<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-20939
C|NET, INC.
(Name of small business issuer in its charter)
Delaware 13-3696170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Chestnut Street
San Francisco, CA 94111
(Address of principal executive officers) (zip code)
Telephone number (415) 395-7800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes[x] No[ ]
As of July 31, 1996 there were 13,254,668 shares of the registrant's Common
Stock outstanding.
1
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INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . .3
Condensed Statements of Operations
for the three and six months ended June 30, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Condensed Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 . . . . . . . . . .5
Notes to Condensed Financial Statements . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
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C|NET,INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 December 31,1995
--------------------------------- ----------------
Pro forma Historical
(note 2)
------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,938,000 $ - $ 703,083
Accounts receivable, net 2,312,819 2,312,819 1,201,238
Other current assets 994,218 994,218 205,549
-------------- -------------- --------------
Total current assets 41,245,037 3,307,037 2,109,870
Property and equipment, net 4,630,111 4,630,111 2,392,788
Other assets 634,796 634,796 154,146
-------------- -------------- --------------
$ 46,509,944 $ 8,571,944 $ 4,656,804
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 89,151 89,151 -
Accounts payable 2,817,291 2,817,291 531,303
Accrued liabilities 1,403,260 1,403,260 706,617
Current portion of long-term debt 188,149 188,149 152,755
-------------- -------------- --------------
Total current liabilities 4,497,851 4,497,851 1,390,675
Long-term debt 628,336 628,336 467,339
-------------- -------------- --------------
Total liabilities 5,126,187 5,126,187 1,858,014
Stockholders' equity
Convertible preferred stock Series A, B,
C, D, and E - 42,611 34,392
Common stock 1,326 284 270
Additional paid in capital 62,375,590 24,396,021 15,143,633
Note receivable from stockholder (594,654) (594,654) -
Accumulated deficit (20,398,505) (20,398,505) (12,379,505)
-------------- -------------- --------------
Total stockholders' equity 41,383,757 3,445,757 2,798,790
-------------- -------------- --------------
$ 46,509,944 $ 8,571,944 $ 4,656,804
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to condensed financial statements.
3
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C|NET, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Television $ 819,998 $ 854,879 $ 1,427,695 $ 854,879
Internet 1,810,231 - 2,855,376 -
------------ ------------ ------------ ------------
Total Revenues 2,630,229 854,879 4,283,071 854,879
Cost of revenues
Television 1,340,718 2,015,736 2,695,196 2,015,736
Internet 1,920,372 - 3,363,099 -
------------ ------------ ------------ ------------
Total cost of revenues 3,261,090 2,015,736 6,058,295 2,015,736
Gross deficit (630,861) (1,160,857) (1,775,224) (1,160,857)
Operating expenses
Sales and marketing 1,809,645 488,554 3,115,911 820,345
Development 643,634 650,854 1,133,547 830,294
General and administrative 822,195 509,537 1,470,506 841,413
------------ ------------ ------------ ------------
Total operating expenses 3,275,474 1,648,945 5,719,964 2,492,052
Operating loss (3,906,335) (2,809,802) (7,495,188) (3,652,909)
Other income (expense)
Loss on joint venture (258,978) - (275,397) -
Interest income 11,154 25,400 19,817 67,460
Interest expense (166,318) (56,881) (268,232) (57,802)
------------ ------------ ------------ ------------
Total other income (expense) (414,142) (31,481) (523,812) 9,658
Net loss $(4,320,477) $(2,841,283) $(8,019,000) $(3,643,251)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share $ (0.47) $ (0.31) $ (0.87) $ (0.40)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in calculating per
share data 9,216,045 9,216,045 9,216,045 9,216,045
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
4
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C|NET, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,019,000) $(3,643,251)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 592,588 145,794
Amortization of program costs 1,287,854 1,433,645
Interest expense converted into preferred stock 222,141 -
Allowance for doubtful accounts 25,000 25,000
Loss on joint venture 275,397 -
Changes in operating assets and liabilities
Accounts receivable (1,136,581) (845,214)
Other current assets (301,096) (233,603)
Other assets (520,090) 42,737
Accounts payable 2,254,806 229,288
Accrued liabilities 727,552 334,081
------------ ------------
Net cash used in operating activities (4,591,429) (2,511,523)
Cash flows from investing activities:
Purchases of equipment, excluding capital leases (2,534,562) (1,093,206)
Purchases of programming assets (1,775,427) (1,550,094)
Loan to joint venture (260,830) -
----------- ------------
Net cash used in investing activities (4,570,819) (2,643,300)
Cash flows from financing activities:
Net proceeds from issuance of convertible preferred stock 4,643,826 2,500,000
Allocated proceeds from issuance of warrants 164,000 -
Proceeds from debt 3,636,000 3,000,000
Principal payments on long-term debt (73,812) (120,236)
------------ ------------
Net cash provided by financing activities 8,370,014 5,379,764
Net increase (decrease) in cash and cash equivalents (792,234) 224,941
Cash and cash equivalents at beginning of period 703,083 1,223,922
------------ ------------
Cash and cash equivalents at end of period $ (89,151) $ 1,448,863
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Interest paid $ 42,338 $ 28,359
------------ ------------
------------ ------------
Supplemental disclosure of noncash transactions:
Capital lease obligations incurred $ 270,203 $ 169,896
------------ ------------
------------ ------------
Note issued in exchange for equipment $ - $ 548,668
------------ ------------
------------ ------------
Conversion of debt and interest into convertible
preferred stock $ 3,858,141 $ -
------------ ------------
------------ ------------
Exercise of stock options through issuance of note receivable
from stockholder $ 594,654 $ -
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
5
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C|NET, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, considered necessary for a fair presentation of the financial
condition, results of operations and cash flows for the periods presented.
These condensed financial statements should be read in conjunction with the
audited financial statements included in the Company's registration statement
on Form SB-2, as filed with the Securities and Exchange Commission
on July 1, 1996, which contains additional financial and operating
information and information concerning the significant accounting policies
followed by the Company.
The results of operations for the three and six months ended June 30, 1996
are not necessarily indicative of the results expected for the current year or
any other period.
(2) BALANCE SHEET
INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET
On July 2, 1996 the Company effected an initial public offering (IPO) of
2,000,000 shares of its common stock for $16 per share. Simultaneously with
the IPO, the Company sold 600,000 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 estimated offering
expenses) were $37.9 million, and were received on July 8, 1996.
On July 8, 1996, the closing of the IPO, all of the outstanding Series A,
B, C, D and E preferred stock were automatically converted into 7,816,668 shares
of common stock.
The effect of the above transactions have been reflected in the
accompanying pro forma balance sheet as of June 30, 1996.
PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
June 30, December 31,
1996 1995
------------ ------------
Computer equipment $ 3,120,460 $ 1,057,225
Production equipment 1,708,767 1,494,012
Office equipment 495,125 235,975
Leasehold improvements 124,121 110,137
Other 274,274 20,633
------------ ------------
5,722,747 2,917,982
Less accumulated depreciation
and amortization 1,092,636 525,194
------------ ------------
$ 4,630,111 $ 2,392,788
------------ ------------
------------ ------------
6
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ACCRUED LIABILITIES
A summary of accrued liabilities follows:
June 30, December 31,
1996 1995
------------ ------------
Compensation and related
benefits $ 750,663 $ 327,243
Advertising 341,400 159,000
Other 311,197 220,374
------------ ------------
$ 1,403,260 $ 706,617
------------ ------------
------------ ------------
(3) NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares of
common stock outstanding and common equivalent shares from stock options (under
the treasury method, if dilutive). In accordance with SEC Staff Accounting
Bulletins, such computations include all common and common equivalent shares
issued within 12 months of the IPO for all periods presented.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company was founded in December 1992 and first recognized revenues
from its television operations in April 1995 and from its Internet operations
in October 1995. Accordingly, the Company has an extremely limited operating
history upon which an evaluation of the Company and its prospects can be
based. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by startup companies in the
television programming industry and in the new and rapidly evolving market
for Internet products, content and services. To address these risks, the
Company must, among other things, effectively develop new relationships and
maintain existing relationships with its advertising customers, their
advertising agencies and other third parties, provide original and compelling
content to Internet users and television viewers, develop and upgrade its
technology, respond to competitive developments and attract, retain and
motivate qualified personnel. There can be no assurance that the Company will
succeed in addressing such risks and the failure to do so could have a
material adverse effect on the Company's business, financial condition or
operating results. Additionally, the limited operating history of the
Company makes the prediction of future operating results difficult or
impossible, and there can be no assurance that the Company's revenues will
increase or even continue at their current level or that the Company will
achieve or maintain profitability or generate cash from operations in future
periods. Additional factors that could adversely affect future operating
results include, but are not limited to, those discussed below under the
heading "Additional Factors that May Affect Future Results," as well as those
discussed under the heading "Risk Factors" in the Company's Registration
statement on Form SB-2 as filed with the Securities and Exchange Commission
on July 1, 1996 (Registration No. 333-4752-LA).
Since inception, the Company has incurred significant losses and, as of
June 30, 1996, had an accumulated deficit of $20.4 million. The Company
currently intends to increase substantially its operating expenses in order
to develop new Internet sites and television programs and to enhance existing
ones, to fund increased sales and marketing expenses and to expand its
Internet and television operations. The Company expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
RESULTS OF OPERATIONS
REVENUES
TOTAL REVENUES
The Company began to generate revenues in April 1995. Total revenues for
the three and six months ended June 30, 1996 were $2.6 million and $4.3 million,
respectively, compared to total revenues of $855,000 for each of the comparable
periods in 1995.
TELEVISION REVENUES
Television revenues for the three and six months ended June 30, 1996 were
$820,000 and $1.4 million, respectively, compared to revenues of $855,000 for
each of the comparable periods in 1995. The decrease of $35,000 for the
three month period is primarily due to a reduction in advertising time sold.
The increase of $573,000 for the six months ended June 30, 1996 as compared
to the similar period in 1995 reflects six months of revenue generating
activities in 1996 as compared to three months in 1995, as television
revenues did not commence until April 1995.
Through June 30, 1996 television revenues have been principally derived
from the sale of advertising during the Company's CNET CENTRAL television
series, which was carried nationally on USA Network and SciFi Channel
pursuant to an agreement with USA Networks. The Company was entitled to sell
available advertising time included in the program. In April 1996, the
Company and USA Networks amended their agreement, effective July 1, 1996.
Under the amended agreement, USA Networks will license the right to carry
CNET CENTRAL and two
8
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additional programs on its networks for an initial one-year term for a fee equal
to the cost of production of those programs up to a maximum of $5.2 million.
INTERNET REVENUES
Internet revenues for the three and six months ended June 30, 1996 were
$1.8 million and $2.9 million, respectively. The Company did not generate
Internet revenues during the comparable periods in 1995 as revenues
attributable to Internet operations did not commence until October 1, 1995.
Internet revenues increased $765,000 from the first quarter to the second
quarter of 1996, primarily the result of increased traffic and delivery of
advertising on the Company's Internet sites.
During the three and six months ended June 30, 1996, approximately $124,000
and $340,000, respectively, of Internet revenues were derived from barter
transactions whereby the Company delivered advertisements on its Internet sites
in exchange for advertisements on the Internet sites of other companies.
COST OF REVENUES
TOTAL COST OF REVENUES
Total cost of revenues for the three and six months ended June 30, 1996
were $3.3 million and $6.1 million, respectively, as compared to $2.0 million
for each of the comparable periods in 1995. Cost of revenues includes costs
associated with the production and delivery of the Company's television
programming and the production of its Internet sites. The principal elements of
cost of revenues for the Company's television programming are payroll and
related expenses for the editorial and production staff and costs for facilities
and equipment. The principal elements of cost of revenues for the Company's
Internet sites have been payroll and related expenses for the editorial,
production and technology staff, as well as costs for facilities and equipment.
COST OF TELEVISION REVENUES
Cost of television revenues for the three and six months ended June 30,
1996 were $1.3 million and $2.7 million, respectively, as compared to $2.0
million for each of the comparable periods in 1995, representing 164%, 189%
and 236% of the related revenues, respectively. The decrease in cost of
television revenues of $675,000 for the three month period ended June 30,
1996 as compared to the comparable period in 1995 was primarily attributable
to costs incurred in 1995 of approximately $320,000 associated with the
initial staffing and preproduction of CNET CENTRAL and costs of approximately
$200,000 associated with the special production of a segment used in the
first two episodes of the program. Cost of television revenues increased
$679,000 for the six month period ended June 30, 1996 as compared to the
comparable period in 1995. This increase reflects six months of cost of
revenues in 1996 as compared to three months in 1995 as revenue generating
activities for television did not commence until April 1995. The increase was
offset to some extent by the $675,000 decrease incurred in the three month
period ended June 30, 1996.
Under the Company's amended agreement with USA Networks, which became
effective July 1, 1996, the Company will produce two new programs in addition to
CNET CENTRAL, which will increase cost of revenues for television production.
The Company's revenues under the amended agreement will be limited to the costs
of producing the three television programs covered by the agreement and will in
no event exceed $5.2 million for the initial one-year term. If the cost of
producing all three television programs for USA Networks exceeds $5.2 million
during such period, the Company will incur a gross deficit with respect to its
television operations.
9
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COST OF INTERNET REVENUES
Cost of Internet revenues for the three and six months ended June 30, 1996
were $1.9 million and $3.4 million, respectively, representing 106% and 118% of
the related revenues, respectively. There was no cost of revenues for Internet
operations for the comparable periods of 1995 as the Company did not commence
revenue generating activities from its Internet operations until October 1995.
SALES AND MARKETING
Sales and marketing expenses consist primarily of payroll and related
expenses, consulting fees and advertising expenses. Sales and marketing expenses
were $1.8 million and $489,000 for the three months and $3.1 million and
$820,000 for the six months ended June 30, 1996 and 1995, representing 69%, 57%,
73% and 96% of total revenues, respectively. The increase in sales and
marketing expense for the three and six months ended June 30, 1996 compared to
the comparable periods in 1995 was attributable to increases in payroll and
related benefits of approximately $436,000 and $638,000, respectively, and
increases in advertising and promotional expenses of approximately $770,000 and
$1.5 million, respectively.
DEVELOPMENT
Development expenses consist of expenses incurred in the Company's initial
development of new television programming prior to commencement of its
production activities, the development of new Internet sites and in research and
development of new or improved technologies designed to enhance the performance
of the Company's Internet sites. Development expenses for Internet operations
include payroll and related expenses for editorial, production and technology
staff, as well as costs for facilities and equipment. Costs associated with the
development of a new Internet site are no longer recognized as development
expenses when the new site begins generating revenue.
Development expenses were $644,000 and $651,000 for the three months and
$1.1 million and $830,000 for the six months ended June 30, 1996 and 1995,
representing 24%, 76%, 26% and 97% of total revenues, respectively. Included in
development expenses for the three and six month periods ended June 30, 1995
were approximately $104,000 in development of new television programming.
Development expenses for the development of Internet sites and development of
new or improved technologies to enhance Internet site performance increased by
$97,000 and $408,000 for the three month and six month periods, respectively,
as the Company expanded its research and development staff and continued
efforts to develop new Internet sites.
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 $822,000
and $510,000 for the three months and $1.5 million and $841,000 for the six
months ended June 30, 1996 and 1995, representing 31%, 60%, 34% and 98% of total
revenues, respectively. The increase for the three and six months ended June
30, 1996 were primarily attributable to increases in payroll and related
expenses and are primarily associated with the growth of the Company.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income and interest expense and
losses from the Company's joint venture with E! Entertainment. The joint
venture, which is owned 50% by the Company and 50% by E! Entertainment, was
formed in January 1996 to launch an Internet
10
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site called E! ONLINE. The Company has agreed to provide $3.0 million in debt
financing to the joint venture during the first two years of operations. As a
result of the Company's financing commitment to the joint venture, the Company
is currently required to recognize 100% of any losses incurred by the joint
venture.
Other income (expense) was $(414,000) and $(31,000) for the three months
and $(523,000) and $10,000 for the six months ended June 30, 1996 and 1995,
respectively. Included in other income (expense) for the three and six months
ended June 30, 1996 were losses of $(259,000) and $(275,000), respectively,
incurred by the E! Online joint venture which was formed in January 1996. The
balance of the increase in other income (expense) was primarily the result of
interest charges on both the Company's long-term and short-term debt.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of preferred stock which, through June 30, 1996 have totaled
approximately $24.4 million in gross proceeds. On July 2, 1996 the Company
effected an IPO of 2,000,000 shares of its common stock for $16 per share. In
conjunction with the IPO, the Company simultaneously sold 600,000 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 estimated offering expenses) were $37.9 million, and were received on July
8, 1996. The effect of both offerings has been shown on the pro forma balance
sheet as of June 30, 1996.
Net cash used in operating activities of $4.6 million and $2.5
million for the six months ended June 30, 1996 and 1995, respectively, was
primarily attributable to net losses in such periods. Net cash used in
investing activities of $4.6 and $2.6 for the six months ended June 30,
1996 and 1995 respectively, was primarily attributable to purchases of
equipment and programming assets. Cash flows provided by financing
activities in each of the periods consisted primarily of proceeds from the
issuance of preferred stock and the issuance of debt. All of the debt was
subsequently cancelled in exchange for preferred stock.
The Company currently has obligations under notes payable and capital
leases of $816,000. Such obligations were incurred to finance equipment
purchases and are payable through June 2001. Through June 30, 1996, debt
financing of $261,000 was provided to E! Online, LLC, the Company's joint
venture with E! Entertainment. The Company has agreed to provide $3.0 million
in debt financing to the joint venture during its first two years of
operation. In addition, the Company has agreed to provide up to an
additional $3.0 million in equity capital to the joint venture through
January 1999. In December 1995, the Company commenced a lease on a building
that will require substantial improvements to adequately serve the Company's
needs. The Company estimates that these improvements will be approximately
$3.5 million.
On July 19, 1996, the Company completed a minority equity investment in
Vignette Corporation ("Vignette"), an Austin, Texas based software
development company. The Company's investment consisted of $512,000 in cash
and a transfer of rights to certain of the Company's proprietary site
management software systems and related technologies. In return, the Company
received preferred stock of Vignette constituting approximately 35% of
Vignette's outstanding capital stock.
11
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As of June 30, 1996 the Company had a bank overdraft of $89,000. On July
8, 1996, the Company received proceeds (less underwriting discounts and
commissions) of $38.7 million from its IPO and simultaneous offering to Intel.
The Company estimates that it will incur approximately $750,000 in offering
expenses in connection with these offerings resulting in net proceeds of $37.9
million. The Company believes that these funds will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Thereafter, if cash generated by operations is insufficient
to satisfy the Company's liquidity requirements, the Company may be required to
sell additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to the Company's
stockholders. There can be no assurance that financing will be available to the
Company in amounts or on terms acceptable to the Company.
SEASONALITY AND CYCLICALITY
The Company believes that advertising sales in traditional media, such as
television, are generally lower in the first and third calendar quarters of each
year than in the respective preceding quarters and that advertising expenditures
fluctuate significantly with economic cycles. Depending on the extent to which
the Internet is accepted as an advertising medium, seasonality and cyclicality
in the level of advertising expenditures generally could become more pronounced
for Internet advertising. Seasonality and cyclicality in advertising
expenditures generally, or with respect to Internet-based advertising
specifically, could have a material adverse effect on the Company's business,
financial condition or operating results.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may adversely affect the Company's quarterly
operating results attributable to its Internet operations include the level
of use of the Internet, demand for Internet advertising, seasonal trends in
both Internet use and advertising placements, the addition or loss of
advertisers, advertising budgeting cycles of individual advertisers, the
level of traffic on the Company's Internet sites, the amount and timing of
capital expenditures and other costs relating to the expansion of the
Company's Internet operations, the introduction of new sites and services by
the Company or its competitors, price competition or pricing changes in the
industry, technical difficulties or system downtime, general economic
conditions and economic conditions specific to the Internet and Internet
media. Quarterly operating results attributable to the Company's television
operations will be affected by the Company's amended agreement with USA
Networks and are generally dependent on the size and demographic
characteristics of the Company's viewing audience, which may be adversely
affected by the popularity of competing television programs, including
special events, the time slots chosen for the Company's programs by the cable
network carrying such programs and the popularity of programs immediately
preceding the Company's programs, as well as the costs incurred by the
Company in producing its television programming. Further, as a result of the
Company's strategy to cross market its television and Internet operations,
the Company believes that any decrease in the number of viewers of its
television programs will have a negative effect on the usage of its Internet
sites. Accordingly, a decrease in viewership of the Company's television
programs could have a material adverse effect on the Company's business,
financial condition or operating results.
Due to all of the foregoing factors, it is likely that the Company's
operating results will fall below the expectations of the Company, securities
analysts or investors in some future quarter. In such event, the trading price
of the Common Stock would likely be materially and adversely affected.
12
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
10.1 Stock Purchase Agreement, dated as of July 19, 1996, between
Vignette Corporation and the Company
11.1 Statement of Computation of Net Loss per Share
27. Financial Data Schedule
(2) Reports on Form 8-K
None.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C|NET, INC.
(Registrant)
Date: By: /s/ Shelby W. Bonnie
------------------------------
Shelby W. Bonnie
Chief Operating Officer/
Chief Financial Officer
14
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STOCK PURCHASE AGREEMENT
Dated as of July 19, 1996
Among
Vignette Corporation
(the "Company")
and
c|net, Inc.
(the "Purchaser")
<PAGE>
TABLE OF CONTENTS
1. AUTHORIZATION AND SALE OF SHARES........................................ 1
1A. AUTHORIZATION................................................. 1
1B. SALE OF SHARES OF SERIES B PREFERRED STOCK.................... 1
1C. SALE OF SHARES OF SERIES C PREFERRED STOCK.................... 1
2. THE CLOSING............................................................. 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 2
3A. ORGANIZATION AND STANDING..................................... 2
3B. CAPITALIZATION................................................ 2
3C. SUBSIDIARIES, ETC............................................. 3
3D. STOCKHOLDER LIST AND AGREEMENTS............................... 3
3E. ISSUANCE OF SHARES............................................ 3
3F. AUTHORITY FOR AGREEMENT....................................... 4
3G. GOVERNMENTAL CONSENTS......................................... 4
3H. LITIGATION.................................................... 4
3I. ABSENCE OF LIABILITIES........................................ 4
3J. TAXES......................................................... 4
3K. PROPERTY AND ASSETS........................................... 5
3L. INTELLECTUAL PROPERTY......................................... 5
3M. INSURANCE..................................................... 5
3N. MATERIAL CONTRACTS AND OBLIGATIONS............................ 6
3O. COMPLIANCE.................................................... 6
3P. ABSENCE OF CHANGES............................................ 6
3Q. EMPLOYEES..................................................... 6
3R. ERISA......................................................... 7
3S. BOOKS AND RECORDS............................................. 7
3T. DISCLOSURES................................................... 7
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................... 7
4A. INVESTMENT.................................................... 7
4B. AUTHORITY..................................................... 7
4C. ACCREDITED INVESTOR........................................... 7
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER.......................... 8
5A. ACCURACY OF REPRESENTATIONS AND WARRANTIES.................... 8
5B. PERFORMANCE................................................... 8
5C. OPINION OF COUNSEL............................................ 8
5D. ANCILLARY AGREEMENTS.......................................... 8
5E. CERTIFICATES AND DOCUMENTS.................................... 8
(i)
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5F. COMPLIANCE CERTIFICATE........................................ 9
5G. OTHER MATTERS................................................. 9
6. CONDITION TO THE OBLIGATIONS OF THE COMPANY............................. 9
6A. ACCURACY OF REPRESENTATIONS AND WARRANTIES.................... 9
6B. CONSIDERATION FOR SERIES B PREFERRED STOCK.................... 9
6C. CONSIDERATION FOR SERIES C PREFERRED STOCK.................... 9
6D. AMENDED CERTIFICATE OF DESIGNATION OF SERIES A
AND SERIES B STOCK............................................ 9
6E. CERTIFICATE OF DESIGNATION OF SERIES C STOCK.................. 9
6F. OTHER MATTERS................................................. 10
7. COVENANTS OF THE COMPANY................................................ 10
7A. INSPECTION AND OBSERVATION.................................... 10
7B. FINANCIAL STATEMENTS AND OTHER INFORMATION.................... 10
7C. MATERIAL CHANGES AND LITIGATION............................... 11
7D. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS............. 11
7E. EXPENSES OF DIRECTORS......................................... 11
7F. RESERVATION OF COMMON STOCK................................... 11
7G. TERMINATION OF COVENANTS...................................... 11
7H. QUALIFIED SMALL BUSINESS STOCK................................ 11
8. TRANSFER OF SHARES...................................................... 12
8A. RESTRICTIONS.................................................. 12
8B. REQUIREMENTS FOR TRANSFER..................................... 12
8C. LEGENDS....................................................... 12
8D. RULE 144A INFORMATION......................................... 12
9. MISCELLANEOUS........................................................... 13
9A. SUCCESSORS AND ASSIGNS........................................ 13
9B. CONFIDENTIALITY............................................... 13
9C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................... 13
9D. NOTICES....................................................... 13
9E. BROKERS....................................................... 14
9F. ENTIRE AGREEMENT.............................................. 14
9G. AMENDMENTS AND WAIVERS........................................ 14
9H. COUNTERPARTS.................................................. 14
9I. HEADINGS...................................................... 14
9J. SEVERABILITY.................................................. 15
9K. GOVERNING LAW................................................. 15
9L. FURTHER ASSURANCES............................................ 15
9M. INDEMNIFICATION............................................... 15
(ii)
<PAGE>
Exhibits:
A Certificate of Amendment of Certificate of Designation of
Series A and Series B Stock
B Certificate of Designation of Series C Stock
C "Prism" Development and Marketing Agreement
D Allocation of Series C Preferred Stock
E Schedule of Exceptions
F Proprietary Information and Inventions Agreement
G Opinion of Brobeck, Phleger & Harrison LLP
H Amended and Restated Stockholders Agreement
I Amended and Restated Registration Rights Agreement
(iii)
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated as of July 19, 1996
is entered into by and among Vignette Corporation, a Delaware corporation (the
"Company"), and c|net, Inc., a Delaware corporation (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1A. AUTHORIZATION. The Company has, or before the Closing (as defined
in part 2) will have, duly authorized the issuance and sale, pursuant to the
terms of this Agreement, of 310,000 shares of its Series B Convertible Preferred
Stock, par value $0.01 per share (the "Series B Preferred Stock"), having the
rights, restrictions, privileges and preferences set forth in the Certificate of
Amendment of Certificate of Designation of Preferences of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock attached as EXHIBIT A
(the "Amended Certificate of Designation of Series A and Series B Stock") and
1,865,000 shares of its Series C Convertible Preferred Stock, par value $0.01
per share (the "Series C Preferred Stock"), having the rights, restrictions,
privileges and preferences set forth in the Certificate of Designation of
Preferences of Series C Convertible Preferred Stock attached as EXHIBIT B (the
"Certificate of Designation of Series C Stock"). The Company has, or before the
Closing will have, adopted and filed the Amended Certificate of Designation of
Series A and Series B Stock and the Certificate of Designation of Series C Stock
with the Secretary of State of the State of Delaware. The shares of Series B
Preferred Stock and Series C Preferred Stock being sold under this Agreement
and, unless the context otherwise requires, the shares of Common Stock issued or
issuable upon the conversion of such shares of Series B Preferred Stock and
Series C Preferred Stock, are collectively referred to as the "Shares."
1B. SALE OF SHARES OF SERIES B PREFERRED STOCK. Subject to the terms
and conditions of this Agreement, at the Closing the Company will issue and sell
to the Purchaser, and the Purchaser will purchase, 310,000 shares of Series B
Preferred Stock for the purchase price of $1.65 per share.
1C. SALE OF SHARES OF SERIES C PREFERRED STOCK. Subject to the terms
and conditions of this Agreement, at the Closing the Company will issue and sell
to the Purchaser, and the Purchaser will purchase, 1,865,000 shares of Series C
Preferred Stock as consideration for the execution and delivery of the "Prism"
Development and Marketing Agreement (the "Prism Agreement") in the form of
EXHIBIT C hereto. The Company and the Purchaser agree that the Series C
Preferred Stock issued by the Company shall be allocated among (i) the
Transferred Assets (as defined in Article 3 of the Prism Agreement) and the
License Grants to the Company (as described in Article 4.1 of the Prism
Agreement) (collectively, the "Intangible Assets") and (ii) c|net's obligations
under Article 5.4(b) of the Prism Agreement (the "Consulting
<PAGE>
Obligations") as set forth in EXHIBIT D hereto.
2. THE CLOSING.
(i) The closing (the "Closing") of the sale and purchase of 310,000
shares of Series B Preferred Stock and 1,865,000 shares of Series C
Preferred Stock under this Agreement shall take place on July 19, 1996.
(ii) The Closing shall be held at the offices of Brobeck, Phleger &
Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas at 10:00 a.m.
on the date specified for such Closing above, or at such other place or
such other time as the Company and the Purchaser may agree in writing.
(iii) At the Closing, the Company shall deliver to the Purchaser
certificates for the number of shares purchased by the Purchaser at the
Closing, registered in the name of the Purchaser, against payment to the
Company of the purchase price therefor.
(iv) If at the Closing any of the conditions specified in part 6 to
be fulfilled at or prior to such Closing shall not have been fulfilled, the
Purchaser shall, at its election, be relieved of all of its obligations
under this Agreement to be performed at the Closing without thereby waiving
any other rights it may have by reason of such failure or such
nonfulfillment.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Subject to and except
as disclosed by the Company in EXHIBIT E hereto, the Company hereby represents
and warrants to the Purchaser as follows:
3A. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified and in good standing to do business as
a foreign corporation in Texas and is not required to be so qualified in any
other jurisdiction except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, assets or condition,
financial or otherwise, of the Company. The Company has furnished to the
Purchaser true and complete copies of its Certificate of Incorporation and
Bylaws, each as amended to date and currently in effect.
3B. CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of the Company shall consist of 7,536,682 shares of Common Stock,
par value $0.01 per share (the "Common Stock"), of which 1,637,500 shares shall
be issued and outstanding, and 4,125,682 shares of Preferred Stock, $0.01 par
value per share, of which 407,500 shares shall
2
<PAGE>
have been designated as Series A Preferred Stock, 1,853,182 shares shall have
been designated as Series B Preferred Stock and 1,865,000 shares shall have been
designated as Series C Preferred Stock. Immediately prior to the Closing,
400,000 shares of the Series A Preferred Stock, 1,543,182 shares of the Series B
Preferred Stock and none of the shares of Series C Preferred Stock shall have
been issued or outstanding. All of the issued and outstanding shares of
Preferred Stock have been duly authorized and validly issued and are fully paid
and nonassessable. All of the issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in EXHIBIT E hereto, the Amended
Certificate of Designation of Series A and Series B Stock, the other agreements
required to be executed by the Company on or prior to the Closing pursuant to
paragraph 5D (the "Ancillary Agreements") or as provided in this Agreement, (i)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital stock of
the Company have been offered, issued and sold by the Company in compliance with
applicable federal and state securities laws.
3C. SUBSIDIARIES, ETC. The Company has no Subsidiaries (as defined
in the Certificate of Designation of Series C Stock) and does not own or
control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other non-
corporate business enterprise.
3D. STOCKHOLDER LIST AND AGREEMENTS. EXHIBIT E sets forth a true and
complete list of the stockholders of the Company, showing the number of shares
of Common Stock or other securities of the Company held by each stockholder as
of the date of this Agreement and the consideration paid to the Company, if any,
therefor. Except as provided in this Agreement, the Amended Certificate of
Designation of Series A and Series B Stock, the Ancillary Agreements or as set
forth in EXHIBIT E, there are no agreements, written or oral, between the
Company and any holder of its capital stock, or, to the best of the Company's
knowledge, among any holders of its capital stock, relating to the acquisition
(including without limitation rights of first refusal or preemptive rights),
disposition, registration under the Securities Act of 1933, as amended (the
"Securities Act"), or voting of the capital stock of the Company.
3E. ISSUANCE OF SHARES. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have been, or
will be on or prior to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and all such Shares have been duly reserved
for issuance. The Shares when so issued, sold and delivered against payment
3
<PAGE>
therefor in accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion in accordance with the Amended Certificate of Designation of Series A
and Series B Stock or the Certificate of Designation of Series C Stock, as the
case may be, will be duly and validly issued, fully paid and non-assessable.
3F. AUTHORITY FOR AGREEMENT. The execution, delivery and performance
by the Company of this Agreement and the Ancillary Agreements and the
consummation by the Company of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action of the Company.
This Agreement and the Ancillary Agreements have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable in accordance with their respective terms. The execution,
delivery and performance of the transactions contemplated by this Agreement and
the Ancillary Agreements and compliance with their provisions by the Company
will not violate any provision of applicable law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, (a) its
Certificate of Incorporation or Bylaws (each as amended to date) or (b) any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound or (c) any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3G. GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchaser in part 4 of this
Agreement, the offer and sale of the Shares to the Purchaser will be in
compliance with applicable federal and state securities laws.
3H. LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company which
questions the validity of this Agreement or any Ancillary Agreement or the right
of the Company to enter into or perform this Agreement or any Ancillary
Agreement, or which could reasonably be expected to have, either individually or
in the aggregate, any material adverse effect on the business, prospects, assets
or condition, financial or otherwise, of the Company.
3I. ABSENCE OF LIABILITIES. Except as disclosed in EXHIBIT E, at the
date of this Agreement, the Company did not have any liabilities of any type
which in the aggregate exceeded $10,000, whether absolute or contingent, and
since the date of this Agreement the Company has not incurred or otherwise
become subject to any such liabilities or obligations except in the ordinary
course of business.
4
<PAGE>
3J. TAXES. The Company has filed all federal, state, county, local
and foreign tax returns which are required to be filed by it on or prior to the
date of the Closing, such returns are true and correct and all taxes shown
thereon to be due have been timely paid with exceptions not material to the
Company. Federal income tax returns of the Company have not been audited by the
Internal Revenue Service, and no controversy with respect to taxes of any type
is pending or, to the best of the Company's knowledge, threatened. Neither the
Company nor any of its stockholders has ever filed (i) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation or (ii) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
3K. PROPERTY AND ASSETS. The Company has good title to or a valid
leasehold interest in all of its properties and assets, which comprise all of
the properties and assets necessary or useful for the conduct of its business as
described in the Business Plan of the Company dated January 22, 1996 (the
"Plan") and none of such properties or assets is subject to any mortgage,
pledge, lien, security interest, lease, charge or encumbrance other than those
the material terms of which are described in EXHIBIT E.
3L. INTELLECTUAL PROPERTY. Set forth in EXHIBIT E is a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyright registrations
and licenses presently used by the Company or necessary for the conduct of the
Company's business as conducted and as proposed to be conducted, as well as any
agreement under which the Company has access to any confidential information
used by the Company in its business (the "Intellectual Property Rights"). The
Company owns, or has the right to use under the agreements or upon the terms
described in EXHIBIT E, all of the Intellectual Property Rights, and has taken
all actions reasonable in light of its financial position to protect the
Intellectual Property Rights. The business conducted or proposed to be
conducted by the Company as set forth in the Plan does not and will not cause
the Company to infringe or violate any of the trademarks, service marks, trade
names, copyrights, licenses, trade secrets or other intellectual property rights
or, to the Company's knowledge, the patents of any other person or entity, and,
except as set forth in EXHIBIT E, does not and will not require the Company to
obtain any license or other agreement to use any trademarks, service marks,
trade names, copyrights, licenses, trade secrets or other intellectual property
rights or patents of others. The Company is not aware that any officer or other
employee of the Company is obligated under any contract (including any license,
covenant or commitment of any nature), or subject to any judgment, decree or
order of any court or administrative agency, that would conflict with or
interfere with (i) the performance of such officer's or employee's duties as an
officer, employee or director of the Company, (ii) the use of such officer's or
employee's best efforts to promote the interests of the Company or (iii) the
Company's business as conducted or proposed to be conducted. Except as set
forth in EXHIBIT E, no other person or entity (including without limitation any
prior employer of any officer or of any other employee of the Company) has any
right to or interest in any inventions, improvements, discoveries or other
confidential information developed or utilized by the Company in its business.
3M. INSURANCE. The Company maintains valid policies of insurance
with respect to its properties and business of the kinds and in the amounts not
less than is customarily obtained
5
<PAGE>
by corporations engaged in the same or similar business and similarly situated,
including, without limitation, workers compensation insurance and insurance
against casualty loss, public liability, libel, slander, defamation, advertising
injury and other risks. EXHIBIT E sets forth a schedule and brief description
of the policies of insurance currently maintained by the Company.
3N. MATERIAL CONTRACTS AND OBLIGATIONS. EXHIBIT E sets forth a list
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound, including without limitation (i) each agreement
which requires future expenditures by the Company in excess of $10,000 or which
might result in payments to the Company in excess of $10,000, (ii) all
employment and consulting agreements, employee benefit, bonus, pension, profit-
sharing, stock option, stock purchase and similar plans and arrangements, and
distributor and sales representative agreements, (iii) each agreement with any
stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including without limitation
any agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such person or entity and (iv) any agreement relating to the Intellectual
Property Rights. The Company has delivered to the Purchaser copies of such of
the foregoing agreements as the Purchaser has requested. All of such agreements
and contracts are valid, binding and in full force and effect.
3O. COMPLIANCE. The Company has complied in all material respects
with all laws, regulations and orders applicable to its present and proposed
business (as set forth in the Plan) and has all material permits and licenses
required thereby. There is no term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which it
is bound or of any provision of any existing state or federal judgment, decree,
order, statute, rule or regulation applicable to or binding upon the Company,
which materially adversely affects or, so far as the Company may now reasonably
foresee, in the future is reasonably likely to materially adversely affect, the
business, prospects, assets or condition, financial or otherwise, of the
Company. To the best of the Company's knowledge, none of the officers nor any
other employee of the Company is in violation of any term of any contract or
covenant (either with the Company or with another entity) relating to
employment, patents, proprietary information disclosure, noncompetition or non-
solicitation.
3P. ABSENCE OF CHANGES. Since the date of the Plan, there has been
no material adverse change in the condition, financial or otherwise, net worth
or results of operations of the Company, other than changes occurring in the
ordinary course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
3Q. EMPLOYEES. All employees of the Company whose employment
responsibility requires access to confidential or proprietary information of the
Company have executed and delivered proprietary information agreements
substantially identical in form and
6
<PAGE>
substance to EXHIBIT F ("Proprietary Information and Inventions Agreements"),
and all of such Proprietary Information and Inventions Agreements are in full
force and effect. None of the employees of the Company is represented by any
labor union, and there is no labor strike or other labor trouble pending with
respect to the Company (including, without limitation, any organizational drive)
or, to the best of the Company's knowledge, threatened.
3R. ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974 (other than a medical benefit plan with respect to
which the Company has made all required contributions and has complied with all
applicable laws).
3S. BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock
ledger of the Company is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of capital stock of the Company.
3T. DISCLOSURES. Neither this Agreement nor any Exhibit hereto nor
any report, certificate or instrument furnished to the Purchaser in connection
with the transactions contemplated in this Agreement or the Ancillary
Agreements, including without limitation the Plan, when read together, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading. The Company
knows of no information or fact which has or would have a material adverse
effect on the business, prospects, assets or condition, financial or otherwise,
of the Company which has not been disclosed to the Purchaser in this Agreement,
the Exhibits hereto, the Plan or other written materials furnished to the
Purchaser. The financial projections included in the Plan were prepared in good
faith based on reasonable assumptions and represents the Company's best estimate
of future results based on information available as of the date of the Plan;
PROVIDED, that the Company cannot and does not assure or guarantee that the
projections contained therein will be attained.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company as follows:
4A. INVESTMENT. The Purchaser is acquiring the Shares for its own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same, and, except as contemplated by this Agreement and the Exhibits
hereto, such Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof. The Purchaser acknowledges the restrictions on transfer of
Shares of the Company set forth in part 8 of this Agreement.
7
<PAGE>
4B. AUTHORITY. The Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. The Purchaser
represents that it has not been organized, reorganized or recapitalized
specifically for the purpose of investing in the Company.
4C. ACCREDITED INVESTOR. The Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to the Purchaser any and all written
information which Purchaser has requested and have answered to the Purchaser's
satisfaction all inquiries made by the Purchaser; and the Purchaser is an
"accredited investor," as such term is defined in Regulation D promulgated under
the Securities Act.
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The obligation of the
Purchaser to purchase Shares at the Closing is subject to the fulfillment, or
the waiver by such Purchaser, of each of the following conditions on or before
the Closing:
5A. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation
and warranty contained in part 3 shall be true at and as of the Closing with the
same effect as though such representation and warranty had been made on and as
of the date of the Closing.
5B. PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5C. OPINION OF COUNSEL. The Purchaser shall have received an opinion
from Brobeck, Phleger & Harrison LLP, counsel for the Company, dated the date of
the Closing, addressed to the Purchaser, and satisfactory in form and substance
to the Purchaser and its special counsel, substantially in the form attached as
EXHIBIT G hereto.
5D. ANCILLARY AGREEMENTS.
(i) The Amended and Restated Stockholders Agreement, in
substantially the form of EXHIBIT H hereto (the "Stockholders Agreement"),
shall have been executed and delivered by the Company, the Purchaser and
the other parties thereto and shall be in full force and effect.
(ii) The Amended and Restated Registration Rights Agreement, in
substantially the form of EXHIBIT I hereto (the "Registration Rights
Agreement"), shall have been executed and delivered by the Company, the
Purchaser and the other parties thereto and shall be in full force and
effect.
8
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5E. CERTIFICATES AND DOCUMENTS. The Company shall have delivered to
special counsel to the Purchaser:
(i) the Certificate of Incorporation of the Company, as amended
and in effect as of the Closing Date (including all Certificates of
Designation), certified by the Secretary of State of the State of Delaware;
(ii) certificates, as of the most recent practicable dates, as
to the corporate good standing of the Company issued by the Secretary of
State of the States of Delaware and Texas;
(iii) Bylaws of the Company, certified by its Secretary as of the
date of the Closing; and
(iv) resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement,
the Ancillary Agreements and the transactions contemplated herein and
therein, certified by the Secretary of the Company as of the date of the
Closing.
5F. COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company, dated the
date of the Closing, certifying to the fulfillment of the conditions specified
in paragraphs 5A and 5B.
5G. OTHER MATTERS. All corporate and other proceedings in connection
with the transactions contemplated in this Agreement and the Ancillary
Agreements and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Purchaser and its
special counsel, and the Purchaser and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents as
they may reasonably request.
6. CONDITION TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to issue and sell shares of the Series B Preferred Stock and the Series
C Preferred Stock to the Purchaser at the Closing are subject to fulfillment, or
the waiver by the Company, of each of the following conditions on or before the
Closing:
6A. ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Purchaser contained in part 4 shall be true at and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the date of the Closing.
6B. CONSIDERATION FOR SERIES B PREFERRED STOCK. The Purchaser shall
have tendered at the Closing consideration of $511,500 for the purchase of the
shares of Series B
9
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Preferred Stock purchased hereunder.
6C. CONSIDERATION FOR SERIES C PREFERRED STOCK. The Purchaser and
the Company shall have executed and delivered the Prism Agreement in
substantially the form of EXHIBIT C hereto.
6D. AMENDED CERTIFICATE OF DESIGNATION OF SERIES A AND SERIES B
STOCK. The Amended Certificate of Designation of Series A and Series B Stock,
in substantially the form of EXHIBIT A hereto, shall have been filed with the
Secretary of State of Delaware.
6E. CERTIFICATE OF DESIGNATION OF SERIES C STOCK. The Certificate of
Designation of Series C Stock, in substantially the form of EXHIBIT B hereto,
shall have been filed with the Secretary of State of Delaware.
6F. OTHER MATTERS. All corporate and other proceedings in connection
with the transactions contemplated in this Agreement and the Ancillary
Agreements and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Company and its counsel,
and the Company and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
7. COVENANTS OF THE COMPANY.
7A. INSPECTION AND OBSERVATION. The Company shall permit the
Purchaser or any authorized representative thereof, to visit and inspect the
properties of the Company, including its corporate and financial records, and to
discuss its business and finances with officers of the Company, during normal
business hours following reasonable notice, without interference to the conduct
of the Company's business and as often as may be reasonably requested.
7B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Prior to any
Qualified Public Offering (as defined in the Certificate of Designation of
Series C Stock) and for so long as the Purchaser holds at least 150,000 Shares,
the Company shall deliver to the Purchaser:
(i) within 90 days after the end of each fiscal year of the
Company, an audited balance sheet of the Company as at the end of such year
and audited statements of operations and of cash flows of the Company for
such year, certified by certified public accountants of established
national reputation selected by the Company and reasonably acceptable to
the Purchaser, and prepared in accordance with generally accepted
accounting principles;
(ii) within 30 days after the end of each month, an unaudited
balance sheet of the Company as at the end of such month and unaudited
statements of operations
10
<PAGE>
and of cash flows of the Company for such month and for the current fiscal
year to the end of such month, setting forth in comparative form the
Company's operating budget for the corresponding periods for the current
fiscal year, accompanied by an executive summary of the activities of the
Company during such month, signed by the Company's chief executive officer
and chief financial officer;
(iii) as soon as available, but in any event prior to the
beginning of each new fiscal year, a business plan and operating budget for
such fiscal year approved by the Board of Directors;
(iv) with reasonable promptness, such other notices, information
and data with respect to the Company as the Company delivers to the holders
of its Common Stock, and such other information and data as the Purchaser
may from time to time reasonably request.
The foregoing financial statements shall be prepared on a consolidated basis, if
the Company then has any Subsidiaries. The financial statements delivered
pursuant to clause (ii) shall be accompanied by a certificate of the chief
financial officer of the Company stating that such statements have been prepared
in accordance with generally accepted accounting principles consistently applied
and fairly present the financial condition and results of operations of the
Company at the date thereof and for the periods covered thereby. For purposes
of determining whether the Purchaser qualifies to receive the foregoing
financial statements, (a) the number of Shares held by the Purchaser shall be
adjusted for any stock splits, stock dividends, recapitalizations or similar
events, (b) Shares shall include Shares which have been converted into Common
Stock so long as such Common Stock is held by the Purchaser, and (c) Shares
shall include Shares held by Affiliates (as defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of
the Purchaser.
7C. MATERIAL CHANGES AND LITIGATION. The Company shall promptly
notify the Purchaser of any material adverse change in the business, prospects,
assets or condition, financial or otherwise, of the Company and of any
litigation or governmental proceeding or investigation brought or, to the best
of the Company's knowledge, threatened against the Company, or against any
officer, director, key employee or principal stockholder of the Company
materially adversely affecting or which, if adversely determined, could
reasonably be expected to materially adversely affect its business, prospects,
assets or condition, financial or otherwise.
7D. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The Company
shall require all persons now or hereafter employed by the Company whose
employment responsibility requires their having access to confidential or
proprietary information of the Company to enter into Proprietary Information and
Inventions Agreements substantially in the form of EXHIBIT F, or such other form
as may be approved by the Board of Directors of the Company.
11
<PAGE>
7E. EXPENSES OF DIRECTORS. The Company shall promptly reimburse in
full the Purchaser's nominee to the Company's Board of Directors for all of his
or her reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors and any committees thereof and otherwise incurred in
fulfilling his or her duties as director.
7F. RESERVATION OF COMMON STOCK. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
7G. TERMINATION OF COVENANTS. The covenants of the Company contained
in paragraphs 7A through 7F shall terminate, and be of no further force or
effect, at the time of and subject to the closing and funding of a Qualified
Public Offering.
7H. QUALIFIED SMALL BUSINESS STOCK. The Company shall submit to its
stockholders (including the Purchaser) and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(C) of the Code and the
Regulations promulgated thereunder. In addition, within ten days after the
Purchaser's written request therefor, the Company shall deliver to the Purchaser
a written statement indicating whether the Purchaser's interest in the Company
constitutes "qualified small business stock" as defined in Section 1202(c) of
the Code.
8. TRANSFER OF SHARES.
8A. RESTRICTIONS. The restrictions on the sale or transfer of Shares
set forth in this part 9 shall cease to apply to Shares (i) upon any sale of
such Shares pursuant to the Registration Rights Agreement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such time as such
Shares become eligible for sale under Rule 144(k) under the Securities Act.
8B. REQUIREMENTS FOR TRANSFER.
(i) Shares shall not be sold or transferred unless either (a)
the offering of such Shares first shall have been registered under the
Securities Act, or (b) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the
effect that such sale or transfer is exempt from the registration
requirements of the Securities Act.
(ii) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for a transfer made in accordance with Rule
144 under the Securities Act.
8C. LEGENDS. Each certificate representing Shares shall bear a
legend substantially in the following form:
12
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED."
The foregoing legend shall be removed from the certificates
representing any Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
8D. RULE 144A INFORMATION. The Company shall, at all times during
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under
the Exchange Act, upon the written request of the Purchaser, provide in writing
to the Purchaser and to any prospective transferee of any Shares of the
Purchaser the information concerning the Company described in Rule 144A(d)(4)
under the Securities Act ("Rule 144A Information"). Upon the written request of
the Purchaser, the Company shall cooperate with and assist the Purchaser or any
member of the National Association of Securities Dealers, Inc. PORTAL system in
applying to designate and thereafter maintain the eligibility of the Shares for
trading through PORTAL. The Company's obligations under this paragraph 8D shall
at all times be contingent upon receipt from the prospective transferee of
Shares of a written agreement to take all reasonable precautions to safeguard
the Rule 144A Information from disclosure to anyone other than persons who will
assist such transferee in evaluating the purchase of any Shares.
9. MISCELLANEOUS.
9A. SUCCESSORS AND ASSIGNS. The rights and obligations of the
Purchaser under this Agreement may be assigned by the Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement, provided that the
transferee provides written notice of such assignment to the Company.
9B. CONFIDENTIALITY. The Purchaser agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which the Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchaser pursuant to this Agreement or otherwise, or pursuant to visitation
or inspection rights granted hereunder, unless such information is known, or
until such information becomes known, to the public; provided, however, that the
Purchaser may
13
<PAGE>
disclose such information (i) to its attorneys, accountants, consultants and
other professionals to the extent necessary to obtain their services in
connection with its investment in the Company, (ii) to any prospective purchaser
of any Shares from the Purchaser as long as such prospective purchaser agrees in
writing to be bound by the provisions of this paragraph 9B or (iii) to any
"affiliate" of the Purchaser.
9C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
herein for a period of two years.
9D. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
personally or by facsimile transmission or by overnight delivery service or 72
hours after having been mailed by first class certified or registered mail,
return receipt requested, postage prepaid:
If to the Company, at Vignette Corporation, 9430 Research Blvd.,
Bldg. 2, Suite 150, Austin, Texas 78759, Attention: Ross B. Garber, President
(fax (512) 502-0280), or at such other address or addresses as may have been
furnished in writing by the Company to the Purchaser, with a copy to Brobeck,
Phleger & Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas 78701,
Attention: Carmelo M. Gordian, (fax (512) 477-5813).
If to the Purchaser, at 150 Chestnut Street, San Francisco, California
94111, Attention: Shelby W. Bonnie (fax (415) 395-9330), or at such other
address or addresses as may have been furnished to the Company in writing by
the Purchaser, with a copy to Hughes & Luce, L.L.P., 1717 Main Street, #2800,
Dallas, Texas 75201, Attention: Jon L. Mosle (fax (214) 939-6100).
Notices provided in accordance with this paragraph 9D shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
9E. BROKERS. The Company and the Purchaser (i) represents and
warrants to the other that it has retained no finder or broker in connection
with the transactions contemplated in this Agreement, and (ii) will indemnify
and save the other harmless from and against any and all claims, liabilities or
obligations with respect to brokerage or finders, fees or commissions, or
consulting fees in connection with the transactions contemplated in this
Agreement asserted by any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
9F. ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and the
Ancillary Agreements embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter.
14
<PAGE>
9G. AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 66-2/3% of the Shares (including shares
of Common Stock into which Shares have been converted). Any amendment or waiver
effected in accordance with this paragraph 9G shall be binding upon each holder
of any Shares (including shares of Common Stock into which Shares have been
converted), each future holder of all such Shares, and the Company. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
9H. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
9I. HEADINGS. The headings of this Agreement are for convenience
only and do not constitute a part of this Agreement.
9J. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9K. GOVERNING LAW. The construction, validity and interpretation of
this Agreement will be governed by the internal laws of the State of Texas
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
9L. FURTHER ASSURANCES. Each party to this Agreement hereby
covenants and agrees, without the necessity of any further consideration, to
execute and deliver any and all such further documents and take any and all such
other actions as may be necessary to appropriate to carry out the intent and
purposes of this Agreement and to consummate the transactions contemplated
herein.
9M. INDEMNIFICATION. The Company, without limitation as to time,
will indemnify the Purchaser and its agents and representatives against, and
hold the Purchaser and its agents and representatives harmless from, all losses,
claims, damages, liabilities, costs (including the costs of preparation and
attorneys' fees and expenses) (collectively, the "Losses") incurred pursuant to
any investigation or proceeding against the Company, the Purchaser or any of
their agents and representatives arising out of or in connection with this
Agreement or any Ancillary Agreement (or any other document or instrument
executed pursuant hereto or thereto), which investigation or proceeding requires
the participation of, or is commenced or filed against, the Purchaser and any of
its agents because of this Agreement, the Ancillary Agreements and the
15
<PAGE>
transactions contemplated herein and therein, other than any Losses resulting
from action on the part of the Purchaser or its agents or representatives which
is finally determined in such proceeding to be primarily and directly a result
of (i) the Purchaser's gross negligence or willful misconduct, (ii) a breach of
a fiduciary duty, if any, owed by the Purchaser to the Company, (iii) an act or
omission that involves intentional misconduct or a knowing violation of law by
the Purchaser, (iv) a transaction from which the Purchaser received an improper
personal benefit, (v) Losses incurred by or on behalf of an agent of a Purchaser
which are the subject of the indemnification agreement entered into by the
Company and such agent pursuant to the Stockholders Agreement, as to which
Losses such indemnification agreement, rather than this paragraph 9M, shall
apply. The Company agrees to reimburse the Purchaser and its agents and
representatives promptly for all such Losses as they are incurred by the
Purchaser and its agents. The Purchaser agrees to reimburse the Company for any
payments made by the Company to the Purchaser pursuant to this paragraph 9M for
Losses which are finally determined in such proceeding to primarily and directly
result from the gross negligence or willful misconduct of the Purchaser. The
obligations of the Company to the Purchaser and its agents and representatives
under this paragraph 9M will be separate obligations. The obligations of the
Company under this paragraph 9M will survive any transfer of securities by the
Purchaser and the termination of this Agreement or any Ancillary Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first written above.
COMPANY:
VIGNETTE CORPORATION
By: /s/ Ross B. Garber
------------------------------------
Ross B. Garber,
President
PURCHASER:
c|net, Inc.
By: /s/ Shelby W. Bonnie
------------------------------------
Shelby W. Bonnie
Title:COO/CFO
16
<PAGE>
CINET, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(4,320,477) $(2,841,283) $(8,019,000) $(3,643,251)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares
outstanding during the period:
Preferred 5,707,204 5,707,204 5,707,204 5,707,204
Common 2,700,000 2,700,000 2,700,000 2,700,000
Shares issued and stock option
and warrants granted in
accordance with SAB No.83 808,841 808,841 808,841 808,841
----------- ----------- ----------- -----------
Shares used in calculating
per share data 9,216,045 9,216,045 9,216,045 9,216,045
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share $ (0.47) $ (0.31) $ (0.87) $ (0.40)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,362,819
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 994,218
<PP&E> 5,723,747
<DEPRECIATION> 1,092,636
<TOTAL-ASSETS> 8,571,944
<CURRENT-LIABILITIES> 4,497,851
<BONDS> 628,336
0
42,611
<COMMON> 284
<OTHER-SE> 5,402,862
<TOTAL-LIABILITY-AND-EQUITY> 8,571,944
<SALES> 4,283,071
<TOTAL-REVENUES> 4,283,071
<CGS> 6,058,295
<TOTAL-COSTS> 6,058,295
<OTHER-EXPENSES> 5,719,964
<LOSS-PROVISION> 275,397
<INTEREST-EXPENSE> 268,232
<INCOME-PRETAX> (8,019,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,019,000)
<EPS-PRIMARY> (0.87)
<EPS-DILUTED> (0.87)
</TABLE>
