
Capitalized terms used but not defined herein shall have the meanings given
them in the Indenture.This letter relates to _________ shares of Common
Stock represented by the accompanying certificate(s) that were issued upon
conversion of Securities and which are held in the name of [name of
transferor] (the "Transferor") to effect the transfer of such Common Stock.
In connection with the transfer of such shares of Common Stock, the
undersigned
confirms that such shares of Common Stock are being transferred:
CHECK ONE BOX BELOW
(1) ? to the Company; or
(2) ? pursuant to and in compliance with Regulation S under the
Securities
Act of 1933; or
(3) ? to an institutional "accredited investor" (as defined in Rule
501(a)(1),
(2), (3) or (7) under the Securities Act of 1933) that has furnished to
the transfer agent a signed letter containing certain representations and
agreements (the form of which letter can be obtained from the
Company or transfer agent); or(4) ? pursuant to an exemption from
registration under the Securities Act of 1933 provided by Rule 144
thereunder.
Unless one of the boxes is checked, the transfer agent will refuse to
register any of the Common Stock evidenced by this certificate in the name
of any person other than the registered holder thereof; provided, however,
that if box (2), (3) or (4) is checked, the transfer agent may require,
prior to registering any such transfer of the Common Stock such
certifications and other information, and if box (4) is checked such legal
opinions, as the Company has reasonably requested in writing, by delivery
to the transfer agent of a standing letter of instruction, to confirm that
such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act of 1933.
[Name of Transferor],
By
Name:
Title:
Dated:
cc: CNET, Inc.
Attn: Secretary
* Applicable to Global Securities only.
** Applicable to Definitive Securities only.
* Insert, if appropriate.
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EXHIBIT 10.41
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO.
OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Global Securities Legend-For Inclusion in Global Securities
Only]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF
THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE
SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER
THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE
SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN
OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT)
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) TO AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED
INVESTOR") THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY
AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY
EVIDENCED HEREBY (THE FORM OF WHICH LETTER MAY BE OBTAINED FROM THE
TRUSTEE), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT
IS (1) A QUALIFIED INSTITUTIONAL BUYER OR (2) AN INSTITUTIONAL ACCREDITED
INVESTOR AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF
PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN
ANY HEDGING TRANSACTIONS WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE
SECURITIES ACT.
[Restricted Definitive Security Legend-For Inclusion in Definitive
Securities Only]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF
THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE
SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER
THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE
SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
(AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH
REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
("INSTITUTIONAL ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT
FOR DISTRIBUTION AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY
AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY
EVIDENCED HEREBY (THE FORM OF WHICH LETTER MAY BE OBTAINED FROM THE
TRUSTEE), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS SECURITY) OR (6) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
PURSUANT TO CLAUSE (6) ABOVE), THE HOLDER OF THIS SECURITY MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AND, IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (5)
ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY
TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS.
THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR
THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER
OR (2) AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) NOT A U.S.
PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL
NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTIONS WITH REGARD
TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT.
No.
C
USIP No. [Global Security: 125945 AA 3]
[
Definitive Security: 125945 AB 1]
5% Convertible Subordinated Note due 2006
CNET, Inc.
CNET, Inc., a Delaware corporation (the "Company"), promises to pay to
_________________________________________________________________ or
registered assigns, the principal sum [indicated on Schedule A hereof]* [of
_________ Dollars ($_________)]** on March 1, 2006.
Interest Payment Dates: March 1 and September 1, commencing September 1,
1999.
Record Dates: February 15 and August 15.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof which further provisions shall for all purposes
have the same effect as if set forth at this place.
[Signature Page Follows]
IN WITNESS WHEREOF, CNET, Inc. has caused this Security to be signed
manually or by facsimile by its duly authorized Officers and its corporate
seal or a facsimile thereof to be affixed hereto or imprinted hereon.
C
NET, INC.,
By:
Name:
Title:
[Seal]
By:
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities described in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee,
by ______________________________________
Authorized Signatory
CNET, Inc.
5% Convertible Subordinated Note due 2006
1. Interest. CNET, Inc., a Delaware corporation (the
"Company"), is the issuer of the 5% Convertible Subordinated
Notes due 2006 (the "Securities"), of which this Security is a
part. The Company promises to pay interest on the Securities
in cash semiannually on each March 1 and September 1,
commencing on September 1, 1999, to holders of record at the
close of business on the immediately preceding February 15 or
August 15, as the case may be.
Interest on the Securities will accrue from the most recent
date to which interest has been paid, or if no interest has
been paid, from March 8, 1999. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. To the
extent lawful, the Company shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law)
on overdue principal of and premium, if any, interest, and
Liquidated Damages, if any, on the Securities (in each case
without regard to any applicable grace period) at the Default
Rate, compounded semi-annually.
2. Method of Payment. The Company will pay interest and
Liquidated Damages, if any, on the Securities (except Defaulted
Interest) to the Persons who are registered holders of the
Securities at the close of business on the record date for the
applicable interest payment date even though Securities are
canceled after the record date and on or before the interest
payment date. The Noteholder hereof must surrender Securities
to a Paying Agent to collect principal payments. The Company
will pay principal, premium, if any, interest and Liquidated
Damages, if any, in money of the United States that at the time
of payment is legal tender for payment of public and private
debts. However, the Company may pay interest by check payable
in such money. It may mail an interest check to a holder's
registered address.
3. Paying Agent and Registrar. The Trustee will act as
Paying Agent, Registrar and Conversion Agent. The Company may
change any Paying Agent, Registrar, or Conversion Agent without
prior notice.
4. Indenture. The Company issued the Securities under an
indenture, dated as of March 8, 1999 (the "Indenture"), between
the Company and The Bank of New York, as Trustee. The terms of
the Securities include those stated in the Indenture and those
made part of the Indenture by the Trust Indenture Act of 1939
(15 U.S. Code 77aaa-77bbbb) as in effect on the date of the
Indenture. The Securities are subject to, and qualified by,
all such terms, certain of which are summarized hereon, and
Noteholders are referred to the Indenture and such Act for a
statement of such terms. The Securities are general unsecured
obligations of the Company limited to an aggregate principal
amount of up to $187,500,000. The Indenture does not limit the
ability of the Company or any of its Subsidiaries to incur
indebtedness or to grant security interests or liens in respect
of their assets.
5. Optional Redemption. The Securities are not redeemable
at the Company's option prior to March 6, 2002. On such date
and thereafter, the Securities will be subject to redemption at
the option of the Company, in whole or from time to time in
part (in any integral multiple of $1,000), at the following
redemption prices (expressed as percentages of the principal
amount), if redeemed during the 12-month period beginning
March 1 of the years indicated (or March 6 in the case of
2002):
Year
Redemption Price
2002
102.857%
2003
102.143%
2004
101.429%
2005
100.714%
in each case together with accrued interest and Liquidated
Damages, if any, to (but excluding) the redemption date
(subject to the right of holders of record on the relevant
record date to receive interest and Liquidated Damages, if any,
due on the corresponding interest payment date). On or after
the redemption date, interest and Liquidated Damages, if any,
will cease to accrue on the Securities, or portions thereof,
called for redemption unless the Company shall default in the
payment of the redemption price and accrued interest and
Liquidated Damages, if any, payable on the redemption date on
the Securities to be redeemed.
1. Notice of Redemption. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the
redemption date to each holder of the Securities to be redeemed
at his address of record. Securities in denominations larger
than $1,000 may be redeemed in part but only in integral
multiples of $1,000. In the event of a redemption of less than
all of the Securities, the Securities will be chosen for
redemption by the Trustee in accordance with the Indenture.
Unless the Company defaults in making such redemption payment
(including accrued interest and Liquidated Damages, if any), or
a Paying Agent is prohibited from making such payment pursuant
to the Indenture, by law or otherwise, interest and Liquidated
Damages, if applicable cease to accrue on the Securities or
portions of them called for redemption on and after the
redemption date.
If this Security is redeemed subsequent to a record date with
respect to any interest payment date specified above and on or
prior to such interest payment date, then any accrued interest
and Liquidated Damages, if any, will be paid to the person in
whose name this Security is registered at the close of business
on such record date.
2. Mandatory Redemption. The Company will not be required
to make mandatory redemption payments with respect to the
Securities. There are no sinking fund payments with respect to
the Securities.
3. Repurchase at Option of Holder. If there is a Designated
Event, the Company shall be required to offer to purchase on
the Designated Event Payment Date all outstanding Securities at
a purchase price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if
any, to the Designated Event Payment Date; provided that, on
the terms and subject to the conditions set forth in the
Indenture, the Company shall not be required to offer to
purchase the Securities as aforesaid if the Company has given
notice of redemption of all of the outstanding Securities to
holders in accordance with the Indenture. Holders of
Securities that are subject to an offer to purchase will
receive a Designated Event Offer from the Company prior to any
related Designated Event Payment Date and may elect to have
such Securities or portions thereof in authorized denominations
purchased by completing the form entitled "Option of Noteholder
To Elect Purchase" appearing below. Noteholders have the right
to withdraw their election by delivering a written notice of
withdrawal to the Company or the Paying Agent in accordance
with the terms of the Indenture.
4. Subordination. The payment of the principal of, premium,
if any, on, interest and Liquidated Damages, if any, on and any
other amounts due on the Securities is subordinated in right of
payment to all existing and future Senior Debt of the Company,
as described in the Indenture. Each Noteholder, by accepting a
Security, agrees to such subordination and authorizes and
directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination so
provided and appoints the Trustee as its attorney-in-fact for
such purpose.
5. Conversion. The holder of any Security has the
right, exercisable at any time after 90 days following the
Issuance Date and prior to the close of business on the
Business Day immediately preceding the final maturity date of
the Security, to convert the principal amount thereof (or any
portion thereof that is an integral multiple of $1,000) into
shares of Common Stock at the initial Conversion Price of
$149.625 per share, subject to adjustment under certain
circumstances as provided in the Indenture, except that if a
Security is called for redemption, the conversion right will
terminate at the close of business on the Business Day
immediately preceding the date fixed for redemption (unless the
Company shall default in making the redemption payment,
including interest and Liquidated Damages, if any, when it
becomes due, in which case the conversion right shall terminate
at the close of business on the date on which such default is
cured). As further provided in the Indenture, the Company
agrees that, upon the occurrence of the Stock Split (which it
is currently contemplated will occur on the date of the
Indenture), the Conversion Price shall be automatically
adjusted to $74.8125 per share.
Beneficial owners of interests in Global Securities may
exercise their right of conversion by delivering to the
Depositary the appropriate instructions for conversion pursuant
to the Depositary's procedures. To convert a certificated
Security, the holder must (1) complete and sign a notice of
election to convert substantially in the form set forth below
(or complete and manually sign a facsimile thereof) and deliver
such notice to a Conversion Agent, (2) surrender the Security
to a Conversion Agent, (3) furnish appropriate endorsements or
transfer documents if required by the Conversion Agent and (4)
pay any transfer or similar tax, if required by the Conversion
Agent. Upon conversion, no adjustment or payment will be made
for accrued and unpaid interest or Liquidated Damages, if any,
on the Securities so converted or for dividends or
distributions on, or Liquidated Damages, if any, attributable
to, any Common Stock issued on conversion of the Securities,
except that, if any Noteholder surrenders a Security for
conversion after the close of business on a record date for the
payment of interest and prior to the opening of business on the
next interest payment date, then, notwithstanding such
conversion, the interest payable on such interest payment date
will be paid on such interest payment date to the person who
was the registered holder of such Security on such record date.
Any Securities surrendered for conversion during the period
after the close of business on any record date for the payment
of interest and before the opening of business on the next
succeeding interest payment date (except Securities called for
redemption on a redemption date or to be repurchased on a
Designated Event Payment Date during such period) must be
accompanied by payment in an amount equal to the interest and
Liquidated Damages, if any, payable on such interest payment
date on the principal amount of Securities so converted. The
number of shares of Common Stock issuable upon conversion of a
Security is determined by dividing the principal amount of the
Security converted by the Conversion Price in effect on the
Conversion Date. No fractional shares will be issued upon
conversion but a cash adjustment will be made for any
fractional interest.
A Security in respect of which a holder has delivered an
"Option of Noteholder to Elect Purchase" form appearing below
exercising the option of such holder to require the Company to
purchase such Security may be converted only if the notice of
exercise is withdrawn as provided above and in accordance with
the terms of the Indenture. The above description of
conversion of the Securities is qualified by reference to, and
is subject in its entirety to, the more complete description
thereof contained in the Indenture.
6. Registration Agreement. The holder of this Security is
entitled to the benefits of a Registration Agreement, dated
March 8, 1999, between the Company and the Initial Purchasers
(the "Registration Agreement"). Pursuant to the Registration
Agreement the Company has agreed for the benefit of the holders
of the Securities and the Common Stock issued and issuable upon
conversion of the Securities, that (i) it will, at its cost,
within 60 days after the Closing Date, file a shelf
registration statement (the "Shelf Registration Statement")
with the Securities and Exchange Commission (the "Commission")
with respect to resales of the Securities and the Common Stock
issuable upon conversion thereof, (ii) the Company will use its
reasonable best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission under the
Securities Act within 150 days after the Closing Date and
(iii) the Company will keep such Shelf Registration Statement
continuously effective under the Securities Act until the
earliest of (a) the second anniversary of the Closing Date or,
if later, the second anniversary of the last date on which any
Securities are issued upon exercise of the Initial Purchasers'
over-allotment option, (b) the date on which the Securities or
the Common Stock issuable upon conversion thereof may be sold
to Persons who are not "affiliates" (as defined in Rule 144) of
the Company pursuant to paragraph (k) of Rule 144 (or any
successor provision) promulgated by the Commission under the
Securities Act, (c) the date as of which the Securities or the
Common Stock issuable upon conversion thereof have been
transferred pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) and (d) the date as of
which all the Securities or the Common Stock issuable upon
conversion thereof have been sold pursuant to such Shelf
Registration Statement.
If the Shelf Registration Statement (i) is not filed with the
Commission on or prior to 60 days, or has not been declared
effective by the Commission within 150 days, after the Closing
Date or (ii) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded
immediately by a replacement shelf registration statement filed
and declared effective) or cease to be usable (including,
without limitation, as a result of a Suspension Period as
defined below) for the offer and sale of Transfer Restricted
Securities (as defined below) for a period of time (including
any Suspension Period) which shall exceed 60 days in the
aggregate in any 12-month period during the period beginning on
the Closing Date and ending on the second anniversary of the
Closing Date or, if later, the second anniversary of the last
date on which any Securities are issued upon exercise of the
Initial Purchasers' over-allotment option (each such event
referred to in clauses (i) and (ii) being referred to herein as
a "Registration Default"), the Company will pay liquidated
damages ("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 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 Securities and $2.50
per annum per 6.68338 shares of Common Stock (subject to
adjustment from time to time 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 Securities and $5.00 per annum per 6.68338
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; provided that, as further provided
in the Registration Agreement, the Company hereby agrees that,
upon the occurrence of the Stock Split (which it is currently
contemplated will occur on the date of the Indenture), the
Liquidated Damages payable in respect of Common Stock shall be
automatically adjusted to $2.50 per annum per 13.36675 shares
of Common Stock for the first such 90 days during which a
Registration Default has occurred and is continuing and $5.00
per annum per 13.36675 shares of Common Stock for any
additional days during which such Registration Default has
occurred and is continuing (in each case subject to further
adjustment from time to time in the event of a stock split,
stock recombination, stock dividend and the like). The Company
will pay all accrued Liquidated Damages by wire transfer of
immediately available funds or by federal funds check on each
Damages Payment Date, and Liquidated Damages will be calculated
on the basis of a 360-day year consisting of twelve 30-day
months. Following the cure of a Registration Default,
Liquidated Damages will cease to accrue with respect to such
Registration Default.
"Transfer Restricted Securities" means each Security and each
share of Common Stock issued on conversion thereof until the
date on which such Security or share, as the case may be,
(i) has been transferred pursuant to the Shelf Registration
Statement or another registration statement covering such
Security or share which has been filed with the Commission
pursuant to the Securities Act, in either case after such
registration statement has become and while such registration
statement is effective under the Securities Act, (ii) has been
transferred pursuant to Rule 144 under the Securities Act (or
any similar provision then in force), or (iii) may be sold or
transferred pursuant to Rule 144(k) under the Securities Act
(or any similar provision then in force).
Pursuant to the Registration Agreement, the Company may 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 (each, a "Suspension Period"); provided that the
existence of a Suspension Period will not prevent the
occurrence of a Registration Default or otherwise limit the
obligation of the Company to pay Liquidated Damages.
The above description of certain provisions of the Registration
Agreement is qualified by reference to, and is subject in its
entirety to, the more complete description thereof contained in
the Registration Agreement.
7. Denominations, Transfer, Exchange and Replacement. The
Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The
transfer of Securities may be registered, and Securities may be
exchanged, as provided in the Indenture. The Registrar may
require a Noteholder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture.
The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption
(except the unredeemed portion of any Security being redeemed
in part). Also, it need not exchange or register the transfer
of any Security for a period beginning at the opening of
business 15 days before the day of mailing of a notice of
redemption of Securities and ending at the close of business on
the day of such mailing. Replacement Securities for lost,
stolen or mutilated Securities may be issued in accordance with
the terms of the Indenture.
8. Persons Deemed Owners. The registered Noteholder of a
Security may be treated as its owner for all purposes.
9. Unclaimed Money. If money for the payment of principal
of or premium, if any, interest or Liquidated Damages, if any,
on Securities remains unclaimed for two years, the Trustee and
the Paying Agent shall pay the money back to the Company at its
written request. After that, Noteholders of Securities
entitled to the money must look to the Company for payment,
unless an abandoned property law designates another person, and
all liability of the Trustee and such Paying Agent with respect
to such money shall cease.
10. Defaults and Remedies. The Securities shall have the
Events of Default as set forth in Section 8.01 of the
Indenture. Subject to certain limitations in the Indenture, if
an Event of Default occurs and is continuing, the Trustee by
notice to the Company or the Noteholders of at least 25% in
aggregate principal amount of the then outstanding Securities
by notice to the Company and the Trustee may declare all the
Securities to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all unpaid principal, premium, if
any, and accrued and unpaid interest and Liquidated Damages, if
any, on the Securities shall become due and payable immediately
without further action or notice. Upon acceleration as
described in either of the preceding sentences, the
subordination provisions of the Indenture preclude any payment
being made to Noteholders for at least 5 Business Days except
as otherwise provided in the Indenture.
The Noteholders of a majority in principal amount of the
Securities then outstanding by written notice to the Trustee
may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and
if all existing Events of Default have been cured or waived
except nonpayment of principal, premium, if any, Liquidated
Damages, if any, and interest that has become due solely
because of the acceleration. Noteholders may not enforce the
Indenture or the Securities except as provided in the
Indenture. Subject to certain limitations, Noteholders of a
majority in principal amount of the then outstanding Securities
issued under the Indenture may direct the Trustee in its
exercise of any trust or power. The Company must furnish
compliance certificates to the Trustee annually. The above
description of Events of Default and remedies is qualified by
reference to, and subject in its entirety to, the more complete
description thereof contained in the Indenture.
11. Amendments, Supplements and Waivers. Subject to certain
exceptions, the Indenture or the Securities may be amended or
supplemented with the consent of the Noteholders of at least a
majority in principal amount of the then outstanding Securities
(including consents obtained in connection with a tender offer
or exchange offer for Securities), and any existing default may
be waived with the consent of the Noteholders of a majority in
principal amount of the then outstanding Securities (including
consents obtained in connection with a tender offer or exchange
offer for Securities). Without the consent of any Noteholder,
the Indenture or the Securities may be amended, among other
things, to cure any ambiguity, defect or inconsistency, to
provide for assumption by a successor of the Company's
obligations to Noteholders, to make any change that does not
adversely affect the rights of any Noteholder, to qualify the
Indenture under the TIA, or to comply with the requirements of
the SEC in order to maintain the qualification of the Indenture
under the TIA.
12. Trustee Dealings with the Company. The Trustee, in its
individual or any other capacity, may become the owner or
pledgee of the Securities and may otherwise deal with the
Company or an Affiliate of the Company with the same rights it
would have, as if it were not Trustee, subject to certain
limitations provided for in the Indenture and in the TIA. Any
Agent may do the same with like rights.
13. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have
any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation.
Each Noteholder, by accepting a Security, waives and releases
all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
14. Governing Law; Indenture to Control. THE INTERNAL LAWS
OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE
SECURITIES WITHOUT REGARD, TO THE EXTENT PERMITTED BY LAW, TO
CONFLICT OF LAW PROVISIONS THEREOF. IN THE EVENT OF ANY
CONFLICT BETWEEN THE PROVISIONS OF THIS SECURITY ON THE ONE
HAND AND THE INDENTURE OR THE REGISTRATION AGREEMENT, ON THE
OTHER HAND, THE PROVISIONS OF THE INDENTURE OR THE REGISTRATION
AGREEMENT, AS THE CASE MAY BE, SHALL CONTROL.
15. Authentication. The Securities shall not be valid until
authenticated by the manual signature of an authorized
signatory of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in
the name of a Noteholder or an assignee, such as: TEN COM (for
tenants in common), TEN ENT (for tenants by the entireties), JT
TEN (for joint tenants with right of survivorship and not as
tenants in common), CUST (for Custodian), and U/G/M/A (for
Uniform Gifts to Minors Act).
17. Definitions. Capitalized terms not defined in this
Security have the meanings given to them in the Indenture.
The Company will furnish to any Noteholder of the Securities upon written
request and without charge a copy of the Indenture and the Registration
Agreement. Request may be made to:
CNET, Inc.
Attention: Chief Financial Officer
150 Chestnut Street
San Francisco, California 94111
CERTIFICATE OF TRANSFER
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
___________________________________________________________________________
__
(Insert assignee's social security or tax I.D. no.)
___________________________________________________________________________
__
___________________________________________________________________________
__
___________________________________________________________________________
__
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________ agent to
transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Your Signature:
(Sign exactly as your name appears on the
other side of this Security)
Date: ___________________
Medallion Signature Guarantee:
_____________________________
[For inclusion only if this Security bears a Restricted Securities Legend]
In connection with any transfer of any of the Securities evidenced by this
certificate which are "restricted securities" (as defined in Rule 144 (or
any successor thereto) under the Securities Act), the undersigned confirms
that such Securities are being transferred:
CHECK ONE BOX BELOW
(1) ? to the Company; or
(2) ? pursuant to and in compliance with Rule 144A under the
Securities Act of 1933; or
(3) ? pursuant to and in compliance with Regulation S under
the Securities Act of 1933; or
(4) ? to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933) that has furnished to the
Trustee a signed letter containing certain
representations and agreements (the form of which
letter can be obtained from the Trustee); or
(5) ? pursuant to an exemption from registration under the
Securities Act of 1933 provided by Rule 144
thereunder.
Unless one of the boxes is checked, the Registrar will refuse
to register any of the Securities evidenced by this certificate
in the name of any person other than the registered holder
thereof; provided, however, that if box (3), (4) or (5) is
checked, the Trustee may require, prior to registering any such
transfer of the Securities, such certifications and other
information, and if box (5) is checked such legal opinions, as
the Company has reasonably requested in writing, by delivery to
the Trustee of a standing letter of instruction, to confirm
that such transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration
requirements of the Securities Act of 1933; provided that this
paragraph shall not be applicable to any Securities which are
not "restricted securities" (as defined in Rule 144 (or any
successor thereto) under the Securities Act).
Your Signature:
(Sign exactly as your name appears on the
other side of this Security)
D
ate:
_
_________________
Medallion Signature Guarantee:
________________________________
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall be $?. The
following increases or decreases in the principal amount of this Global
Security have been made:
Date
Made
Amount of
increase in
Principal
Amount of
this Global
Security
including
upon
exercise of
over-
allotment
option
Amount of
decrease in
Principal
Amount of
this Global
Security
Principal
Amount of
this Global
Security
following
such
decrease or
increase
Signature
of
authorized
signatory
of Trustee
or
Securities
Custodian
OPTION OF NOTEHOLDER TO ELECT PURCHASE
If you want to elect to have this Security or a portion thereof repurchased
by the Company pursuant to Section 3.08 or 4.07 of the Indenture, check the
box: ?
If the purchase is in part, indicate the portion ($1,000 or any integral
multiple thereof) to be purchased: ____________
Your Signature:
(Sign exactly as your name appears on
the other side of this Security)
Date: ____________
Medallion Signature Guarantee: _______________________
ELECTION TO CONVERT
To CNET, Inc.:
The undersigned owner of this Security hereby irrevocably exercises the
option to convert this Security, or the portion below designated, into
Common Stock of CNET, Inc. in accordance with the terms of the Indenture
referred to in this Security, and directs that the shares issuable and
deliverable upon conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.
The undersigned agrees to be bound by the terms of the Registration
Agreement relating to the Common Stock issued upon conversion of the
Securities.
If you want to convert this Security in whole, check the box below. If you
want to convert this Security in part, indicate the portion of this
Security to be converted in the space provided below.
In whole ?
o
r
P
ortion of Security to be
converted ($1,000 or any
integral multiple thereof):
$______________
Date: ______________ Your Signature:
(Sign exactly as your name appears
on the other side of this Security)
Medallion Signature Guarantee:
__________________________________________
Please print or typewrite your name and address, including zip code, and
social security or other identifying number:
If the Common Stock is to be issued and delivered to someone other than
you, please print or typewrite the name and address, including zip code,
and social security or other identifying number of that person:
* Applicable to Global Securities only.
** Applicable to Definitive Securities only.
008445.00048:0422895.01
EXHIBIT 10.42
5% Convertible Subordinated Notes due 2006
REGISTRATION AGREEMENT
New York, New York
March 8, 1999
Salomon Smith Barney Inc.
BancBoston Robertson Stephens Inc.
Volpe Brown Whelan & Company, LLP
As Representatives of the Initial Purchasers Named in
Schedule I to the Purchase Agreement (as defined below)
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
CNET, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell (such issuance and sale, the "Initial Placement") to
the several parties named in Schedule I to the Purchase Agreement
(the "Initial Purchasers") for whom you (the "Representatives") are
acting as representatives, upon the terms set forth in a purchase
agreement dated March 3, 1999 (the "Purchase Agreement"),
$150,000,000 aggregate principal amount (plus up to an additional
$37,500,000 aggregate principal amount to cover over-allotments, if
any) of its 5% Convertible Subordinated Notes due 2006 (the
"Securities"). The Securities will be convertible into shares of
common stock, par value $.0001 per share, of the Company at the
conversion price set forth in the Offering Memorandum (as defined
herein), as the same may be adjusted from time to time pursuant to
the Indenture referred to below. As an inducement to you to enter
into the Purchase Agreement and in satisfaction of a condition to
your obligations thereunder, the Company agrees with you, (i) for
your benefit and (ii) for the benefit of the holders from time to
time of the Securities and the Common Stock issuable upon conversion
of the Securities (including you), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have the respective meanings set forth in the
Purchase Agreement. As used in this Agreement, the following
capitalized terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Affiliate" of any specified person means any other person,
directly or indirectly, controlling or controlled by or under direct
or indirect common control with such specified person. For the
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such person, whether
through the ownership of voting securities or by agreement or
otherwise.
"Business Day" has the meaning set forth in the Indenture.
"Closing Date" means March 8, 1999.
"Common Stock" means the common stock, par value $.0001 per
share, of the Company, as it exists on the date of this Agreement and
any other shares of capital stock or other securities of the Company
into which such Common Stock may be reclassified or changed, together
with any and all other securities which may from time to time be
issuable upon conversion of Securities.
"Damages Payment Date" means, with respect to the Securities or
the Common Stock issuable upon conversion thereof, as applicable,
each Interest Payment Date; and in the event that any Security, or
portion thereof, is called for redemption or surrendered for purchase
by the Company and not withdrawn pursuant to a Designated Event Offer
(as defined in the Indenture), the relevant redemption date or
Designated Event Payment Date (as defined in the Indenture), as the
case may be, shall also be a Damages Payment Date with respect to
such Security, or portion thereof, unless the Indenture provides that
accrued and unpaid interest on the Security (or portion thereof) to
be redeemed or repurchased, as the case may be, is to be paid to the
person who was the Holder thereof on a record date prior to such
redemption date or Designated Event Payment Date, as the case may be,
in which case the Damages Payment Date shall be the date on which
interest is payable to such Record Holder.
"Default Rate" has the meaning set forth in the Indenture.
"DTC" has the meaning set forth in Section 3(k) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
"Final Maturity Date" means March 1, 2006.
"Holder" means a person who is a holder or beneficial owner
(including the Initial Purchasers) of any Securities or shares of
Common Stock issued upon conversion of Securities; provided that,
unless otherwise expressly stated herein, only registered holders of
Securities or Common Stock issued on conversion thereof shall be
counted for purposes of calculating any proportion of holders
entitled to take any action or give notice pursuant to this
Agreement.
"Indenture" means the Indenture relating to the Securities
dated as of March 8, 1999, between the Company and The Bank of New
York, as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Initial Purchasers" has the meaning set forth in the preamble
hereto.
"Interest Payment Date" shall mean each March 1 and September
1.
"Liquidated Damages" has the meaning set forth in Section 2(e)
hereof.
"Majority Holders" means the Holders of a majority of the then
outstanding aggregate principal amount of Securities registered under
a Shelf Registration Statement; provided that Holders of Common Stock
issued upon conversion of Securities shall be deemed to be Holders of
the aggregate principal amount of Securities from which such Common
Stock was converted; and provided, further, that Securities or Common
Stock which have been sold or otherwise transferred pursuant to the
Shelf Registration Statement shall not be included in the calculation
of Majority Holders.
"Majority Underwriting Holders" means, with respect to any
Underwritten Offering, the Holders of a majority of the then
outstanding aggregate principal amount of Securities registered under
any Shelf Registration Statement whose Securities are or are to be
included in such Underwritten Offering; provided that Holders of
Common Stock issued upon conversion of Securities should be deemed to
be Holders of the aggregate principal amount of Securities from which
such Common Stock was converted.
"Managing Underwriters" means the Underwriter or Underwriters
that shall administer an Underwritten Offering.
"NASD" has the meaning set forth in Section 3(i) hereof.
"Notice and Questionnaire" means a Notice of Registration
Statement and Selling Securityholder Questionnaire substantially in
the form of Exhibit A hereto.
"Offering Memorandum" means the Final Memorandum as defined in
the Purchase Agreement.
"Person" and "person" have the meaning set forth in the
Indenture.
"Prospectus" means the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus
that discloses information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule
430A under the Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion
of the Securities or Common Stock issuable upon conversion thereof
covered by such Shelf Registration Statement, and all amendments and
supplements to such prospectus, including all documents incorporated
or deemed to be incorporated by reference in such prospectus.
"Purchase Agreement" has the meaning set forth in the preamble
hereto.
"Record Holder" means (i) with respect to any Damages Payment
Date which occurs on an Interest Payment Date, each person who is
registered on the books of the registrar as the holder of Securities
at the close of business on the record date with respect to such
Interest Payment Date and (ii) with respect to any Damages Payment
Date relating to the Common Stock issued upon conversion thereof,
each person who is a holder of record of such Common Stock fifteen
days prior to the Damages Payment Date.
"Registration Default" has the meaning set forth in
Section 2(e) hereof.
"Representatives" has the meaning set forth in the preamble
thereto.
"Rule 144" means Rule 144 (or any successor provision) under
the Act.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 2(c) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2
hereof which covers all of the Securities and the Common Stock
issuable upon conversion thereof, as applicable, on Form S-3 or on
another appropriate form for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 under the Act, or any similar
rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all documents incorporated or deemed to be
incorporated by reference therein.
"Stock Split" has the meaning set forth in the Indenture.
"Suspension Period" has the meaning set forth in Section 2(d)
hereof.
"Transfer Restricted Securities" means each Security and each
share of Common Stock issued upon conversion thereof until the date
on which such Security or share of Common Stock, as the case may be,
(i) has been transferred pursuant to the Shelf Registration Statement
or another registration statement covering such Security or share of
Common Stock which has been filed with the SEC pursuant to the Act,
in either case after such registration statement has become effective
and while such registration statement is effective under the Act,
(ii) has been transferred pursuant to Rule 144 under the Act (or any
similar provision then in force), or (iii) may be sold or transferred
pursuant to Rule 144(k) under the Act (or any successor provision
then in force).
"Trustee" means the trustee with respect to the Securities
under the Indenture.
"Underwriter" means any underwriter of Securities or Common
Stock issuable upon conversion thereof in connection with an offering
thereof under a Shelf Registration Statement.
"Underwritten Offering" means an offering in which the
Securities or Common Stock issued upon conversion thereof are sold to
an Underwriter or with the assistance of an Underwriter for
reoffering to the public.
All references in this Agreement to financial statements and
schedules and other information which is "contained", "included", or
"stated" in the Shelf Registration Statement, any preliminary
Prospectus or Prospectus (and all other references of like import)
shall be deemed to mean and include all such financial statements and
schedules and other information which is incorporated or deemed to be
incorporated by reference in such Shelf Registration Statement,
preliminary Prospectus or Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the
Shelf Registration Statement, any preliminary Prospectus or
Prospectus shall be deemed to mean and include the filing of any
document under the Exchange Act, after the date of such Shelf
Registration Statement, preliminary Prospectus or Prospectus, as the
case may be, which is incorporated or deemed to be incorporated by
reference therein.
2. Shelf Registration Statement.
(a) The Company shall prepare and, not later than 60 days
following the Closing Date, shall file with the SEC a Shelf
Registration Statement with respect to resales of the Securities and
the Common Stock issuable upon conversion thereof by the Holders from
time to time in accordance with the methods of distribution elected
by such Holders and set forth in such Shelf Registration Statement
and thereafter shall use its reasonable best efforts to cause such
Shelf Registration Statement to be declared effective under the Act
within 150 days after the Closing Date; provided that if any
Securities are issued upon exercise of the over-allotment option
granted to the Initial Purchasers in the Purchase Agreement and the
date on which such Securities are issued occurs after the Closing
Date, the Company will take such steps, prior to the effective date
of the Shelf Registration Statement, to ensure that such Securities
and Common Stock issuable upon conversion thereof are included in the
Shelf Registration Statement on the same terms as the Securities
issued on the Closing Date. The Company shall supplement or amend
the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used
by the Company for the Shelf Registration Statement, if required by
the Act, the Exchange Act or the SEC.
(b) (1) Not less than 30 calendar days prior to the
effectiveness of the Shelf Registration Statement, the Company shall
mail the Notice and Questionnaire to the Holders of Securities and
Common Stock issued upon conversion thereof. No Holder shall be
entitled to be named as a selling securityholder in the Shelf
Registration Statement, and no Holder shall be entitled to use the
Prospectus forming a part thereof for resales of Securities or Common
Stock issued upon conversion thereof at any time, unless such Holder
has returned a completed and signed Notice and Questionnaire to the
Company by the deadline for responses set forth therein; provided,
however, that Holders of Securities or Common Stock issued upon
conversion thereof shall have at least 20 calendar days from the date
on which the Notice and Questionnaire is first mailed to such Holders
to return a completed and signed Notice and Questionnaire to the
Company.
(2) After the Shelf Registration Statement has become
effective, the Company shall, upon the request of any Holder of
Securities or Common Stock issued or issuable upon conversion thereof
that has not returned a completed Notice and Questionnaire, promptly
send a Notice and Questionnaire to such Holder. The Company shall
not be required to take any action to name such Holder as a selling
securityholder in the Shelf Registration Statement or to enable such
Holder to use the Prospectus forming a part thereof for resales of
Securities or Common Stock issued or issuable upon conversion thereof
until such Holder has returned a completed and signed Notice and
Questionnaire to the Company, whereupon the Company will be required
to take such action.
(c) The Company shall keep the Shelf Registration Statement
continuously effective under the Act in order to permit the
Prospectus forming part thereof to be usable by all Holders until the
earliest of (i) the second anniversary of the Closing Date or, if
later, the second anniversary of the last date on which any
Securities are issued upon exercise of the Initial Purchasers' over-
allotment option, (ii) the date on which all the Securities and
Common Stock issued or issuable upon conversion thereof may be sold
by non-affiliates ("affiliates" for such purpose having the meaning
set forth in Rule 144) of the Company pursuant to paragraph (k) of
Rule 144 (or any successor provision) promulgated by the SEC under
the Act, (iii) the date as of which all the Securities and Common
Stock issued or issuable upon conversion thereof have been
transferred pursuant to Rule 144 under the Securities Act (or any
similar provision then in force) and (iv) such date as of which all
the Securities and the Common Stock issued or issuable upon
conversion thereof have been sold pursuant to the Shelf Registration
Statement (in any such case, such period being called the "Shelf
Registration Period"). The Company will, subject to Section 2(d),
prepare and file with the SEC such amendments and post-effective
amendments to the Shelf Registration Statement as may be necessary to
keep the Shelf Registration Statement continuously effective for the
Shelf Registration Period; subject to Section 2(d), cause the related
Prospectus to be supplemented by any required supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Act; and, comply in all material
respects with the provisions of the Act with respect to the
disposition of all securities covered by the Shelf Registration
Statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such Shelf Registration Statement as so amended or such Prospectus as
so supplemented.
(d) The Company may suspend the use of the Prospectus 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 (the "Suspension Period") for valid business reasons, to be
determined by the Company in its sole reasonable judgment (not
including avoidance of the Company's obligations hereunder),
including, without limitation, the acquisition or divestiture of
assets, public filings with the SEC, pending corporate developments
and similar events; provided that the Company promptly thereafter
complies with the requirements of Section 3(j) hereof, if applicable;
provided, that the existence of a Suspension Period will not prevent
the occurrence of a Registration Default or otherwise limit the
obligation of the Company to pay Liquidated Damages. The Company
shall provide notice to the Holders of a Suspension Period as
required under Section 3(c)(1)(iv) hereof.
(e) If (i) the Shelf Registration Statement is not filed with
the SEC on or prior to 60 days after the Closing Date, (ii) the Shelf
Registration Statement has not been declared effective by the SEC
within 150 days after the Closing Date, or (iii) the Shelf
Registration Statement is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately
by a replacement shelf registration statement filed and declared
effective) or usable (including as a result of a Suspension Period)
for the offer and sale of Transfer Restricted Securities for a period
of time (including any Suspension Period) which shall exceed 60 days
in the aggregate in any twelve-month period during the period
beginning on the Closing Date and ending on the second anniversary of
the Closing Date or, if later, the second anniversary of the last
date on which any Securities are issued upon exercise of the Initial
Purchasers' over-allotment option (each such event referred to in
clauses (i) through (iii), a "Registration Default"), the Company
will pay liquidated damages ("Liquidated Damages") to each Holder of
Transfer Restricted Securities who has complied with such Holder's
obligations under this Agreement. The amount of Liquidated Damages
payable during any period in which a Registration Default has
occurred and is continuing is the amount which is equal to one-
quarter of one percent (25 basis points) per annum per $1,000
principal amount of Securities and $2.50 per annum per 6.68338 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 Securities and $5.00 per annum per 6.68338 shares of Common Stock
(subject to adjustment as set forth above) constituting Transfer
Restricted Securities for any additional days during which a
Registration Default has occurred and is continuing; provided that,
the Company hereby agrees that, upon the occurrence of the Stock
Split (which it is currently contemplated will occur on the date of
this Agreement), the Liquidated Damages payable in respect of Common
Stock shall be automatically adjusted to $2.50 per annum per 13.36675
shares of Common Stock for the first such 90 days during which a
Registration Default has occurred and is continuing and $5.00 per
annum per 13.36675 shares of Common Stock for any additional days
during which such Registration Default has occurred and is continuing
(in each case subject to further adjustment from time to time in the
event of a stock split, stock recombination, stock dividend and the
like), it being understood that all calculations pursuant to this and
the preceding sentence shall be carried out to five decimals.
Following the cure of all Registration Defaults, Liquidated Damages
will cease to accrue with respect to such Registration Default. All
accrued Liquidated Damages shall be paid by wire transfer of
immediately available funds or by federal funds check by the Company
on each Damages Payment Date and Liquidated Damages will be
calculated on the basis of a 360-day year consisting of twelve 30-day
months. In the event that any Liquidated Damages are not paid when
due, then to the extent permitted by law, such overdue Liquidated
Damages, if any, shall bear interest until paid at the Default Rate,
compounded semi-annually. The parties hereto agree that the
Liquidated Damages provided for in this Section 2(e) constitute a
reasonable estimate of the damages that may be incurred by Holders by
reason of a Registration Default.
(f) All of the Company's obligations (including, without
limitation, the obligation to pay Liquidated Damages) set forth in
the preceding paragraph which are outstanding or exist with respect
to any Transfer Restricted Security at the time such security ceases
to be a Transfer Restricted Security shall survive until such time as
all such obligations with respect to such security shall have been
satisfied in full.
(g) Immediately upon the occurrence or the termination of a
Registration Default, the Company shall give the Trustee, in the case
of notice with respect to the Securities, and the transfer and paying
agent for the Common Stock, in the case of notice with respect to
Common Stock issued or issuable upon conversion thereof, notice of
such commencement or termination, of the obligation to pay Liquidated
Damages with regard to the Securities and Common Stock and the amount
thereof and of the event giving rise to such commencement or
termination (such notice to be contained in an Officers' Certificate
(as such term is defined in the Indenture)), and prior to receipt of
such Officers' Certificate the Trustee and such transfer and paying
agent shall be entitled to assume that no such commencement or
termination has occurred, as the case may be.
(h) All Securities which are redeemed, purchased or otherwise
acquired by the Company or any of its subsidiaries or affiliates (as
defined in Rule 144 (or any successor provision) under the Act) prior
to the Final Maturity Date shall be delivered to the Trustee for
cancellation and the Company may not hold or resell such Securities
or issue any new Securities to replace any such Securities or any
Securities that any Holder has converted pursuant to the Indenture.
All shares of Common Stock issued upon conversion of the Securities
which are repurchased or otherwise acquired by the Company or any of
its subsidiaries or affiliates (as defined in Rule 144 (or any
successor provision) under the Act) at any time while such shares are
"restricted securities" within the meaning of Rule 144 shall not be
resold or otherwise transferred except pursuant to a registration
statement which has been declared effective under the Act.
3. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the
filing thereof with the SEC, a copy of any Shelf Registration
Statement, and each amendment thereof (excluding amendments
caused by the filing by the Company with the SEC of a report
required by the Exchange Act), a copy of any Prospectus, and
each amendment or supplement, if any, to the Prospectus
included therein and shall use its best efforts to reflect in
each such document, when so filed with the SEC, such comments
as Salomon Smith Barney Inc. reasonably may propose. Salomon
Smith Barney Inc. shall promptly furnish to the Company any
comments it may have to such documents mentioned in the
foregoing sentence.
(b) The Company shall ensure that (i) any Shelf
Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement
thereto comply in all material respects with the Act and the
rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Shelf Registration
Statement, and any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided that the Company makes
no representation or agreement with respect to information with
respect to you, any Underwriter or any Holder required to be
included in any Shelf Registration or Prospectus pursuant to
the Act or the rules and regulations thereunder and which
information is included therein in reliance upon and in
conformity with information furnished to the Company in writing
by you, any Underwriter or any such Holder.
(c) (1) The Company, as promptly as reasonably
practicable, shall advise you and each Holder that has returned
a completed and signed Notice and Questionnaire to the Company
and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Shelf Registration Statement and any
amendment thereto has been filed with the SEC and when
the Shelf Registration Statement or any post-effective
amendment thereto has become effective;
(ii) of any request by the SEC for amendments or
supplements to the Shelf Registration Statement or the
Prospectus or for additional information;
(iii) of the determination by the Company that a
post-effective amendment to the Shelf Registration
Statement would be appropriate; and
(iv) of the commencement or termination of any
Suspension Period.
(2) The Company shall advise you and each Holder
that has returned a completed and signed Notice and
Questionnaire to the Company and, if requested by you or any
such Holder, confirm such advice in writing:
(i) of the issuance by the SEC of any stop order
suspending the effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that
purpose;
(ii) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Securities included in any Shelf
Registration Statement for sale in any jurisdiction or
the initiation or threat of any proceeding for such
purpose; and
(iii) of the suspension of the use of the
Prospectus pursuant to Section 2(d) hereof or of the
happening of any event that requires the making of any
changes in the Shelf Registration Statement or the
Prospectus so that, as of such date, the statements
therein are not misleading and the Shelf Registration
Statement or the Prospectus, as the case may be, does not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which
they were made) not misleading (which advice shall be
accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts
to obtain the withdrawal of any order suspending the
effectiveness of any Shelf Registration Statement or the
lifting of any suspension of the qualification (or exemption
from qualification) of any of the Securities for offer or sale
in any jurisdiction at the earliest possible time.
(e) The Company shall furnish to each Holder of
Securities and the Common Stock issued upon conversion thereof
included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf
Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits (including
those incorporated by reference).
(f) The Company shall, during the Shelf Registration
Period, deliver to each Holder of Securities or the Common
Stock issued upon conversion thereof included within the
coverage of any Shelf Registration Statement, without charge,
as many copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement and
any amendment or supplement thereto as such Holder may
reasonably request; and, except during the continuance of any
Suspension Period, the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of
the selling Holders in connection with the offering and sale of
the Securities or the Common Stock issued upon conversion
thereof covered by the Prospectus or any amendment or
supplement thereto.
(g) Prior to any offering of Securities or the Common
Stock issued upon conversion thereof pursuant to any Shelf
Registration Statement, the Company shall register or qualify
or cooperate with the Holders of Securities and the Common
Stock issued upon conversion thereof included therein and their
respective counsel in connection with the registration or
qualification (or exemption from such registration or
qualification) of such Securities or Common Stock for offer and
sale, as the case may be, under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in
writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of
the Securities and the Common Stock issued upon conversion
thereof covered by such Shelf Registration Statement; provided,
however, that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it is not
then so qualified or to (B) take any action which would subject
it to general service of process or to taxation in any such
jurisdiction where it is not then so subject.
(h) The Company shall cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Securities or the Common Stock issued upon
conversion thereof to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in
such denominations and registered in such names as Holders may
request prior to sales of Securities or the Common Stock issued
upon conversion thereof pursuant to such Shelf Registration
Statement.
(i) Subject to the exceptions contained in (A) and (B)
of subsection (g) hereof, the Company shall use its best
efforts to cause the Securities and Common Stock issued upon
conversion thereof covered by the applicable Shelf Registration
Statement to be registered with or approved by such other
federal, state and local governmental agencies or authorities,
and self-regulatory organizations in the United States as may
be necessary to enable the Holders to consummate the
disposition of such Securities and Common Stock issued upon
conversion thereof as contemplated by the Shelf Registration
Statement; without limitation to the foregoing, the Company
shall make all filings and provide all such information as may
be required by the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the offering under the
Shelf Registration Statement of the Securities and Common Stock
issued upon conversion thereof (including, without limitation,
such as may be required by NASD Rule 2710 or 2720), and shall
cooperate with each Holder in connection with any filings
required to be made with the NASD by such Holder in that
regard.
(j) Upon the occurrence of any event contemplated by
paragraph 3(c)(2)(iii) above and subject to Section 3(a)
hereof, the Company shall promptly prepare and file with the
SEC a post-effective amendment to any Shelf Registration
Statement or an amendment or supplement to the related
Prospectus or any document incorporated therein by reference or
file a document which is incorporated or deemed to be
incorporated by reference in such Shelf Registration Statement
or Prospectus, as the case may be, so that, as thereafter
delivered to purchasers of the Securities or the Common Stock
issued upon conversion thereof included therein, the Shelf
Registration Statement and the Prospectus, in each case as then
amended or supplemented, will not include an untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the
statements therein (in the case of the Prospectus in light of
the circumstances under which they were made) not misleading
and in the case of a post-effective amendment, use its best
efforts to cause it to become effective as promptly as
practicable; provided that the Company's obligations under this
paragraph (j) shall be suspended if the Company has suspended
the use of the Prospectus in accordance with Section 2(d)
hereof and given notice of such suspension to Holders, it being
understood that the Company's obligations under this Subsection
(j) shall be automatically reinstated at the end of such
Suspension Period.
(k) The Company shall use its reasonable best efforts
to cause The Depository Trust Company ("DTC") on the first
Business Day following the effective date of any Shelf
Registration Statement hereunder or as soon as possible
thereafter to remove (i) from any existing CUSIP number
assigned to the Securities any designation indicating that the
Securities are "restricted securities", which efforts shall
include delivery to DTC of a letter executed by the Company
substantially in the form of Exhibit B hereto and (ii) any
other stop or restriction on DTC's system with respect to the
Securities. In the event the Company is unable to cause DTC to
take actions described in the immediately preceding sentence,
the Company shall take such actions as Salomon Smith Barney
Inc. may reasonably request to provide, as soon as practicable,
a CUSIP number for the Securities registered under such Shelf
Registration Statement and to cause such CUSIP number to be
assigned to such Securities (or to the maximum aggregate
principal amount of the Securities to which such number may be
assigned). Upon compliance with the foregoing requirements of
this Section 3(k), the Company shall provide the Trustee with
global certificates for such Securities in a form eligible for
deposit with DTC.
(l) The Company shall use its best efforts to comply
with all applicable rules and regulations of the SEC and shall
make generally available to its security holders as soon as
practicable but in any event not later than 15 months after
(i) the effective date of the applicable Shelf Registration
Statement, (ii) the effective date of each post-effective
amendment to any Shelf Registration Statement, and (iii) the
date of each filing by the Company with the SEC of an Annual
Report on Form 10-K that is incorporated by reference or deemed
to be incorporated by reference in the Shelf Registration
Statement, an earnings statement satisfying the provisions of
Section 11(a) of the Act and Rule 158 promulgated by the SEC
thereunder.
(m) The Company shall use its best efforts to cause the
Indenture to be qualified under the TIA (as defined in the
Indenture) in a timely manner.
(n) The Company shall cause all Common Stock issued or
issuable upon conversion of the Securities to be listed on each
securities exchange or quotation system on which the Common
Stock is then listed no later than the date the applicable
Shelf Registration Statement is declared effective and, in
connection therewith, to make such filings as may be required
under the Exchange Act and to have such filings declared
effective as and when required thereunder.
(o) The Company may require each Holder of Securities
or the Common Stock issued upon conversion thereof to be sold
pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the
distribution of such Securities or Common Stock sought by the
Notice and Questionnaire and such additional information as
may, from time to time, be required by the Act and the rules
and regulations promulgated thereunder, and the obligations of
the Company to any Holder hereunder shall be expressly
conditioned on the compliance of such Holder with such request.
(p) The Company shall, if reasonably requested, use its
best efforts to promptly incorporate in a Prospectus supplement
or post-effective amendment to a Shelf Registration Statement
(i) such information as the Majority Holders provide or, if the
Securities or Common Stock are being sold in an Underwritten
Offering, as the Managing Underwriters or the Majority
Underwriting Holders reasonably agree should be included
therein and provide to the Company in writing for inclusion in
the Shelf Registration Statement or Prospectus, and (ii) such
information as a Holder may provide from time to time to the
Company in writing for inclusion in a Prospectus or any Shelf
Registration Statement concerning such Holder and the
distribution of such Holder's Securities and Common Stock and,
in either case, shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after being notified in writing of the matters to
be incorporated in such Prospectus supplement or post-effective
amendment, provided that the Company shall not be required to
take any action under this Section 3(p) that is not, in the
reasonable opinion of counsel for the Company, in compliance
with applicable law.
(q) The Company shall enter into such customary
agreements (including underwriting agreements) and take all
other appropriate actions as may be reasonably requested in
order to expedite or facilitate the registration or the
disposition of the Securities or the Common Stock issued or
issuable upon conversion thereof, and in connection therewith,
if an underwriting agreement is entered into, cause the same to
contain indemnification and contribution provisions and
procedures no less favorable than those set forth in Section 5
(or such other reasonable and customary provisions and
procedures acceptable to the Majority Underwriting Holders and
the Managing Underwriters, if any, with respect to all parties
to be indemnified pursuant to Section 5). The plan of
distribution in the Shelf Registration Statement and the
Prospectus included therein shall permit resales of the
Securities or Common Stock issuable upon conversion thereof to
be made by selling security holders through underwriters,
brokers and dealers, and shall also include such other
information as Salomon Smith Barney Inc. may reasonably
request.
(r) The Company shall (i) make reasonably available for
inspection by the Holders of Securities and the Common Stock
issued upon conversion thereof registered or to be registered
under a Shelf Registration Statement, any Underwriter
participating in any disposition pursuant to such Shelf
Registration Statement, and any attorney, accountant or other
agent retained by the Holders or any such Underwriter all
relevant financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries as
is customary for due diligence examinations in connection with
public offerings; (ii) cause the Company's officers, directors
and employees to supply all relevant information reasonably
requested by the Holders or any such Underwriter, attorney,
accountant or agent in connection with any such Shelf
Registration Statement as is customary for similar due
diligence examinations; provided, however, that any information
that is designated in writing by the Company, in its sole
discretion, as confidential at the time of delivery of such
information shall be kept confidential by the Holders or any
such Underwriter, attorney, accountant or agent, unless
disclosure thereof is made in connection with a court,
administrative or regulatory proceeding or required by law, or
such information has become available to the public generally
through the Company or through a third party without an
accompanying obligation of confidentiality; provided, further,
that if the foregoing inspection and information gathering
specified in subsections (i) and (ii) would, in the Company's
reasonable judgment, disrupt the Company's conduct of business,
such inspections and information gathering shall be coordinated
on behalf of the Holders and the other parties entitled thereto
by one counsel designated by or on behalf of the Majority
Holders (or, in the case of an Underwritten Offering, the
Majority Underwriting Holders and the Managing Underwriters);
(iii) make such representations and warranties to the Holders
of Securities and the Common Stock issued upon conversion
thereof registered thereunder and the Underwriters, if any, in
form, substance and scope as are customarily made by issuers to
Underwriters and covering matters including, but not limited
to, those set forth in the Purchase Agreement; (iv) obtain
opinions of counsel to the Company and updates thereof (which
counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Managing Underwriters, if any)
addressed to each selling Holder and the Underwriters, if any,
covering such matters as are customarily covered in opinions
requested in public offerings; (v) obtain "cold comfort"
letters and updates thereof from the independent certified
public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for
which financial statements and financial data are, or are
required to be, included in the Shelf Registration Statement),
addressed to each selling Holder of Securities and Common Stock
issued upon conversion thereof registered thereunder (provided
such Holder furnishes the accountants with such representations
as the accountants customarily require in similar situations)
and the Underwriters, if any, in customary form and covering
matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders or, in the case of
an Underwritten Offering, the Majority Underwriting Holders,
and the Managing Underwriters, if any, including those to
evidence compliance with Section 3(j) and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company. The foregoing actions
set forth in clauses (iii), (iv), (v) and (vi) of this Section
3(r) shall be performed at (A) the effectiveness of such Shelf
Registration Statement and each post-effective amendment
thereto and (B) each closing under any underwriting or similar
agreement as and to the extent required thereunder.
(s) Each Holder agrees that, upon receipt of notice of
the happening of an event described in Sections 3(c)(1)(ii)
through and including 3(c)(1)(iv) and Sections 3(c)(2)(i)
through and including 3(c)(2)(iii), each Holder shall forthwith
discontinue (and shall cause its agents and representatives to
discontinue) disposition of the Securities and the Common Stock
issuable upon conversion thereof and will not resume
disposition of such Securities or the Common Stock until such
Holder has received copies of an amended or supplemented
Prospectus contemplated by Section 3(j) hereof, or until such
Holder is advised in writing by the Company that the use of the
Prospectus may be resumed or that the relevant Suspension
Period has been terminated, as the case may be, provided that,
the foregoing shall not prevent the sale, transfer or other
disposition of Securities or Common Stock issuable upon
conversion thereof by a Holder in a transaction which is exempt
from, or not subject to, the registration requirements of the
Act, so long as such Holder does not and is not required to
deliver the applicable Prospectus or Shelf Registration
Statement in connection with such sale, transfer or other
disposition, as the case may be; and provided, further, that
the provisions of this paragraph (s) shall not prevent the
occurrence of a Registration Default or otherwise limit the
obligation of the Company to pay Liquidated Damages.
(t) Anything herein to contrary notwithstanding, the
Company will not be required to pay the costs and expenses of,
or to participate in the marketing or "road show" presentations
of, more than one Underwritten Offering initiated at the
request of the Holders of Securities or shares of Common Stock
issued or issuable upon conversion thereof, or to effect more
than one Underwritten Offering at the request of such Holders.
The Company will not be required to pay the costs and expenses
of, or to participate in the marketing or "road show"
presentations of, an Underwritten Offering unless Holders of at
least the Minimum Amount (as defined below) of Securities
and/or Common Stock issued or issuable on conversion thereof
have requested that such Securities and/or shares of Common
Stock be included in such an Underwritten Offering. For
purposes of this Agreement, the "Minimum Amount" means 25% of
the aggregate principal amount of Securities originally issued
under the Indenture; provided that, for purposes of computing
the Minimum Amount, Holders of Common Stock issued upon
conversion of Securities shall be deemed to be holders of the
aggregate principal amount of Securities which were converted
into those shares of Common Stock. Only Holders of Securities
or shares of Common Stock issued or issuable upon conversion
thereof which are Transfer Restricted Securities shall be
entitled to include such Securities or shares of Common Stock
in an Underwritten Offering and only Transfer Restricted
Securities shall be included in the computation of the Minimum
Amount. The Underwritten Offering initiated by Holders as
aforesaid shall include both Securities and Common Stock if so
requested by the Holders. Upon receipt by the Company, from
Holders of at least the Minimum Amount of Securities and/or
Common Stock issued or issuable upon conversion thereof, of a
request for an Underwritten Offering, the Company will, within
10 days thereafter, mail notice to all Holders of Securities
and shares of Common Stock issued upon conversion thereof
stating that: (i) the Company has received a request from the
Holders of the requisite amount of Securities and/or Common
Stock issued or issuable on conversion thereof to effect an
Underwritten Offering on behalf of such Holders; (ii) under the
terms of this Agreement, all Holders of Securities and shares
of Common Stock issued or issuable upon conversion thereof
which are Transfer Restricted Securities may include their
Securities and shares of Common Stock in such Underwritten
Offering, subject to the terms and conditions set forth in this
Agreement and subject to the right of the Managing Underwriters
to reduce, in light of market conditions and other similar
factors, the aggregate principal amount of Securities and
number of shares of Common Stock included in such Underwritten
Offering; (iii) all Holders electing to include Securities or
shares of Common Stock in such Underwritten Offering must
notify the Company in writing of such election (the
"Election"), and setting forth an address and facsimile number
to which such written elections may be sent and the deadline
(which shall be 12:00 midnight on the 30th calendar day after
such notice is mailed to Holders or, if not a Business Day, the
next succeeding Business Day (the "Deadline")) by which such
elections must be received by the Company; and (iv) setting
forth such other instructions as shall be necessary to enable
Holders to include their Securities and shares of Common Stock
in such Underwritten Offering. No Holder shall be entitled to
participate in an Underwritten Offering unless such Holder
notifies the Company of such Election by the Deadline.
Notwithstanding anything to the contrary contained herein, if
the Managing Underwriters for an Underwritten Offering to be
effected pursuant to this Section 3(t) advise the Holders of
the Securities and shares of the Common Stock to be included in
such Underwritten Offering that, because of aggregate principal
amount of Securities and/or number of shares of Common Stock
that such Holders have requested be included in the
Underwritten Offering, the success of the offering would likely
be materially adversely affected by the inclusion of all of the
Securities and shares of Common Stock requested to be included,
then the principal amount of Securities and the number of
shares of Common Stock to be offered for the accounts of
Holders shall be reduced pro rata, according to the aggregate
principal amount of Securities and number of shares of Common
Stock, respectively, requested for inclusion by each such
Holder, to the extent necessary to reduce the size of the
offering to the size recommended by the Managing Underwriter.
Notwithstanding anything to the contrary contained herein,
neither the Company nor any Person, other than a Holder of
Securities or shares of Common Stock issued or issuable upon
conversion thereof and only with respect to its Transfer
Restricted Securities, shall be entitled to include any
securities in the Underwritten Offering.
4. Registration Expenses. The Company shall bear all
expenses incurred in connection with the performance of its
obligations under Sections 2 and 3 hereof and shall reimburse the
Holders for the reasonable fees and disbursements of one firm or
counsel designated by the Majority Holders to act as counsel for the
Holders in connection therewith. Notwithstanding the provisions of
this Section 4, each Holder shall bear the expense of any broker's
commission, agency fee or Underwriter's discount or commission.
5. Indemnification and Contribution.
(a) (i) The Company agrees to indemnify and hold harmless
each Holder of Securities and each Holder of Common Stock issued upon
conversion thereof covered by any Shelf Registration Statement
(including the Initial Purchasers), the directors, officers,
employees and agents of each such Holder and each person who controls
any such Holder within the meaning of either the Act or the Exchange
Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the
Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material
fact contained in the Shelf Registration Statement as originally
filed or in any amendment thereof, or in any preliminary Prospectus
or Prospectus, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees
to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon (A) any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such
Holder or any Initial Purchaser specifically for inclusion therein,
(B) use of a Shelf Registration Statement or the related Prospectus
during a period when a stop order has been issued in respect of such
Shelf Registration or any proceedings for that purpose have been
initiated or use of a Prospectus when use of such Prospectus has been
suspended pursuant to Section 2(d) or Section 3(s); provided,
further, in each case, that Holders received prior notice of such
stop order, initiation of proceedings or suspension, or (C) if the
Holder fails to deliver a Prospectus, as then amended or
supplemented, provided that the Company shall have delivered to such
Holder such Prospectus, as then amended or supplemented. This
indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(ii) The Company also agrees to indemnify and to
contribute to Losses, as provided in Section 5(d), of any
Underwriters of Securities or Common Stock issued upon conversion
thereof registered under a Shelf Registration Statement, their
officers and directors and each person who controls any such
Underwriter within the meaning of either the Act or the Exchange Act
on substantially the same basis as that of the indemnification of the
Initial Purchasers and the selling Holders provided in this Section
5(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in
Section 3(q) hereof. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.
(b) Each Holder of Securities or Common Stock issued upon
conversion thereof covered by a Shelf Registration Statement
(including the Initial Purchasers) severally and not jointly agrees
to indemnify and hold harmless (i) the Company, (ii) each of its
directors, (iii) each of its officers who signs such Shelf
Registration Statement and (iv) each person who controls the Company
within the meaning of either the Act or the Exchange Act to the same
extent as the foregoing indemnity from the Company to each such
Holder, but only with reference to written information relating to
such Holder furnished to the Company by or on behalf of such Holder
specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to
any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 5, notify the
indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it
from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial
rights and defenses; and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a)
or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for
which indemnification is sought (in which case the indemnifying party
shall not thereafter be responsible for the fees and expenses of any
separate counsel retained by the indemnified party or parties except
as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the
right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses
of such separate counsel (and local counsel) if (i) the use of
counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest; (ii)
the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be
legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the
indemnifying party; (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the
institution of such action; or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. Notwithstanding the foregoing,
the Company shall not, in the connection with any one action or
proceeding or separate but substantially similar or related actions
or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate counsel (in addition to
one separate local counsel) at any time for the indemnified parties,
which firm or firms (including any local counsel) shall be designated
by Salomon Smith Barney Inc. An indemnifying party will not, without
the prior written consent of the indemnified party, which consent
will not be unreasonably withheld, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability
arising out of such claim, action, suit or proceeding. The Company
shall not be liable for any losses, claims, damages or liabilities by
reason of any settlement of any action or proceeding effected without
the Company's prior written consent, which consent will not be
unreasonably withheld.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 5 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party,
shall have an obligation to contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending
same) (collectively "Losses"), as incurred, to which such indemnified
party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one
hand, and such indemnified party, on the other hand, from the Initial
Placement and the Shelf Registration Statement which resulted in such
Losses; provided, however, that in no case shall the Initial
Purchasers be responsible, in the aggregate, for any amount in excess
of the purchase discount or commission applicable to the Securities,
as set forth on the cover page of the Offering Memorandum, nor shall
any Underwriter be responsible for any amount in excess of the
underwriting discount or commission applicable to the Securities and
Common Stock issued upon conversion thereof purchased by such
Underwriter under the Shelf Registration Statement which resulted in
such Losses. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the indemnifying party and
the indemnified party shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from
the Initial Placement (before deducting expenses) as set forth on the
cover page of the Offering Memorandum. Benefits received by the
Initial Purchasers shall be deemed to be equal to the total purchase
discounts and commissions as set forth on the cover page of the
Offering Memorandum, and benefits received by any other Holders shall
be deemed to be equal to the value of receiving Securities or the
Common Stock issuable upon conversion thereof registered under the
Act. Benefits received by any Underwriter shall be deemed to be
equal to the total underwriting discounts and commissions, as set
forth on the cover page of the Prospectus forming a part of the Shelf
Registration Statement (or the applicable Prospectus supplement)
which resulted in such Losses. Relative fault shall be determined by
reference to whether any untrue statement or omission or alleged
untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on
the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or
any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section
5, each person who controls a Holder within the meaning of either the
Act or the Exchange Act and each director, officer, employee and
agent of such Holder shall have the same rights to contribution as
such Holder, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Shelf Registration Statement and
each director of the Company shall have the same rights to
contribution as the Company, and each person who controls an
Underwriter within the meaning of either the Act or the Exchange Act
and each officer and director of each Underwriter shall have the same
rights to contribution as such Underwriter, subject in each case to
the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full
force and effect, regardless of any investigation made by or on
behalf of any Holder, any Underwriter or the Company or any of the
officers, directors or controlling persons referred to in Section 5
hereof, and will survive the sale by a Holder of Securities or shares
of Common Stock covered by a Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of
the date hereof, entered into nor shall it, on or after the date
hereof, enter into, any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders herein or
otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be
amended, qualified, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of the Majority Holders;
provided that with respect to any matter that directly or indirectly
affects the rights of the Initial Purchasers hereunder, the Company
shall obtain the written consent of each of the Initial Purchasers
against which such amendment, qualification, supplement, waiver or
consent is to be effective. Notwithstanding the foregoing (except
the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively
to the rights of Holders whose Securities or Common Stock are being
sold pursuant to a Shelf Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be
given by the Majority Holders, determined on the basis of Securities
or Common Stock issued upon conversion thereof being sold rather than
registered under such Shelf Registration Statement.
(c) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to you, initially at the address set forth in
the Purchase Agreement;
(2) if to any other Holder, at the most current address
given by such Holder to the Company in accordance with the
provisions of this Section 6(c), which address initially is,
with respect to each Holder, the address of such Holder
maintained by the Registrar under the Indenture or, in the case
of Common Stock, the address maintained by the registrar of the
Common Stock, with a copy in like manner to Salomon Smith
Barney Inc.; and
(3) if to the Company, initially at its address set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given when received, if delivered by hand or air courier,
and when sent, if sent by first-class mail or telecopier.
The Initial Purchasers or the Company by notice to the other
may designate additional or different addresses for subsequent
notices or communications.
(d) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each
of the parties, including, without the need for an express assignment
or any consent by the Company thereto, subsequent Holders. The
Company hereby agrees to extend the benefits of this Agreement to any
Holder and Underwriter and any such Holder and Underwriter may
specifically enforce the provisions of this Agreement as if an
original party hereto. In the event that any other person shall
succeed to the Company under the Indenture as provided in Article VII
thereof, then such successor shall enter into an agreement, in form
and substance reasonably satisfactory to the Initial Purchasers,
whereby such successor shall assume all of the Company's obligations
under this Agreement.
(e) Counterparts. This agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE,
WITHOUT REGARD, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO THE
CONFLICTS OF LAW RULES THEREOF.
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of
any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by
law.
(i) Securities Held by the Company, etc. Whenever the
consent or approval of Holders of a specified percentage of principal
amount of Securities or the Common Stock issuable upon conversion
thereof is required hereunder, Securities or the Common Stock issued
upon conversion thereof held by the Company or its Affiliates (other
than subsequent Holders of Securities or the Common Stock issued upon
conversion thereof if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities)
shall not be counted in determining whether such consent or approval
was given by the Holders of such required percentage.
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
Very truly yours,
CNET, INC.
/s/ Douglas N. Woodrum
Name: Douglas N. Woodrwum
Title: Executive Vice President
and
Chief Financial
Officer
The foregoing Agreement is hereby confirmed and accepted as of the
date first above written.
SALOMON SMITH BARNEY INC.
BANCBOSTON ROBERTSON STEPHENS INC.
VOLPE BROWN WHELAN & COMPANY, LLP
For themselves and the other Initial Purchasers named in Schedule I
to the Purchase Agreement.
BY: SALOMON SMITH BARNEY INC.
By /s/ Peter A. Otridge
Name: Peter A. Otridge
Title: Vice President
EXHIBIT A
CNET, Inc.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
Reference is hereby made to the Registration Agreement (the
"Registration Agreement") between CNET, Inc., a Delaware corporation
(the "Company"), and the Initial Purchasers named therein. Pursuant
to the Registration Agreement, the Company has filed or will file
with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (the "Shelf
Registration Statement") for the registration and resale under Rule
415 of the Securities Act of 1933, as amended (the "Securities Act"),
of the Company's 5% Convertible Subordinated Notes due 2006 (the
"Securities"), and the shares of the Company's common stock, par
value $.0001 per share (the "Common Stock"), issuable upon conversion
thereof. A copy of the Registration Agreement is attached hereto.
All capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Registration Agreement.
Each holder and beneficial owner of Transfer Restricted
Securities is entitled to have its Transfer Restricted Securities
included in the Shelf Registration Statement. In order to have
Transfer Restricted Securities included in the Shelf Registration
Statement, this Notice of Registration Statement and Selling
Securityholder Questionnaire ("Notice and Questionnaire") must be
completed, executed and delivered to the Company's counsel at the
following address, for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]:
[NAME AND ADDRESS OF COUNSEL]. Holders or beneficial owners of
Transfer Restricted Securities who do not complete, execute and
return this Notice and Questionnaire by such date (i) will not be
named as selling securityholders in the Shelf Registration Statement
and (ii) may not use the Prospectus forming a part thereof for
resales of Transfer Restricted Securities, subject, however, to the
Company's obligations under Section 2(b)(2) of the Registration
Agreement.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related
Prospectus. Accordingly, holders and beneficial owners of Transfer
Restricted Securities are advised to consult their own securities law
counsel regarding the consequences of being named or not being named
as a selling securityholder in the Shelf Registration Statement and
related Prospectus.
ELECTION
The undersigned (the "Selling Securityholder") hereby elects to
include in the Shelf Registration Statement the Transfer Restricted
Securities held or beneficially owned by it and listed below in Item
(3)(b). The undersigned, by signing and returning this Notice and
Questionnaire, agrees to be bound with respect to such Transfer
Restricted Securities by the terms and conditions of this Notice and
Questionnaire and the Registration Agreement, including, without
limitation, the indemnification set forth in Section 5 of the
Registration Agreement, as if the undersigned Selling Securityholder
were an original party thereto.
QUESTIONNAIRE
(1) (a) Full legal name of Selling Securityholder:
(b) Full legal name of registered holder (if not the same as
in (a) above) of Transfer Restricted Securities listed in (3) below
(if the Transfer Restricted Securities are held through a broker-
dealer or other third party and, as a result, you do not know the
legal name of the registered holder, please complete Item (1)(c)
below):
(c) Full legal name of broker-dealer or other third party
through which Transfer Restricted Securities listed in (3) below are
held:
(2) Address for notices to Selling Securityholder:
Telephone:
Fax:
Contact Person:
(3) Beneficial ownership of Transfer Restricted Securities.
Except as set forth below in this Item (3), the undersigned
does not beneficially own any Securities or shares of Common Stock
which constitute Transfer Restricted Securities.
(a) Principal amount of Securities constituting Transfer
Restricted Securities beneficially owned:
Number of shares of Common Stock, if any, constituting Transfer
Restricted Securities (include only shares of Common Stock which have
actually been issued, not shares issuable upon future conversion of
Securities):
The undersigned also may be deemed to beneficially own such
number of shares of Common Stock as may be issued from time to time
upon conversion of the Securities listed in Item (3)(a) above.
(b) Principal amount of Securities and number of shares of
outstanding Common Stock constituting Transfer Restricted Securities
which the undersigned wishes to be included in the Shelf Registration
Statement:
Unless otherwise indicated in the space provided below, all
Securities, all shares of Common Stock listed in response to Item
(3)(a) above, and all shares of Common Stock issuable upon conversion
of the Securities listed in response to Item (3)(b)above, will be
included in the Shelf Registration Statement. If the undersigned
does not wish all such Securities or shares of Common Stock to be so
included, please indicate below the number of such shares to be
included:
(4) Beneficial ownership of other securities of the Company:
Except as set forth below in this item (4), the undersigned
Selling Securityholder is not the beneficial or registered owner of
any shares of Common Stock or any other securities of the Company,
other than Securities and shares of Common Stock listed above in Item
(3).
State any exceptions here:
(5) Relationships with the Company:
Except as set forth below, neither the Selling Securityholder
nor any of its officers, directors or 5% or greater stockholders has
held any position or office or has had any other material
relationship with the Company (or its predecessors or
affiliates)during the past three years.
State any exceptions here:
(6) Plan of Distribution:
Except as set forth below, the undersigned Selling
Securityholder intends to distribute the Transfer Restricted
Securities listed above in Item (3) only as follows (if at all):
Such Transfer Restricted Securities may be sold from time to time by
the undersigned Selling Securityholder (i) to or through
underwriters, brokers or dealers; (ii) directly to one or more other
purchasers; (iii) through agents on a best-efforts basis or
otherwise; or (iv) through a combination of any such methods of sale.
Such Transfer Restricted Securities may be sold from time to time in
one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at varying prices
determined at the time of sale, or at negotiated prices. Such sales
may be effected in transactions (which may involve crosses or block
transactions) (i) on any national securities exchange or quotation
service on which the Transfer Restricted Securities may be listed or
quoted at the time of sale, (ii) in the over-the-counter market,
(iii) in transactions otherwise than on such exchanges or services or
in the over-the-counter market, or (iv) through the writing of
options. In connection with sales of the Transfer Restricted
Securities 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 Transfer Restricted Securities in
the course of hedging the positions they assume. The Selling
Securityholder may also sell Transfer Restricted Securities short and
deliver Transfer Restricted Securities to close out such short
positions, or loan or pledge Transfer Restricted Securities 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 Transfer Restricted Securities owned by it and, if
it defaults in the performance of its secured obligations, the
pledgees or secured parties may offer and sell the Transfer
Restricted Securities from time to time pursuant to the Prospectus.
The Selling Securityholder also may transfer and donate shares in
other circumstances in which case the transferees, donees, pledgees
or other successors in interest will be the selling stockholders for
purposes of the Prospectus. The Selling Securityholder may sell
short the Common Stock and may deliver the Prospectus in connection
with such short sales and use the shares covered by the Prospectus to
cover such short sales.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that
it understands its obligation to comply, and agrees that it will
comply, with the provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, particularly
Regulation M and the prospectus delivery requirements under the
Securities Act.
In the event that the Selling Securityholder transfers all or
any portion of the Transfer Restricted Securities listed in Item (3)
above after the date on which such information is provided to the
Company (other than a transaction as a result of which such
securities shall no longer be Transfer Restricted Securities), the
Selling Securityholder agrees to notify the transferees at the time
of the transfer of its rights and obligations under this Notice and
Questionnaire and the Registration Agreement.
By signing below, the Selling Securityholder consents to the
disclosure of the information contained herein in its answers to
Items (1) through (6) above and the inclusion of such information in
the Shelf Registration Statement and related Prospectus. The Selling
Securityholder understands that such information will be relied upon
by the Company in connection with the preparation of the Shelf
Registration Statement and related Prospectus.
The Selling Securityholder agrees to promptly notify the
Company of any inaccuracies or changes in the information provided
herein which may occur subsequent to the date hereof at any time
while the Shelf Registration Statement remains in effect. All
notices hereunder and pursuant to the Registration Agreement shall be
made in writing, by hand-delivery, first-class mail, or air courier
guaranteeing overnight delivery as follows:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attention: Chief Financial Officer
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Company, the terms of this Notice
and Questionnaire, and the representations and warranties contained
herein, shall be binding on, shall inure to the benefit of and shall
be enforceable by the respective successors, heirs, personal
representatives, and assigns of the Company and the Selling
Securityholder (with respect to the Transfer Restricted Securities
beneficially owned by such Selling Securityholder and listed in Item
(3)(b) above). This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF, the undersigned, by authority duly given,
has caused this Notice and Questionnaire to be executed and delivered
either in person or by its duly authorized agent.
Dated:
Selling Securityholder
(Print/type full legal name of
beneficial owner of Transfer
Restricted Securities).
By:
Name:
Title:
EXHIBIT B
FORM OF LETTER TO BE PROVIDED BY ISSUER TO
THE DEPOSITORY TRUST COMPANY
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004
Re: 5% Convertible Subordinated Notes due 2006 (the
"Securities") of CNET, Inc.
Ladies and Gentlemen:
Please be advised that the Securities and Exchange Commission
has declared effective a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, with regard to all of the
Securities referenced above. Accordingly, there is no longer any
restriction as to whom such Securities may be sold and any
restrictions on the CUSIP designation are no longer appropriate and
may be removed. I understand that upon receipt of this letter, DTC
will remove any stop or restriction on its system with respect to
this issue.
As always, please do not hesitate to call if we can of further
assistance.
Very truly yours,
By:
Authorized Officer
Consent of Independent Auditors
The Board of Directors
CNET, Inc.
We consent to incorporation by reference in the registration statement on
Forms S-8 (File Nos.333-07667, 333-34491 and 333-67325) and Forms S-3
(File Nos. 333-46203, 333-56633 and 333-73023) of CNET, Inc. of our
of our report dated February 9, 1999, except as to paragraph 5 of
footnote 5 and footnote 10 which are as of March 22, 1999, and our
report on Schedule dated March 22, 1999, relating to consolidated
balance sheets of CNET, Inc. and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1998, which report appears
in the December 31, 1998 annual report on Form 10-K of CNET, Inc.
KPMG LLP
San Francisco, California
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Consolidated Balance Sheet and Consolidated Statement
of Operations included in the Company's Form 10-K for the year
ended December 31, 1998, 1997 and 1996, and is qualified in its
entirety by reference to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1997 Dec-31-1996
<PERIOD-START> Jan-01-1998 Jan-01-1997 Jan-01-1996
<PERIOD-END> Dec-31-1998 Dec-31-1997 Dec-31-1996
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<CASH> 51,533,655 22,553,988 20,155,935
<SECURITIES> 0 0 0
<RECEIVABLES> 16,796,264 9,610,762 5,392,177
<ALLOWANCES> 1,721,625 461,000 100,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 70,969,134 34,437,820 26,388,803
<PP&E> 28,064,836 26,713,782 14,092,323
<DEPRECIATION> 12,739,324 7,160,245 2,349,032
<TOTAL-ASSETS> 88,354,452 58,261,678 39,841,869
<CURRENT-LIABILITIES> 11,181,985 15,007,059 6,166,172
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 3,412 2,936 2,656
<OTHER-SE> 76,599,810 40,639,868 33,095,498
<TOTAL-LIABILITY-AND-EQUITY> 88,354,452 58,261,678 39,841,869
<SALES> 56,432,080 33,639,589 14,830,348
<TOTAL-REVENUES> 56,432,080 33,639,589 14,830,348
<CGS> 30,032,348 26,717,075 15,333,504
<TOTAL-COSTS> 30,032,348 26,717,075 15,333,504
<OTHER-EXPENSES> 23,869,789 41,060,385 15,032,155
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,415,616) (611,473) (451,948)
<INCOME-PRETAX> 2,599,957 (24,728,092) (16,948,662)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 2,599,957 (24,728,092) (16,948,662)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,599,957 (24,728,092) (16,948,662)
<EPS-PRIMARY> $0.08 ($0.91) ($1.06)
<EPS-DILUTED> $0.07 ($0.91) ($1.06)
<FN>
<F1> EPS-Basic and EPS-Diluted for 1996 has been restated to comply
with SFAS 128.
</FN>
</TABLE>
