<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CONNECTED CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3292312
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
24 PRIME PARKWAY
NATICK, MASSACHUSETTS 01760
(508) 652-7300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID A. CANE
CONNECTED CORPORATION
24 PRIME PARKWAY
NATICK, MASSACHUSETTS 01760
(508) 652-7300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ABIGAIL R. HECHTMAN, ESQUIRE JAMES T. BARRETT, ESQUIRE
BROWN, RUDNICK, FREED & GESMER PALMER & DODGE LLP
ONE FINANCIAL CENTER ONE BEACON STREET
BOSTON, MASSACHUSETTS 02111 BOSTON, MASSACHUSETTS 02108-3190
(617) 856-8200 (617) 573-0100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: as soon as practicable after this registration statement becomes
effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share.............. $57,500,000 $15,180
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES NOR DOES IT SEEK OFFERS TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 31, 2000
LOGO
- --------------------------------------------------------------------------------
SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
This is the initial public offering of Connected Corporation and we are
offering shares of our common stock. We have applied to list
our common stock on The Nasdaq National Market under the symbol "CNTD."
The stockholders listed on page 61 under the caption "Certain
Transactions -- Preemptive Rights" have the right to purchase up to a total
of shares in our offering.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CONNECTED
<S> <C> <C> <C>
Per share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
WIT SOUNDVIEW
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
RISK FACTORS................................................ 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND
INDUSTRY DATA............................................. 17
USE OF PROCEEDS............................................. 18
DIVIDEND POLICY............................................. 18
CAPITALIZATION.............................................. 19
DILUTION.................................................... 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 23
BUSINESS.................................................... 32
MANAGEMENT.................................................. 48
CERTAIN TRANSACTIONS........................................ 59
PRINCIPAL STOCKHOLDERS...................................... 62
DESCRIPTION OF CAPITAL STOCK................................ 65
SHARES ELIGIBLE FOR FUTURE SALE............................. 71
UNDERWRITING................................................ 73
LEGAL MATTERS............................................... 76
EXPERTS..................................................... 76
WHERE YOU CAN FIND MORE INFORMATION......................... 76
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
-------------------------
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements before
making an investment decision.
OUR BUSINESS
We are a leading provider of application services and software that support
personal computers, or PCs, over the Internet and corporate intranets. With our
eSupport solution, users can solve their PC problems themselves online,
virtually anywhere, 24 hours a day. Our solution automates diagnosis and
self-repair, supports upgrades, and restores data and applications lost due to
such problems as virus damage, lost or stolen PCs, and hard drive crashes. We
believe that our solution is applicable worldwide to companies of all sizes in
all industries. We deliver our eSupport solutions as an application service, in
which we or our partners provide the operational infrastructure, and as a
licensed software application to enterprises seeking to deploy their own
internal eSupport system. We have developed critical technologies that we
believe enable our solution to efficiently support the demands of the largest
enterprises as well as millions of small companies and individual users.
International Data Corporation, an independent market research firm,
estimates that over 112 million PCs were purchased worldwide in 1998, and
expects that annual sales of PCs will grow to 190 million by 2003. This
represents a compound annual growth rate of 14%. Advances in PC hard drive
capacity, distributed software applications, and trends toward remote usage of
laptops have created environments in which the majority of information and
applications resides on personal computers. While businesses have invested in
storage management systems to provide high availability for their servers and
mainframes, they have been unable to provide similar availability for PCs. In
attempting to manage and support large and growing deployments of PCs,
information technology, or IT, staffs are faced with many unique challenges
presented by:
- the sheer volume, complexity, and diversity of applications and data;
- uncooperative, non-technical user communities;
- frequent application changes, amended files, and hardware upgrades;
- frequently lost or damaged systems in uncontrolled environments; and
- increasing remote PC usage.
As a result, we believe most attempts to provide application and data
availability have failed due to the high costs and inefficacy of
manually-intensive PC support processes. The Internet provides a new vehicle for
automating the support of millions of PC users 24 hours a day from any Internet
connection. This provision of online PC support, known as eSupport, is estimated
by International Data Corporation to reach a $14 billion market opportunity in
2003.
We use the Internet and our proprietary technologies to overcome the
challenges of PC support. Using the power of the Internet, our eSupport solution
automatically captures and centrally stores a PC's profile, including data,
applications, and settings, without user involvement. Through a combination of
proprietary data reduction techniques, hierarchical storage management methods,
and computationally efficient software design, we can support millions of
individual users, or the largest enterprise. We plan to leverage these core
technologies to provide a broader range of eSupport capabilities as well as
support additional networked devices.
1
<PAGE> 5
Our worldwide strategy is to focus direct sales efforts on larger
enterprises while expanding our partnerships to address small and medium size
businesses. Our current partners include PeoplePC, Inc., and GTE Internetworking
Incorporated. We are seeking to establish additional partnerships with
application service providers, Internet service providers, PC manufacturers, and
IT service outsourcers who address the growing demand for outsourced PC support
services.
Along with our strategic partners, we currently provide eSupport
application services to approximately 12,000 PCs, and our eSupport solution is
currently licensed by over 50 customers for over 85,000 PCs. Our customers range
from small companies and individuals to large multi-national enterprises,
including Amgen, Inc., Ariba, Inc., General Electric Company, Koch Industries,
Inc., Lucent Technologies, Inc., and Unisys Corporation.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Connected................. shares
Common stock to be outstanding after this shares
offering........................................
Use of proceeds................................... General corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol............ CNTD
</TABLE>
The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of March 27, 2000. This number assumes the
conversion into common stock of all of our preferred stock outstanding on that
date and certain warrants upon the closing of this offering, and excludes:
- 8,225,001 shares of common stock issuable upon exercise of stock options
and warrants outstanding at March 27, 2000, at a weighted average
exercise price of $1.74 per share;
- 500,000 shares of common stock reserved for issuance pursuant to our
employee stock purchase plan; and
- 3,553,141 shares of common stock reserved for issuance pursuant to stock
options not yet granted under all of our stock option plans.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................... $ -- $ 13 $ 112 $ 1,166 $ 3,157
Subscription............................... -- 9 210 975 2,586
Other...................................... -- 10 230 899 196
------- ------- ------- ------- -------
Total revenues...................... -- 32 552 3,040 5,939
Gross profit................................. -- -- 0 2,438 5,011
Loss from operations......................... (128) (3,330) (4,550) (2,878) (4,458)
Net loss..................................... (126) (3,231) (4,381) (2,794) (4,910)
Net loss available to common stockholders.... (126) (3,231) (4,381) (2,794) (6,140)
Net loss per share -- basic and diluted...... $ -- $ (4.43) $ (1.51) $ (0.77) $ (1.31)
Weighted average common shares
outstanding -- basic and diluted........... -- 729 2,909 3,634 4,679
Pro forma net loss per share -- basic and
diluted.................................... $ (0.37)
Pro forma weighted average common shares
outstanding -- basic and diluted........... 16,573
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $20,357 $20,357 $
Current assets...................................... 22,530 22,530
Total assets........................................ 23,639 23,639
Current liabilities................................. 3,514 3,514
Redeemable convertible preferred stock.............. 23,582 --
Total stockholders' equity.......................... (3,457) 20,125
</TABLE>
- -------------------------
(1) Data presented for the period from our inception, October 31, 1995, through
December 31, 1995.
The pro forma information in the tables above gives effect to the
conversion into common stock of all outstanding shares of preferred stock and of
certain warrants upon the closing of this offering. The pro forma as adjusted
balance sheet data as of December 31, 1999 also gives effect to the sale of
shares of common stock that we are offering under this
prospectus, assuming an initial public offering price of $ per share and
after deducting underwriting discounts and commissions and estimated offering
expenses.
3
<PAGE> 7
We are a Delaware corporation. We were formed in October 1995. We have
incurred net losses since we were formed. For the year ended December 31, 1999,
we recognized total revenue of approximately $5.9 million and incurred a net
loss of approximately $4.9 million. We have not yet achieved profitability, and
as of December 31, 1999, we have accumulated losses of approximately $15.4
million. Our principal offices are located at 24 Prime Parkway, Natick,
Massachusetts 01760 and our telephone number is (508) 652-7300. Our website is
located at www.connected.com. The information contained on our website does not
constitute part of this prospectus.
The names "Connected," "SendOnce," "eWare," "Connected TLM," "Delta Block,"
"eConnect," "Powered by Connected," "Transparent, Effortless and Certain," and
our logo are names and service marks that belong to us. We claim rights in other
names and marks. This prospectus also contains the trademarks and trade names of
other entities which are the property of their respective owners.
-------------------------
Except where we note otherwise, all information in this prospectus:
- assumes the completion of a 3-for-1 split effected prior to the
completion of this offering;
- assumes the over-allotment option granted by us to the underwriters has
not been exercised; and
- assumes the conversion of all shares of our outstanding convertible
preferred stock and of certain warrants into 20,212,665 shares of common
stock occurs immediately prior to completion of this offering.
4
<PAGE> 8
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus before deciding to participate in this offering. While these are the
risks and uncertainties we believe are most important for you to consider, you
should know that they are not the only risks or uncertainties facing us or which
may harm our business. If any of the following risks or uncertainties actually
occur, our business, financial condition and operating results would likely
suffer. In that event, the market price of our common stock could decline and
you could lose all or part of the money you paid to buy our common stock. Please
see also "Special Note Regarding Forward-Looking Statements and Industry Data."
RISKS RELATED TO OUR BUSINESS
OUR OPERATING HISTORY IS LIMITED, SO IT WILL BE DIFFICULT FOR YOU TO EVALUATE
OUR BUSINESS IN MAKING AN INVESTMENT DECISION.
We were formed in October 1995 and have a limited operating history. We are
still in the early stages of our development, which makes the evaluation of our
business and prospects difficult. We first offered our application services in
1996 and we first licensed our application in 1997. Since that time, we have
derived substantially all of our revenues from our eSupport solution. Before
buying our common stock, you should consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those companies whose businesses depend on the Internet.
These risks and difficulties, as they apply to us in particular, include:
- limited market acceptance of our products;
- concentration of our revenues in a single product;
- our dependence on a small number of orders for most of our revenues;
- our need to expand our direct sales forces and indirect sales channels;
- our need to manage rapidly expanding operations; and
- our need to retain, attract, and train qualified personnel.
We cannot be certain that our business strategy will be successful or that
we will successfully manage these risks. If we fail to address adequately any of
these risks or difficulties, our business will likely suffer.
BECAUSE THE MARKET FOR OUR ESUPPORT SOLUTION IS RELATIVELY NEW, WE DO NOT KNOW
WHETHER EXISTING AND POTENTIAL CUSTOMERS WILL PURCHASE OUR SOLUTION IN
SUFFICIENT QUANTITY FOR US TO ACHIEVE PROFITABILITY.
The market for our eSupport solution is new and rapidly evolving. We expect
that we will continue to need intensive marketing and sales efforts to educate
prospective clients about the uses and benefits of our eSupport solution.
Various factors could inhibit the growth of the market, and market acceptance of
our solution. In particular, potential customers that have invested substantial
resources on internal solutions for PC backup and other aspects of eSupport may
be reluctant to adopt a new approach that may replace, limit, or compete with
their existing systems. We cannot be certain that a viable market for our
solution will emerge, or if it does emerge, that it will be sustainable.
5
<PAGE> 9
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND EXPECT THIS TO CONTINUE
FOR THE FORESEEABLE FUTURE.
We have incurred net losses in each quarter since our inception, and we
expect our net losses to increase. We incurred net losses of approximately $4.9
million in 1999, $2.8 million in 1998, and $4.4 million in 1997. We cannot
predict when we will become profitable, if at all.
We anticipate that our expenses will increase substantially in the
foreseeable future as we:
- increase our direct sales and marketing activities by expanding our North
American and international direct sales forces and extending our
telesales efforts;
- develop our technology and expand the functionality of our eSupport
solution;
- expand our indirect sales channels;
- expand our infrastructure; and
- pursue strategic relationships and acquisitions.
Because we expect to continue to invest in our business ahead of
anticipated future revenues, we expect that we will continue to incur operating
losses for the foreseeable future. We cannot guarantee that our expenditures
will significantly increase our revenues, if at all. If we fail to significantly
increase our revenues as we implement our strategies, our losses will increase
and our business will suffer.
WE RELY ON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR SUBSCRIPTION
REVENUES.
Sales to a small number of customers generate a disproportionate amount of
our subscription revenues. In 1999, five customers accounted for 41.3% of
subscription revenues and 18.0% of total revenues. Our contracts with our
customers are generally terminable by them at any time without penalty.
Accordingly, revenues from any of these or other customers could decline at any
time due to competition, alternative technologies, or other factors discussed in
these Risk Factors. Therefore, we cannot be sure that our significant or other
customers will continue to purchase our eSupport solution at current levels. A
reduction of subscription revenues from these or other significant customers
would harm our business. In addition, eSupport subscription customers may
terminate that service at any time and purchase a license for our eSupport
solution for deployment on their own servers. The licenses for our eSupport
solution typically require a one time payment because they have a perpetual
term. Although the reduction in our subscription revenues may be offset by an
increase in our license revenues in the quarter in which the customer makes such
a decision, our future subscription revenues and total revenues may suffer from
such a customer transition.
WE DEPEND ON LARGE ORDERS FOR A SIGNIFICANT PORTION OF OUR LICENSE REVENUES,
WHICH CAN LEAD TO SIGNIFICANT FLUCTUATIONS IN OUR REVENUES AND OPERATING
RESULTS.
Our license revenues and operating results for a quarter could fluctuate
significantly based on whether a large order is closed near the end of the
quarter or delayed. Customer orders can range in value from less than one
hundred to several hundred thousand dollars. Therefore, our revenues for a
period are likely to be affected by the timing of larger orders, which makes
those revenues difficult to predict. Our revenues for a quarter could be reduced
if large orders forecasted for a certain quarter are delayed or are not
realized. The factors that could delay or defer an order, include:
- time needed for technical evaluations of our solutions by prospects;
- customer budget restrictions and internal approval procedures; and
6
<PAGE> 10
- timing of customer hardware purchases and engineering work needed for the
customer to integrate our software with the customer's systems.
OUR REVENUES AND OPERATING RESULTS FLUCTUATE WIDELY AND ARE DIFFICULT TO PREDICT
BECAUSE OF THE DELIVERY OPTIONS WE OFFER OUR CUSTOMERS.
Our revenues and operating results have fluctuated significantly in the
past, and we expect them to continue to fluctuate unpredictably in the future.
The delivery options for our eSupport solution contribute to this
unpredictability. We frequently are unable to predict which delivery option our
customers will choose and the choices have different effects on our revenue. If
a customer chooses to license our eSupport solution, we generally recognize the
software license revenues in the quarter in which the sale occurred. By
contrast, if a customer chooses our eSupport service, we recognize comparatively
smaller increments of revenues on a monthly basis as services are provided.
IF WE DO NOT DEVELOP OUR INDIRECT SALES CHANNELS, WE WILL HAVE DIFFICULTY
INCREASING OUR SUBSCRIPTION REVENUES.
Our indirect sales channels, including partnerships with application
service providers, Internet service providers, PC manufacturers, and IT service
outsourcers, target the sale of our application services to small and medium
size businesses. To date, subscription revenues generated by our indirect sales
channels have been insignificant. If we do not expand and effectively manage our
indirect sales channels, we will miss opportunities to increase our subscription
revenues. We believe these channels can more effectively reach the targeted
businesses and generate subscription revenues than our direct sales force. We
face intense competition for the distribution of our eSupport solution through
these channels. Our channel partners have no obligation to purchase or
distribute our application services. In addition, our channel partners could
internally develop products and services that compete with us. Our failure to
establish new channel partners, manage and maintain our existing relationships
with channel partners, or the unwillingness of our partners to effectively
market and sell all of our application services could harm our ability to expand
our business.
TO STAY IN BUSINESS WE MAY REQUIRE FUTURE ADDITIONAL FUNDING WHICH WE MAY BE
UNABLE TO OBTAIN ON FAVORABLE TERMS, IF AT ALL.
Over time, we may require additional financing for our operations or
potential acquisitions. This additional financing may not be available to us on
a timely basis if at all, or, if available, on terms acceptable to us. We have
never been profitable. Our growth strategy involves significant increases in our
expenditures for a variety of sales and marketing activities and product
development and infrastructure improvements. If we fail to obtain acceptable
additional financing, we may be required to reduce our planned expenditures or
forego acquisition opportunities, which could reduce our revenues, increase our
losses, and harm our business. Moreover, additional financing may cause dilution
to existing stockholders.
WE RELY HEAVILY ON SALES OF OUR ESUPPORT SOLUTION, SO IF IT DOES NOT ACHIEVE
MARKET ACCEPTANCE WE ARE LIKELY TO EXPERIENCE LARGER LOSSES.
Since our inception, we have generated substantially all of our revenues
from software licenses and subscriptions for our eSupport solution. We believe
that revenues generated from our solution will continue to account for
substantially all of our revenues for the foreseeable future. A decline in the
price of our solution, or our inability to increase sales of our solution would
harm our business and operating results more seriously than it would if we had
several different products and services to sell. In addition, our future
financial performance will depend upon successfully developing and selling
enhanced versions of our eSupport solution. If we fail
7
<PAGE> 11
to deliver product enhancements or new products that customers want it will be
more difficult for us to prevent price erosion and it will be more difficult for
us to succeed.
WE DEPEND ON OUR SALES FORCE TO SELL OUR ESUPPORT SOLUTION, SO FUTURE GROWTH
WILL BE CONSTRAINED BY OUR ABILITY TO RETAIN, HIRE, AND TRAIN SALES PERSONNEL.
We sell our eSupport solution to large and medium size businesses primarily
through our direct sales force, and we expect to continue to do so in the
future. Our ability to sell more licenses and subscriptions for our eSupport
solution and increase our revenues is limited by our ability to retain, hire,
and train sales personnel. We believe that there is significant competition for
sales personnel with the advanced sales skills and technical knowledge that we
need. Some of our competitors may have greater resources to hire personnel with
that skill and knowledge. If we are not able to hire experienced and competent
sales personnel, our business will be harmed. Further, because we depend on our
sales force, any turnover in our sales force can significantly harm our
operating results. Sales force turnover tends to slow sales efforts until
replacement personnel are recruited, trained, and become productive.
ALTHOUGH OUR STRATEGY TO INCREASE OUR REVENUES DEPENDS IN PART ON OUR ABILITY TO
EXPAND INTERNATIONALLY, OUR LIMITED EXPERIENCE CONDUCTING OPERATIONS
INTERNATIONALLY MAY MAKE IT MORE DIFFICULT THAN WE EXPECT TO EXPAND OVERSEAS AND
MAY INCREASE THE COSTS OF DOING SO.
To date, we have derived substantially all of our revenues from North
American customers. As part of our strategy to increase revenues, we plan to
expand our international operations. Our international expansion will require
significant management attention and financial resources. We have limited
experience with international markets and we may not adequately address all of
the factors necessary to succeed. International expansion may require us to
develop and deploy expensive, duplicative infrastructures to establish a local
presence and gain credibility with foreign customers and foreign indirect sales
channels. For example, we believe we will be required to maintain local sales
forces in each of our customers' countries. In addition, customers from one
country may be reluctant to permit their data to be stored on servers hosted in
another country. There are many additional barriers to competing successfully in
the international arena, including:
- costs of localizing products for the language, culture, and other
requirements of foreign countries;
- restrictions on the export and use of software encryption technology;
- difficulties associated with hiring, training, and integrating
international personnel;
- dependence on local vendors;
- compliance with conflicting and changing governmental laws and
regulations;
- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- import and export restrictions;
- adverse tax consequences;
- fluctuations in exchange rates;
- limitations on cash withdrawal from particular countries; and
- tariffs.
As a result of these competitive barriers, we cannot assure you that we
will be able to increase our revenues by marketing, selling, and delivering our
solution in international markets. If we do not succeed in our international
efforts, our business may be harmed.
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<PAGE> 12
WE MAY HAVE DIFFICULTY MANAGING THE EXPANSION OF OUR OPERATIONS, AND ANY FAILURE
TO DO SO WILL HARM OUR BUSINESS.
We are undergoing rapid growth in the number of our employees and the scope
of our operations, and anticipate that further expansion will be required to
achieve growth in our customer base and to develop and seize market
opportunities. Our rapid expansion could place a significant strain on our
senior management team and operational and financial resources. To manage the
expected growth of our operations and personnel, we will need to improve
existing, and implement new, operational and financial systems, procedures, and
controls. We also will need to expand, train, and manage our growing employee
base as well as expand and maintain close coordination among our sales and
marketing, finance, administrative, and operations staff. Further, we may be
required to enter into additional relationships with various service providers
and other third parties necessary to our business. A successful continued
expansion will also require us to further develop expertise in complex contract
negotiations. We cannot guarantee that our current and planned systems,
procedures, and controls will be adequate to support our future operations, that
we will be able to hire, train, retain, motivate, and manage the required
personnel or that we will be able to identify, manage, and benefit from existing
and potential strategic relationships and market opportunities. If we do not
effectively manage the budgeting, forecasting, and other process control issues
presented by such a rapid expansion, our business will suffer. If we are unable
to undertake new business due to a shortage of staff or technology resources,
our growth will be impeded. Therefore, there may be times when our opportunities
for revenue growth may be limited by the capacity of our internal resources
rather than by the absence of market demand.
Several members of our senior management joined us in 1999, including James
Priest, our Vice President, Sales and Craig Randall, our Vice President,
Marketing. Glenn Bolduc, our Vice President, Finance joined us in March 2000 and
will become our Chief Financial Officer immediately following this offering.
Although we believe that these individuals are currently integrated with the
other members of our management team, we cannot assure you that our management
team will be able to continue to work together effectively or manage our growth
successfully. We believe that the successful integration of our management team
is critical to our ability to manage our operations effectively and support our
anticipated future growth.
WE DEPEND ON DAVID CANE.
Our growth and development to date have depended on the efforts of our
Chief Executive Officer, David Cane. The unexpected loss of services of Mr. Cane
could harm our operations.
WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL, WHICH IS PARTICULARLY DIFFICULT
FOR US BECAUSE WE COMPETE WITH OTHER HIGH TECHNOLOGY COMPANIES AND ARE LOCATED
IN THE NEW ENGLAND AREA WHERE COMPETITION FOR PERSONNEL IS EXTREMELY INTENSE.
Qualified personnel are in great demand throughout the computer software,
hardware, and networking industries. The demand for qualified personnel is
particularly acute in the New England area due to the large number of Internet,
software, and other high technology companies and low unemployment in the
region. Our success depends in large part upon our ability to attract, train,
motivate, and retain highly-skilled employees, particularly sales and marketing
personnel, software engineers, and technical support personnel. We have had
difficulty hiring and retaining these highly-skilled employees in the past. If
we are unable to attract and retain the highly-skilled technical personnel that
are integral to our sales, marketing, product development, and customer support
teams, the rate at which we can generate sales and develop new products or
product enhancements may be limited.
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<PAGE> 13
WE FACE COMPETITION, WHICH COULD REDUCE OUR REVENUES AND OUR MARKET SHARE.
The market for our eSupport solution is new, highly fragmented, and rapidly
evolving. Increased competition may result in price reductions, reduced
revenues, and loss of market share, any of which could harm our business. A
number of private and public companies offer products that compete with specific
aspects of our eSupport solution. Our competitors that license backup software
include Veritas Software Corporation, Legato Systems, Inc., Stac Software Inc.,
and Computer Associates International, Inc. Competitors that provide backup
service include SkyDesk, Inc. We also may face competition from resellers of
these products and services.
We believe the primary factors upon which we compete are the functionality
of our solution, including performance and scalability, customer references, and
flexibility in solution delivery.
We expect to face increased competition in the future from our current
competitors. In addition, new competitors, or alliances among existing and
future competitors, may emerge and rapidly gain significant market share. We may
also face increased competition in the future from major software vendors such
as Microsoft or IBM to the extent that they enhance their product offerings with
competitive applications. To the extent these vendors are able to offer systems
that are functionally comparable or superior to our products, their significant
installed customer bases, ability to offer a broad solution, and ability to
price their products as incremental add-ons to existing systems can provide them
with a significant competitive advantage.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition, and a larger installed base
of customers than us. Many of our competitors also have well-established
relationships with our current and potential customers. As a result, they may
begin to undertake extensive marketing efforts, offer more attractive pricing
and purchase terms, or bundle their products in a manner that would put us at a
competitive disadvantage.
WE MAY BE UNABLE TO SAFEGUARD OUR INTELLECTUAL PROPERTY.
Our ability to compete is heavily affected by our ability to protect our
intellectual property. We rely primarily on trade secret laws, confidentiality
procedures, patents, copyrights, trademarks, and contractual arrangements to
protect our intellectual property. The steps we have taken to protect our
technology may be inadequate. Existing trade secret, trademark, and copyright
laws offer only limited protection. Our patents could be invalidated or
circumvented. The laws of certain foreign countries in which our products are,
or may be, developed or sold may not fully protect our products or our
intellectual property rights. This may make the possibility of piracy of our
technology and products more likely. We cannot guarantee that the steps we have
taken to protect our intellectual property will be adequate to prevent
infringement or misappropriation of our technology. In addition, detection of
infringement or misappropriation is difficult. Even if we do detect infringement
or misappropriation of our technology, we may be unable to enforce our
proprietary rights, which could result in harm to our business. Recently, there
has been increased litigation regarding patent and other intellectual property
rights in Internet-related industries. We may engage in litigation to attempt
to:
- enforce our patents;
- protect our trade secrets or know-how;
- defend ourselves against claims that we infringe the rights of others; or
- determine the scope and validity of the patents or intellectual property
rights of others.
Any litigation could be unsuccessful, result in substantial cost to us, and
divert our management's attention, which could harm our business.
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<PAGE> 14
OUR OPERATIONS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Particular aspects of our technology could be found to infringe on the
intellectual property rights or patents of others. Other companies may hold or
obtain patents on inventions or may otherwise claim proprietary rights to
technology necessary to our business. We cannot predict the extent to which we
may be required to engage in litigation, pay damages, seek licenses, or alter
our products so that they no longer infringe the rights of others. Litigation
could result in substantial costs to us and divert our management's attention,
which could harm our business. If we do not prevail in any such litigation we
could be forced to pay significant damages or amounts in settlement. We cannot
guarantee that the terms of any licenses we may be required to seek will be
reasonable or available at all. Similarly, changing our products or processes to
avoid infringing the rights of others may be costly or impractical or could
detract from the value of our eSupport solution. In addition, we indemnify our
partners and customers from liability they may incur as a consequence of
infringement by our technology. Our indemnity obligations could cause us to
incur substantial expense if any of our partners or customers incur losses as a
result of infringement by our technology.
OUR BUSINESS MAY BE HARMED BY INFRINGEMENT CLAIMS OF STAC AND JOHN SHANNON AND
ADVERTISING CLAIMS OF STAC.
We have received notice from Stac Software, Inc. alleging that our eSupport
solution infringes one of its patents. Our intellectual property counsel,
Weingarten, Schurgin, Gagnebin & Hayes LLP, has investigated the allegations
made by Stac and, based upon their advice, we do not believe that our solutions
have ever infringed the Stac patent. In addition, we received a notice dated
March 23, 2000 from John P. Shannon alleging that our eSupport solution
infringes two of his patents. Based on our preliminary investigation of Mr.
Shannon's allegations, we do not believe we are infringing any claims of his
patents. We have asked our intellectual property counsel to investigate further
Mr. Shannon's allegations. Because patent litigation can be extremely expensive,
time-consuming, and its outcome uncertain, we may seek to obtain licenses to the
disputed patents. We cannot guarantee that licenses will be available to us on
reasonable terms, if at all. If a license from either Stac or Mr. Shannon is not
available we could be forced to incur substantial costs to reengineer our
eSupport solution which could diminish its value. In any case, we may face
litigation with Stac and Mr. Shannon. Such litigation could be costly and would
divert our management's attention and resources. In addition, if we do not
prevail in such litigation, we could be forced to pay significant damages or
amounts in settlement.
In addition to alleging patent infringement, Stac's notice alleged that we
have been advertising and marketing our eSupport solution feature previously
known as SaveOnce in a misleading manner. Stac's allegations stem from the fact
that our solution stores applications and files unique to a particular user only
once, but stores applications and files common to multiple users twice, once
when the application or file is first encountered and then, when next
encountered, a second time to a common application and file pool. After
consulting with Weingarten, Schurgin, Gagnebin & Hayes LLP we do not believe
that our past advertising and marketing have been misleading or have diluted or
tarnished any rights of Stac. Nonetheless, we have modified our advertising and
marketing materials to clarify the operation of this feature and have renamed
the feature SendOnce. Despite these clarifications, we cannot guarantee that we
will not become involved in litigation involving our past advertising and
marketing of the SaveOnce feature. If we do become involved in such litigation,
we would incur substantial costs, we may be required to pay significant damages
or amounts in settlement, and our management's attention and resources would be
diverted.
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<PAGE> 15
IF WE ARE UNABLE TO ENHANCE THE FUNCTIONALITY OF OUR ESUPPORT SOLUTION AS THE
MARKET FOR ESUPPORT EVOLVES, OUR SALES COULD DECLINE.
Because the market for our solutions is emerging and subject to rapid
technological change, the lifecycles of our solutions are difficult to predict.
Competitors may introduce new applications or enhancements to existing products
employing new technologies, which could render our existing eSupport solution
obsolete and unmarketable.
To be successful, our solutions must keep pace with technological
developments, address the ever-changing and increasingly sophisticated needs of
our customers, and achieve market acceptance. Our business will suffer if we are
unable to develop, release, and market new software product enhancements on a
timely and cost-effective basis, or if new products or enhancements do not
achieve market acceptance, or fail to respond to evolving industry or technology
standards.
IF OUR SOLUTION CONTAINS MATERIAL ERRORS, THEY MAY BE COSTLY TO CORRECT,
REVENUES MAY DECLINE, WE MAY FACE LITIGATION, AND OUR REPUTATION COULD BE
HARMED.
Our eSupport solution is complex and may contain material errors or defects
that are not discovered until after shipment and installation. If we discover
any such defects, we may be unable to successfully correct them in a timely
manner, if at all. In addition, we may be required to dedicate significant
resources to remedy these problems. Defects in our software may also harm our
reputation, reduce our market acceptance, and cause our revenues to decline.
Defects may also leave us susceptible to costly warranty claims and litigation.
IF OUR SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.
A fundamental requirement for online communications is the secure
transmission of confidential information over public networks. Although we have
implemented network security measures and our customers' information is stored
on our servers in an encrypted format, our servers are vulnerable to computer
viruses, physical or electronic break-ins, and similar disruptions, which could
lead to interruptions, delays, or loss of data. Third parties may attempt to
breach our security or that of our partners and service customers. If they are
successful, they could corrupt or obtain our customers' confidential
information. We may be liable to our partners and customers for any breach in
our security and any breach could harm our reputation and the market acceptance
of our solutions. We also may be required to expend significant capital and
other resources to license encryption technology and additional technologies to
protect against security breaches or to alleviate problems caused by any breach.
OUR ABILITY TO SUCCESSFULLY RECEIVE AND SEND INFORMATION AND PROVIDE ACCEPTABLE
LEVELS OF CUSTOMER SERVICE LARGELY DEPENDS ON THE EFFICIENT AND UNINTERRUPTED
OPERATION OF OUR COMPUTER AND COMMUNICATIONS HARDWARE AND NETWORK SYSTEMS.
The provision of our application services requires efficient and
uninterrupted operation of our servers and communications infrastructure.
Although we have adopted several measures to protect the integrity of our
infrastructure, our systems and operations are vulnerable to damage or
interruption from fire, flood, earthquake, power loss, break-ins,
telecommunications failure, improper operation by employees, and similar events.
The occurrence of any of the foregoing risks could harm our business and damage
our reputation.
OUR BUSINESS MAY BE HARMED BY ACQUISITIONS WE MAY COMPLETE IN THE FUTURE.
We may pursue acquisitions of related businesses, technologies, product
lines, or products. Our identification of suitable acquisition candidates
involves risks inherent in assessing the values, strengths, weaknesses, risks,
and profitability of acquisition candidates, including the effects of the
possible acquisition on our business, diversion of our management's attention,
12
<PAGE> 16
and risks associated with unanticipated problems or latent liabilities. If we
are successful in pursuing future acquisitions, we expect to expend significant
funds, incur additional debt or issue additional securities, which may harm our
revenues and business and be dilutive to our stockholders. If we spend
significant funds or incur additional debt, our ability to obtain financing for
working capital or other purposes could decline and we may be more vulnerable to
economic downturns and competitive pressures. We cannot guarantee that we will
be able to finance additional acquisitions or that we will realize any
anticipated benefits from acquisitions that we complete. Should we successfully
acquire another business, the process of integrating acquired operations into
our existing operations may result in unforeseen operating difficulties and may
require significant financial resources that would otherwise be available for
the ongoing development or expansion of our existing business. Acquisitions
could also result in goodwill and other intangible assets which could create
substantial ongoing amortization charges against our earnings over the useful
lives of the assets acquired. We have no current plans, agreements, or
commitments with respect to any acquisitions.
WE MAY SUFFER SERVICE INTERRUPTIONS OR TECHNICAL FAILURES DUE TO THE YEAR 2000
COMPUTER PROBLEM.
The failure of our internal systems to be year 2000 compliant could
temporarily prevent us from providing service to our customers and could require
us to devote significant resources to correct such problems. Problems associated
with the year 2000 may not become apparent until some time after January 2000.
Due to the general uncertainty inherent in the year 2000 computer problem, which
includes our uncertainty as to the year 2000 readiness of our partners and
third-party suppliers, vendors, and customers, we are unable to determine at
this time whether the consequences of year 2000 failures will harm our business.
RISKS RELATING TO OUR INDUSTRY
IF THE TREND OF MAINTAINING CRITICAL INFORMATION AND APPLICATIONS ON PCS CEASES,
OUR BUSINESS WILL BE HARMED.
We developed our eSupport solution as a reaction to the current business
trend of maintaining business-critical applications and data on PCs rather than
on widely accessible central network servers. Our current solution is designed
only to capture information resident on PCs. If the current trend changes, and
businesses choose to locate important applications and data elsewhere, such as
on networks or removable media, our solution will not capture critical data and
will not be effective, and the market for our solution will decline.
OUR SUCCESS DEPENDS ON THE RELIABILITY OF THE INTERNET FOR THE TRANSMISSION OF
INFORMATION.
Our services depend on the Internet for the transmission of information and
the operation of our applications. We cannot be sure that the Internet will
continue to be a reliable and convenient medium in the future. From time to
time, the Internet has experienced a variety of outages and other delays as a
result of excessive congestion or damage to portions of its infrastructure, and
could face such outages and delays in the future. Changes in, or insufficient
availability of, telecommunications services, or the failure of Internet service
providers to support the Internet or other online services also could result in
slower response times. These developments would adversely affect usage of the
Internet and other online services generally, and our service in particular. If
the infrastructure of the Internet and other online services becomes unreliable
or does not effectively support growth that may occur, our business will suffer.
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<PAGE> 17
LAWS WHICH APPLY TO COMMUNICATIONS AND COMMERCE OVER THE INTERNET COULD HARM OUR
BUSINESS.
Laws and regulations which apply to communications and commerce over the
Internet are becoming more prevalent. The most recent session of the United
States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation, and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations, and is currently
considering copyright legislation that may extend the right of reproduction held
by copyright holders to include the right to make temporary copies for any
reason. We manage and store sensitive customer information that may be subject
to privacy laws and regulations. As a result, in the future we may be subject to
claims associated with invasion of privacy or inappropriate disclosure, use, or
loss of this information. Any imposition of liability, particularly liability
that is not covered by insurance or is in excess of insurance coverage, could
harm our reputation and our business.
The law of the Internet remains largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
content, libel, and taxation apply to the Internet. The adoption or modification
of laws or regulations relating to the Internet, or interpretations of existing
law, could harm our business.
WE MAY BE SUBJECT TO REGULATION, TAXATION, ENFORCEMENT, OR OTHER LIABILITIES IN
UNEXPECTED JURISDICTIONS.
We provide our eSupport solution to customers located throughout the United
States and plan to expand our distribution to several foreign countries. As a
result, we may be required to qualify to do business, or be subject to tax or
other laws and regulations, in these jurisdictions even if we do not have a
physical presence or employees or property in these jurisdictions. The
application of these multiple sets of laws and regulations is uncertain, but we
could find we are subject to regulation, taxation, enforcement, or other
liability in unexpected ways, which could harm our business.
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY EXISTING SECURITY HOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
If our existing stockholders sell a large number of shares of our common
stock, or the public market perceives that existing stockholders might sell
shares of common stock, the market price of our common stock could significantly
decline. All of the shares offered under this prospectus, other than the shares
purchased by our existing stockholders pursuant to preemptive rights described
under "Certain Transactions -- Preemptive Rights," will be freely tradable in
the open market, and
- 2,321,643 additional shares may be sold immediately after this offering;
- 889,460 additional shares may be sold 90 days after the date of this
prospectus, including 212,043 shares issuable pursuant to options and
warrants; and
- 23,877,873 additional shares may be sold upon the expiration of lock-up
agreements 180 days after the date of this prospectus, including
1,330,740 shares issuable pursuant to options and warrants.
Deutsche Bank Securities Inc., as representative of the underwriters, may
release any or all shares from the lock-up agreements at any time and without
notice.
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<PAGE> 18
Commencing 180 days after the date of this prospectus, existing
stockholders holding an aggregate of 22,086,663 shares of common stock plus up
to 624,459 shares of our common stock issued upon conversion of certain warrants
have the right to require us to register their shares of common stock with the
Securities and Exchange Commission. If we register their shares of common stock,
they can sell those shares in the public market.
After this offering, we intend to register approximately 12,750,000 shares
of our common stock that we have issued or may issue under our stock plans. Of
these shares, 653,259 shares are issuable pursuant to immediately exercisable
options. Once we register these shares, they can be freely sold in the public
market upon issuance, subject to the lock-up agreements described above.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE
BOOK VALUE OF THEIR SHARES.
The initial public offering price is substantially higher than the net
tangible book value per share of our common stock. The net tangible book value
of a share of common stock purchased at the initial public offering price of
$ per share is only $ . Additional dilution may be incurred if
holders of stock options, whether currently outstanding or subsequently granted,
exercise their options or if warrantholders exercise their warrants to purchase
common stock.
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTROL ALL MATTERS REQUIRING
STOCKHOLDER APPROVAL.
After this offering, our executive officers and directors and their
affiliates will together control approximately % of the outstanding common
stock. As a result, these stockholders, if they act together, will control all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying, preventing or deterring a change in control,
could deprive our stockholders of an opportunity to receive a premium for their
common stock in such a change of control, and might lower the market price of
our common stock.
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Often these fluctuations are unrelated or disproportionate
to the operating performance of the companies. The market prices of securities
of technology companies, in particular, have been extremely volatile. Many
factors could cause the market price for our common stock to decline, perhaps
substantially, following this offering, including:
- failure to successfully implement aspects of our growth strategy;
- failure to meet research and development goals related to our products
and services;
- technological innovations by our competitors or in competing
technologies;
- investor perception of our industry or our prospects; and
- general technology or technology trends.
Occasionally, when the market price of a stock has been volatile, holders
of that stock have instituted securities class action litigation against the
company that issued the stock. If any of our stockholders brought such a lawsuit
against us, even if the lawsuit were without merit, we could incur substantial
costs defending the lawsuit. The lawsuit would also divert the time and
attention of our management.
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<PAGE> 19
A MARKET FOR OUR COMMON STOCK MAY NEVER DEVELOP AND THE PRICE OF OUR COMMON
STOCK MAY BE LOWER THAN THE PRICE YOU PAY IN THIS OFFERING.
Prior to this offering, there has been no public market for our common
stock. After this offering, an active trading market in our common stock might
not develop or continue. If you purchase shares of our common stock in the
offering, you will pay a price that was not established in a competitive market.
Rather, you will pay a price that we negotiated with the representatives of the
underwriters based upon several factors. See "Underwriting." The price of our
common stock that will prevail in the market after the offering may be higher or
lower than the price you pay.
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE PROCEEDS OF
THIS OFFERING.
We have not designated specific uses for the net proceeds of this offering.
Accordingly, you must rely upon the judgment of our management who will have
significant flexibility with respect to applying the net proceeds. Our failure
to apply the funds effectively could prevent us from successfully implementing
our strategy and would harm our business.
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS THAT MIGHT
TEND TO SUPPRESS OUR STOCK PRICE.
Provisions of our certificate of incorporation and bylaws that may
discourage, delay, or prevent a change in control include:
- we are authorized to issue "blank check" preferred stock, which could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- we provide for the election of only one-third of our directors at each
annual meeting of stockholders which slows turnover on the board of
directors;
- we limit who may call special meetings of stockholders;
- we require all stockholder actions be taken at a meeting of our
stockholders; and
- we require advance notice for nominations for election to the board of
directors or for proposing matters that can be acted upon by stockholders
at stockholder meetings.
Our outstanding options to acquire common stock typically vest as to 25% of
the underlying shares 12 months from the date of grant and as to the remaining
75% in equal monthly increments until the fourth anniversary of the date of
grant. In the event of a change in control the vesting of our options generally
accelerates by one year, except for options held by certain executive officers
which vest in full. In addition, our executive officers are entitled to lump sum
payments equal to one year's salary in the event of a change in control.
Stockholders sometimes realize a significant premium in their stock price
when an offer is made to purchase a company. Because we have adopted the
arrangements described above, such offers will likely be discouraged, and our
stockholders may lose the benefit of any potential acquisition premium.
In addition, Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of us. See "Description of
Capital Stock -- Antitakeover Effects of Provisions of Our Certificate of
Incorporation, Bylaws and Delaware Law" and "-- Statutory Business Combination
Provision."
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<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere that constitute
forward-looking statements. These statements relate to our future plans,
objectives, expectations, and intentions. Forward-looking statements include,
but are not limited to, statements regarding:
- market acceptance of new products;
- competition in the industry;
- the ability to satisfy demand for our products;
- the development of new competitive technologies;
- future acquisitions;
- the availability of qualified personnel;
- international, national, regional, and local economic and political
changes;
- general economic conditions; and
- trends affecting the eSupport industry, our financial condition or
results of operations.
In some cases, you can identify these statements from terms such as
"believe," "expect," "will," "anticipate," "intend," "plan," and similar
expressions in the prospectus. These forward-looking statements involve a number
of risks and uncertainties. These statements reflect our current views with
respect to future events and are based on assumptions and are subject to risks
and uncertainties. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors and risks. We discuss many of these risks in greater
detail under the heading "Risk Factors." Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this prospectus.
This prospectus contains estimates of market growth and other data related
to PCs, including laptops, and eSupport. These estimates have been included in
studies published by market research and other firms including International
Data Corporation and Gartner Group. These estimates have been produced by
industry analysts based on trends to date, their knowledge of technologies and
markets, and customer research, but these are forecasts only and are subject to
inherent uncertainty.
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<PAGE> 21
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered by
us at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $ million, or approximately
$ million if the underwriters' over-allotment option is exercised in full.
The principal purposes of this offering are to:
- obtain additional working capital and increase financial flexibility;
- create a public market for our common stock;
- facilitate our future access to public capital markets; and
- provide liquidity for our common stock to facilitate future acquisitions
with our stock.
We believe that our enhanced financial position will provide us with needed
flexibility to respond to technological and market developments and
opportunities and improves our ability to attract and retain customers and
employees.
We have not designated specific uses for the net proceeds of this offering.
We expect to use the net proceeds for general corporate purposes, including
working capital, increased spending on sales and marketing, customer support,
research and development, expansion of our operational and administrative
infrastructure, and the leasing of additional facilities. We may use a portion
of the net proceeds to acquire or invest in complementary businesses,
technologies, or product lines or products. However, we have no current plans,
agreements, or commitments with respect to any such acquisition or investment,
and we are not currently engaged in any negotiations with respect to any such
transaction.
We will retain broad discretion in the allocation of the net proceeds of
this offering. The amounts we actually spend may vary significantly and will
depend on a number of factors, including our future revenue and cash generated
by operations and the other factors described in "Risk Factors." Until allocated
for specific use, we will invest the net proceeds of the offering in government
securities and other short-term investments. We cannot predict whether the
invested proceeds will yield a favorable return.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our capital stock and
do not plan to pay any cash dividends in the foreseeable future. Our current
policy is to retain all of our earnings to finance future growth. Our lending
arrangement prohibits the payment of dividends without the prior approval of our
lender.
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<PAGE> 22
CAPITALIZATION
The following table presents our capitalization:
- on an actual basis as of December 31, 1999;
- on a pro forma basis as of December 31, 1999 giving effect to the
conversion of all outstanding shares of convertible preferred stock and
certain warrants into 20,212,665 shares of common stock upon completion
of this offering; and
- on a pro forma as adjusted basis to reflect the preceding pro forma
adjustments and the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share,
after deduction of estimated underwriting discounts and commissions and
our estimated offering expenses, and the use of the net proceeds as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations.................... $ 127 $ 127 $ 127
======== ======== ========
Series D redeemable convertible preferred stock, at
redemption value.......................................... 23,582 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares authorized,
issued or outstanding, actual; 5,000,000 shares
authorized and no shares issued or outstanding pro
forma, and pro forma as adjusted........................ -- --
Convertible preferred stock, $0.001 par value; 13,387,086
shares authorized, 3,474,710 shares issued and
outstanding, actual; no shares authorized, issued and
outstanding pro forma, and pro forma as adjusted........ 3 --
Common stock, $0.001 par value, 12,000,000 shares
authorized, 6,638,544 shares issued, 5,268,096 shares
outstanding, actual; 100,000,000 shares authorized,
26,851,209 shares issued, 25,480,731 shares outstanding,
pro forma; 100,000,000 shares authorized, shares
issued, shares outstanding pro forma as
adjusted................................................ 7 26
Additional paid-in capital................................ 14,801 38,367
Accumulated deficit....................................... (16,672) (16,672)
Deferred compensation..................................... (1,544) (1,544)
Treasury stock, at cost, 1,370,448 shares, actual, pro
forma, and pro forma as adjusted........................ (52) (52)
-------- --------
Total stockholders' equity (deficit).................. (3,457) 20,125
-------- --------
Total capitalization............................... $ 20,125 $ 20,125
======== ========
</TABLE>
The pro forma as adjusted number of shares of our common stock that will be
outstanding after this offering is based on the number of shares outstanding on
December 31, 1999. It excludes 3,124,305 shares subject to outstanding options
and warrants at a weighted-average exercise price of $0.23 per share and
additional shares available for issuance under our stock option plans. It also
excludes options to purchase 5,297,100 shares of common stock at a
weighted-average exercise price of $2.58 per share, which were granted after
December 31, 1999.
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DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the automatic conversion of our preferred stock into 19,588,206 shares
of common stock and the issuance of 624,459 shares of common stock upon the
conversion of certain warrants upon the completion of this offering, was $20.1
million, or $0.79 per share of common stock. Pro forma net tangible book value
per share is determined by dividing our tangible book value (total tangible
assets less total liabilities) by the pro forma number of outstanding shares of
common stock at that date. After giving effect to the sale of the
shares of our common stock offered hereby at an assumed initial public offering
price of $ per share, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses, our pro forma net tangible book
value at December 31, 1999 would have been $ million, or $ per share. This
represents an immediate increase in net tangible book value to existing
stockholders of $ per share and an immediate dilution to new investors of
$ per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.79
Increase per share attributable to sale of common stock in
this offering..........................................
-----
Pro forma net tangible book value per share after this
offering..................................................
--------
Net tangible book value dilution per share to new
investors................................................. $
========
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $ per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 25,480,761 $34,804,491 $1.37
New public investors.......
Total.................
</TABLE>
The discussion and table exclude:
- 3,124,305 shares of common stock issuable upon exercise of stock options
and warrants outstanding at December 31, 1999 at a weighted average
exercise price of $0.23 per share;
- 5,297,100 shares of common stock issuable upon exercise of stock options
granted after December 31, 1999 at a weighted average exercise price of
$2.58 per share; and
- an aggregate of 4,053,141 shares reserved for future grant under our
stock plans.
If the underwriters' over-allotment option is exercised in full, the shares
held by existing stockholders will decrease to % of the total number of
shares of common stock outstanding after the offering, and the number of shares
held by new investors will increase to , or % of the total number
of shares of common stock outstanding after the offering. To the extent the
warrants and outstanding options are exercised and the underlying shares are
issued, there will be further dilution to new investors. If all of these options
and warrants had been exercised as of December 31, 1999, net tangible book value
per share after this offering would be $ and total dilution per share
to new investors would be $ .
20
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Our selected consolidated financial data set forth below as of December 31,
1998 and 1999, and for the three years ended December 31, 1999, have been
derived from our consolidated financial statements and notes thereto, which have
been audited by Arthur Andersen LLP, independent public accountants, and are
included elsewhere in this prospectus. Our selected consolidated financial data
as of December 31, 1995, 1996, and 1997, and for the period from inception to
December 31, 1995, and for the year ended December 31, 1996 are derived from our
consolidated financial statements and notes thereto, which have been audited by
Arthur Andersen LLP, independent public accountants, not included herein.
You should read the selected historical consolidated financial data set
forth below together with our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995(1) 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
License.................................. $ -- $ 13 $ 112 $ 1,166 $ 3,157
Subscription............................. -- 9 210 975 2,586
Other.................................... -- 10 230 899 196
----- ------- ------- ------- -------
Total revenues......................... -- 32 552 3,040 5,939
Cost of revenues........................... -- -- 552 602 928
----- ------- ------- ------- -------
Gross profit............................... -- 32 -- 2,438 5,011
----- ------- ------- ------- -------
OPERATING EXPENSES:
Sales and marketing...................... 43 524 2,504 2,839 5,165
Research and development................. 69 851 943 1,418 1,979
General and administrative............... 16 1,987 1,103 1,059 1,731
Stock-based compensation................. -- -- -- -- 594
----- ------- ------- ------- -------
Total operating expenses............... 128 3,362 4,550 5,316 9,469
----- ------- ------- ------- -------
Loss from operations................... (128) (3,330) (4,550) (2,878) (4,458)
Interest income (expense), net............. 2 99 169 84 (452)
----- ------- ------- ------- -------
Net loss............................... (126) (3,231) (4,381) (2,794) (4,910)
Accretion of preferred stock............... -- -- -- -- (1,230)
----- ------- ------- ------- -------
Net loss available to common stockholders.. $(126) $(3,231) $(4,381) $(2,794) $(6,140)
===== ======= ======= ======= =======
Net loss per share -- basic and diluted.... $ -- $ (4.43) $ (1.51) $ (0.77) $ (1.31)
===== ======= ======= ======= =======
Weighted average common shares
outstanding -- basic and diluted......... -- 729 2,909 3,634 4,679
Pro forma net loss per share -- basic and
diluted.................................. $ (0.37)
=======
Pro forma weighted average common shares
outstanding -- basic and diluted......... 16,573
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------- ------ ------------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............. $924 $1,906 $3,793 $1,823 $20,357
Current assets......................... 939 1,937 3,999 2,422 22,530
Total assets........................... 951 2,321 4,313 2,814 23,639
Current liabilities.................... 22 450 787 2,159 3,514
Redeemable convertible preferred
stock................................ -- -- -- -- 23,582
Total stockholders' equity (deficit)... 929 1,857 3,364 545 (3,457)
</TABLE>
- -------------------------
(1) From inception (October 31, 1995) to December 31, 1995.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Historical
Consolidated Financial Data" and our consolidated financial statements and
related notes included elsewhere in this prospectus. In addition to historical
information, the discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated by these forward-looking statements due to
several factors including those factors set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We are a leading provider of eSupport services and applications. Our
eSupport solution uses the Internet and our proprietary technologies to help
preserve the availability of data, applications, and settings residing on
desktop PCs, remote laptops, and other network devices throughout an
organization. With our eSupport solution, users can solve their PC problems
themselves online, virtually anywhere, 24 hours a day. Our solution automates
diagnosis and self-repair, supports upgrades, and restores data and applications
lost due to such problems as virus damage, lost or stolen PCs, and hard drive
crashes. We deliver our eSupport solutions as an application service, in which
we or our partners provide the operational infrastructure, and as a licensed
software application to enterprises seeking to deploy their own internal
eSupport system.
We were formed as a Delaware corporation and began operations in October
1995. We initially focused on data protection. In 1996, we provided our first
Internet-based PC backup service targeted at small businesses. In 1997, we
expanded our market focus to include large enterprises and launched our first
licensed application. In 1998, we released our first eSupport licensed
application designed specifically for large enterprises. In 1999, we added
application protection to our solution. We have and intend to seek additional
partnerships with service providers and other resellers that target small to
medium size businesses.
We generate revenues from two principal sources:
- license revenues from our eSupport software application; and
- subscription revenues from: (1) customers using our eSupport application
service; (2) support and maintenance service fees related to our licensed
applications; and (3) royalty payments from our reseller partners.
When licensing our eSupport software application for internal use,
customers typically pay an up-front, one-time fee for a perpetual, non-exclusive
license of our software. Generally, the amount of the license fee is based on
the number of PCs supported. We generally recognize license revenues upon
delivery of the application. If the application is subject to acceptance and/or
return and refund, we defer recording revenue until acceptance has occurred or
the refund period has expired. Delivery lead times for our applications are
short and consequently, most of our license revenues in each quarter result from
orders received in that quarter. Accordingly, we generally maintain a backlog
only for our subscription and support activities, and we believe that our
backlog at any point in time is not a reliable indicator of future revenues and
earnings.
Subscription revenues consist primarily of application service arrangements
with customers. Under these arrangements, for a monthly, quarterly, or annual
fee, the customer can access our eSupport service over the Internet. These
revenues are based on the contracted number of users. We recognize revenues from
application services over the term of the arrangement,
23
<PAGE> 27
typically one year. Support service revenues relate to support and maintenance
agreements for our licensed applications. Under these agreements, we typically
provide product enhancements and technical support to customers for an annual
fee of 15% of the software license fee. We bill annually in advance for these
services and record revenues ratably over the term of the support agreement.
Support agreements are renewable at the discretion of the customer. Through
December 31, 1999, we have experienced favorable renewable rates on our eSupport
subscription services, although we have only offered these services for a short
period of time and many agreements have not yet reached the renewal date.
Other revenues in 1997 and 1998 consisted primarily of payments received
under a software development and license agreement. The remaining components of
other revenue are training and custom engineering revenues. We do not expect
other revenues to comprise a material portion of total revenues in future
periods.
Cost of revenues consists primarily of salaries and related personnel
costs, hardware and networking costs, and other operating costs associated with
our service and customer support organization. The costs associated with
software licenses and other revenues have not been significant in any period
presented, nor are they expected to be significant in the foreseeable future.
Sales and marketing expenses consist primarily of salaries, commissions and
other related costs for sales and marketing personnel, travel expenses, public
relations, and marketing materials and events. We license our eSupport
applications primarily through our direct sales force. Subscription revenues are
generated from our direct sales force, our telesales organization, and our
indirect sales channels.
Research and development expenses consist primarily of salaries and related
costs to support product development. We maintain a product development staff to
enhance our existing applications and to develop new products. To date, all
software development costs have been expensed as incurred.
General and administrative expenses consist primarily of salaries and
related costs for operations and finance employees, legal and accounting fees,
and facilities-related expenses.
Since our inception, we have incurred substantial costs to develop our
technology and applications, to hire, train and develop a sales and marketing
organization, and to establish an administrative organization. These costs have
exceeded the revenues generated by our licensed application and application
service and as a result, we have incurred losses in each year since inception
and have accumulated losses of $15.4 million at December 31, 1999. We anticipate
that our operating expenses will increase substantially in future periods as we
increase our sales and marketing organization, fund greater levels of research
and development, and improve operational and financial systems. Because we
expect to continue to invest in our business ahead of anticipated future
revenues, we expect that we will continue to incur losses for the foreseeable
future.
24
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth consolidated statements of operations data
expressed as a percentage of total revenues for each period indicated. The
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
REVENUES:
License................................................. 20% 38% 53%
Subscription............................................ 38 32 44
Other................................................... 42 30 3
---- ---- ----
Total revenues....................................... 100 100 100
COST OF REVENUES.......................................... 100 20 16
---- ---- ----
Gross profit.............................................. -- 80 84
---- ---- ----
OPERATING EXPENSES:
Sales and marketing..................................... 454 93 87
Research and development................................ 171 47 33
General and administrative.............................. 200 35 29
Stock-based compensation................................ -- -- 10
---- ---- ----
Total operating expenses............................. 825 175 159
---- ---- ----
Operating loss............................................ (825) (95) (75)
---- ---- ----
Interest income expense, net.............................. 31 3 (8)
---- ---- ----
Net loss.................................................. (794)% (92)% (83)%
==== ==== ====
</TABLE>
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
Revenues. Total revenues increased 451% from $552,000 in 1997 to $3.0
million in 1998 and 95% to $5.9 million in 1999. The increase was due to growth
in the number of customers licensing our eSupport application for internal use,
growth in subscribers to our eSupport application services, and growth in
support and maintenance services related to our licensed application.
License Revenues. License revenues increased 941% from $112,000 in 1997 to
$1.2 million in 1998 and 171% to $3.2 million in 1999. The increase was
primarily due to expanding market acceptance of our eSupport licensed
application, which was introduced in the second half of 1997, and increases in
our direct sales force. License revenues as a percentage of total revenues was
20% in 1997, 38% in 1998, and 53% in 1999. This increase was a result of our
strategy to focus our direct sales force on the largest corporate accounts,
which generally prefer to license applications for internal deployment.
Subscription Revenues. Subscription revenues increased 364% from $210,000
in 1997 to $975,000 in 1998, and 165% to $2.6 million in 1999. The increase
represents the impact of a growing base of customers who have subscribed to our
eSupport application service, which we believe is caused by increasing market
acceptance of that service. In addition, maintenance and support revenues
derived from customers who have licensed our eSupport software application,
increased due to the rise in the number of licensees.
25
<PAGE> 29
Cost of Revenues. Cost of revenues increased 9% from $552,000 in 1997 to
$602,000 in 1998 and 54% to $928,000 in 1999. The increase in cost of revenues
was primarily due to costs incurred to support the growing installed base of
customers subscribing to our eSupport application services and, to a lesser
extent, growth in the numbers of customers for our maintenance and support
services. The increase consisted of growth in personnel and related expenses, as
well as growth in equipment and networking expenses. Cost of license revenues
are not significant. Cost of revenues as a percentage of subscription revenues
was 62% in 1998, and 36% in 1999. This decrease was due to subscription revenues
rising at a greater rate than the related costs. In the short-term, we expect
that our cost of revenues as a percentage of revenues will increase as we add
operational capacity in advance of the related revenues. In the long-term, we
expect cost of revenues as a percentage of revenues to decline as we acquire
additional customers to fill such capacity.
Gross Profit. Gross profit increased 106% from $2.4 million in 1998 to
$5.0 million in 1999. We did not generate a gross profit in 1997. The increase
in gross profit was primarily due to the increase in total revenues. The gross
margin increased from 80% in 1998 to 84% in 1999. The gross margin improvement
was primarily due to the increase in license revenues as a percentage of total
revenues as well as the improved gross margin on subscription revenues in 1999
as compared to 1998. We expect gross margin to fluctuate in future periods due
to changes in the mix of license and subscription revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased 13%
from $2.5 million in 1997 to $2.8 million in 1998 and increased 82% to $5.2
million in 1999. The increase was primarily due to increased sales and sales
support personnel as we established our direct sales force, increased costs
associated with marketing programs, and costs associated with opening sales
offices outside Massachusetts. We expect sales and marketing expenses to
increase in absolute dollars as we expand our direct sales force, including
telesales personnel, establish indirect sales channels, and develop new
marketing programs.
Research and Development Expenses. Research and development expenses
increased 50% from $943,000 in 1997 to $1.4 million in 1998 and increased 40% to
$2.0 million in 1999. The increase was primarily due to growth in personnel and
related costs. To date, all software development costs have been expensed in the
period incurred. We expect research and development expenses to continue to
increase in absolute dollars, but to decrease as a percentage of total revenues
in future periods.
General and Administrative Expenses. General and administrative expenses
were $1.1 million in both 1997 and 1998, and increased 63% to $1.7 million in
1999. The increase in general and administrative expenses in 1999 was primarily
due to growth in personnel and related costs and increased professional fees all
related to supporting our growth. We expect general and administrative expenses
to increase in absolute dollars as we continue to build our administrative
infrastructure to manage anticipated growth but to decrease as a percentage of
total revenues in future periods.
Interest Income. Interest income decreased from $169,000 in 1997 to
$118,000 in 1998, and increased to $223,000 in 1999. The decrease in 1998 was
due to lower cash balances available for investment as the proceeds of our 1997
preferred stock financing were expended in 1998. The increase in 1999 was due to
greater cash balances available for investment as a result of proceeds received
from our preferred stock financing in 1999.
Interest Expense. Interest expense increased from $34,000 in 1998 to
$675,000 in 1999. The increase in 1999 was primarily due to interest incurred on
a $3,000,000 bridge loan from investors. Approximately $537,000 of interest
expense in 1999 was noncash interest expense associated with the value of
warrants issued to the bridge noteholders.
26
<PAGE> 30
Stock-Based Compensation. In connection with our grant of stock options
during the year ended December 31, 1999, we recorded deferred stock-based
compensation of $2.1 million, of which we amortized $594,000 in 1999.
Stock-based compensation expense represents the amortization of stock
compensation charges resulting from the granting of stock options to employees
with exercise prices that may be deemed, for accounting purposes, to be below
the fair value of our common stock on the date of the grant. These amounts are
being amortized over the vesting periods of the applicable options, which are
typically four years. See note 9(c) to our consolidated financial statements. We
expect to record an additional $21.0 million deferred compensation in the first
half of 2000.
Net Operating Loss Carryforwards. As of December 31, 1999, we had
approximately $14.2 million of state and federal net operating loss
carryforwards available to offset future taxable income. These net operating
loss carryforwards expire at various dates through 2019, to the extent that they
are not used. We have not recognized any benefit for the future use of the net
operating loss carryforwards for any period since inception. Use of the net
operating loss carryforwards may be limited in future years if there is a
significant change in our ownership. We believe that our proposed initial public
offering will result in an ownership change. However, we do not believe that
this ownership change will place a significant limitation on our ability to use
the net operating loss carryforwards.
27
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table presents our consolidated operating results for each of
the four quarters in 1999. The information for each of these quarters is
unaudited and has been prepared on the same basis as our audited consolidated
financial statements appearing elsewhere in this prospectus. In the opinion of
management, all necessary adjustments, consisting only of normal recurring
adjustments, have been included to present fairly the unaudited quarterly
results when read in conjunction with our audited consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- --------- --------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
License................................... $ 329 $ 661 $ 740 $ 1,427
Subscription.............................. 543 604 669 770
Other..................................... 117 24 40 15
------- ------- ------- -------
Total revenues......................... 989 1,289 1,449 2,212
COST OF REVENUES............................ 195 241 222 270
------- ------- ------- -------
Gross Profit................................ 794 1,048 1,227 1,942
------- ------- ------- -------
OPERATING EXPENSES:
Sales and marketing....................... 914 1,200 1,469 1,582
Research and development.................. 390 478 476 635
General and administrative................ 328 385 440 578
Stock-based compensation.................. 30 101 203 260
------- ------- ------- -------
Total operating expenses............... 1,662 2,164 2,588 3,055
------- ------- ------- -------
Operating loss.............................. (868) (1,116) (1,361) (1,113)
Interest income (expense), net.............. (24) (56) (389) 17
------- ------- ------- -------
Net loss.................................... $ (892) $(1,172) $(1,750) $(1,096)
======= ======= ======= =======
</TABLE>
28
<PAGE> 32
As a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
License....................................... 33% 51% 51% 64%
Subscription.................................. 55 47 46 35
Other......................................... 12 2 3 1
--- --- ---- ----
Total revenues............................. 100 100 100 100
COST OF REVENUES................................ 20 19 15 12
Gross profit.................................... 80 81 85 88
OPERATING EXPENSES:
Sales and marketing........................... 93 93 102 71
Research and development...................... 39 37 33 29
General and administrative.................... 33 30 30 26
Stock-based compensation...................... 3 8 14 12
--- --- ---- ----
Total operating expenses................... 168 168 179 138
--- --- ---- ----
Operating loss.................................. (88) (87) (94) (50)
Interest income, net............................ (2) (4) (27) 1
--- --- ---- ----
Net loss........................................ (90)% (91)% (121)% (49)%
=== === ==== ====
</TABLE>
Revenues increased steadily over the last four quarters as a result of
expansion of our direct sales force, growing acceptance of our eSupport licensed
application, and growth in the number of companies licensing our software for
internal use. Subscription revenues have increased each quarter due to the
increasing installed base of subscribers of our eSupport application service and
support and maintenance on our eSupport application. Our direct sales force
targets large enterprises. Because large enterprises typically prefer our
licensed application, license revenues have grown at a faster rate than
subscription revenues.
Operating expenses increased during each of the last four quarters
primarily as a result of growth in the number of employees, including growth in
sales and marketing personnel, reflecting the continued expansion of our
operations.
Our operating results have varied on a quarterly basis during our operating
history and we expect them to fluctuate significantly in the future. A variety
of important factors, many of which are outside of our control, may affect our
quarterly operating results. See "Risk Factors," including in particular, "-- We
rely on a small number of customers for a large portion of our subscription
revenues," "-- We depend on large orders for a significant portion of our
license revenues, which can lead to significant fluctuations in our revenues and
operating results," and "-- Our revenues and operating results fluctuate widely
and are difficult to predict because of the delivery options we offer our
customers."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of preferred stock and through bank credit facilities. Through December
31, 1999, we raised total net cash proceeds of $34.4 million through these
preferred stock financings, including $23.5
29
<PAGE> 33
million in November 1999. Upon the closing of this offering, all of our
outstanding preferred stock will convert into 19,588,206 shares of common stock.
Net cash used in operating activities was $3.0 million in 1999 and $2.3
million in 1998. Net cash used in operating activities reflects increasing net
losses and growth in accounts receivable, partially offset by increases in
accounts payable, accrued expenses, deferred revenue and, in 1999, the
recognition of certain non-cash expenses.
Net cash used in investing activities was $1.0 million in 1999 and $300,000
in 1998. Investing activities relate primarily to purchases of computer hardware
and software and, to a lesser extent, leasehold improvements made to our
headquarters. While we do not currently have any significant commitments to
purchase equipment or make other capital expenditures, we expect that we will
accelerate such spending in the near term. Also, while we do not currently have
agreements or commitments to acquire other businesses or technologies, we may do
so in the future.
Net cash provided by financing activities was $22.5 million in 1999 and
$632,000 in 1998. In 1999, most of the activity relates to proceeds received
from the issuance of preferred stock and convertible notes payable, partially
offset by the repayment of our line of credit facility and payments made on an
equipment note. The bank line of credit facility expired in 1999. In 1998, our
financing activities consisted primarily of borrowings under the then-existing
bank line of credit facility and an equipment note and repayment of amounts due
under the equipment note.
At December 31, 1999, our principal source of liquidity was $20.4 million
in cash and cash equivalents. We believe that the net proceeds of this offering,
together with our cash and cash equivalents, will be sufficient to meet our
working capital needs for at least the next 12 months, although we could elect
to seek additional funding prior to that time. From then on, we may require
funds to support our working capital requirements or for other purposes and may
seek to raise additional funds through public or private equity financing or
from other sources. Additional financing may not be available at all or, if
available, may not be obtainable on terms favorable to us. In addition, any
additional financing may be dilutive and new equity securities could have rights
senior to those of existing holders of our common stock. If we need to raise
funds and cannot do so on acceptable terms, we may not be able to respond to
competitive pressures or anticipated requirements or take advantage of future
opportunities.
YEAR 2000 READINESS DISCLOSURE
To date we have not experienced, nor are we are aware of, any material
problems with any of our internal systems or eSupport products related to the
year 2000 issue. However, because a year 2000 problem could materially disrupt
the operations of our customers and harm our operations and financial condition,
we will continue to monitor the problem and test our products and internal
systems as we deem necessary. Because we do not make any changes to the data we
support for our customers, any information which is transmitted to us in a
non-year 2000 compliant state will be stored in that state and could result in
future problems for our customers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, as amended by SFAS No. 137, will be effective for our financial reporting
beginning in the third quarter of fiscal 2000. SFAS No. 133 will require us to
recognize all derivatives as either assets or liabilities in the
30
<PAGE> 34
consolidated balance sheet and measure those instruments at fair value. The
accounting for gains and losses from changes in the fair value of a particular
derivative will depend on the intended use of the derivative. We do not expect
the adoption of SFAS No. 133 to have a material effect on our results of
operations or financial position.
FOREIGN CURRENCY EXCHANGE RATE RISK
To date, all of our recognized revenues have been denominated in U.S.
dollars and have come primarily from customers in the United States, so our
exposure to foreign currency exchange rate changes has been immaterial. We
expect, however, that future license and subscription services revenues may also
be derived from international markets and may be denominated in the currency of
the applicable market. As a result, our operating results may become subject to
fluctuations based upon changes in the exchange rates of foreign currencies in
relation to the U.S. dollar. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products less
competitive in international markets. Although we will continue to monitor our
exposure to currency fluctuations and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot assure you that the exchange rate fluctuations will not harm our
financial results in the future.
INTEREST RATE EXPOSURE
We have an investment portfolio of money market funds and fixed income
certificates of deposit. The fixed income certificates of deposit, like all
fixed income securities, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
our total portfolio, a 10% movement in market interest rates would not have a
significant impact on the total value of our portfolio as of December 31, 1999.
As of December 31, 1999, we had short-term debt of $127,000 which carries
an interest rate tied to the prime rate. Therefore, we are subject to exposure
to interest rate risk for this borrowing based on fluctuations in the prime
rate. Based upon the outstanding indebtedness under this arrangement, an
increase in the prime rate of 0.5% would cause a corresponding increase in our
annual interest expense of approximately $1,000.
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<PAGE> 35
BUSINESS
OVERVIEW
We are a leading provider of application services and software that support
PCs over the Internet and corporate intranets. With our eSupport solution, users
can solve their PC problems themselves online, virtually anywhere, 24 hours a
day. Our solution automates diagnosis and self-repair, supports upgrades, and
restores data and applications lost due to such problems as virus damage, lost
or stolen PCs, and hard drive crashes. We believe that our solution is
applicable worldwide to companies of all sizes in all industries. We deliver our
eSupport solution as an application service, in which we or our partners provide
the operational infrastructure, and as a licensed software application to
enterprises seeking to deploy their own internal eSupport system. We have
developed critical technologies that enable our solution to efficiently support
the demands of the largest enterprises as well as millions of small companies
and individual users.
Along with our strategic partners, we currently provide eSupport
application service to approximately 12,000 PCs, and our eSupport solution is
currently licensed by over 50 customers to manage over 85,000 PCs. Our customers
range from small companies and individuals to large multi-national enterprises,
including Amgen Inc., Ariba, Inc., Cisco Systems, Inc., General Electric
Company, Koch Industries, Inc., Lucent Technologies Inc., and Unisys
Corporation.
INDUSTRY BACKGROUND
PCs are essential to the information infrastructure of most businesses and
organizations today. International Data Corporation estimates that over 112
million PCs were purchased in 1998, and expects that number to grow to 190
million by 2003. This represents a compound annual growth rate of 14%. Advances
in both hardware and software development have driven business-critical
applications and data to PCs. According to IDC, 60% of corporate data is now
stored on PCs. As computing becomes more mobile, and the autonomy of users
grows, corporate IT departments face greater challenges controlling and
supporting these computing assets and the critical data that they hold. This
presents a significant and growing problem for senior management.
As the corporate computing infrastructure becomes more decentralized and
dependent on PCs, it becomes more difficult to monitor and maintain. IT
departments must support a growing number of users with varying levels of
sophistication and demands, each with a PC unique in its configurations,
applications, files and settings. Controlling important information spread
across vast numbers of PC hard drives is becoming increasingly important and
expensive.
Many factors are contributing to the rising costs of supporting PC users
including:
- Increased complexity of PCs. The number, size, and functionality of
software applications installed on the typical PC have grown
substantially over the last several years. These advances, coupled with
the complications presented by the interactions between these installed
programs, have led to more complex and fragile PCs.
- Initial customization. The customization of a PC for a particular user
begins with deployment. Variations in equipment, hardware and software
configurations, personal settings, and individual user data make each PC
system unique to its user.
- Continuous changes to PCs. Users add and delete software and data, alter
settings, and make modifications. Because these changes are generally
made without the knowledge
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<PAGE> 36
of the IT staff, they impact the IT staff's ability to effectively
provide ongoing support and maintenance.
- Frequent loss of data and application availability. Most PC users are
familiar with hard drive crashes, system failures, and user mistakes,
such as inadvertent deletions and overwrites. Computer viruses also
damage data and applications. Because so much business-critical
information is stored only on PCs, the loss of important data can cause
costly delays and loss of revenue.
According to International Data Corporation, laptop computers are the
fastest growing segment of PC sales. Laptops exacerbate the difficulties of
systems maintenance. According to the Gartner Group, an independent research
firm, laptops typically have up to 53% higher total cost of ownership than
desktop PCs. One of the significant factors contributing to this increased cost
is the need to provide complex support while the user is mobile. We believe
companies are generally willing to spend money to support them because they are
important productivity tools for key employees, including salespeople and
executives.
As personal digital assistants, Internet appliances, and other devices
become part of the networked computing environment, we believe they will require
the same level of support demanded by today's PC users.
CURRENT APPROACHES ARE INADEQUATE
Historically, senior management has demanded high levels of system
stability, availability, and protection of company data assets. For example,
acceptable availability for mainframe computers has been measured in minutes of
total downtime per year. With the development of server-centric computing
models, businesses began to demand the same level of availability from their
servers as they had from their centralized systems. We believe spending on
system management has followed this computer platform migration.
With the IT focus increasingly on the PC, spending on system management is
shifting again. While PC management spending has accelerated, we believe
inadequate solutions have resulted. Even as the PC has become one of the most
important IT assets, the primary management demands for IT support
infrastructure remain consistent: availability, corporate data protection, and
low total cost of ownership. Solution attempts fall generally into three
categories:
- More IT or help desk staffing. Businesses typically deliver PC support
to users via a help desk or on-site visits. When a user reports a
problem, the help desk response is usually manually intensive, involving
reinstallation of applications, or attempts at file-by-file diagnosis of
the problem. This approach generally is not scalable, does not
effectively provide availability or data protection, and is complicated
by the growing shortage and turnover of qualified technical personnel.
- Policies for users to follow. In an attempt to push responsibility for
the PC to the users, many IT departments outline policies for users to
follow, such as PC lockdowns or central data storage mandates. Such
procedures, which attempt to restrict user behavior or rely on regular
user actions such as use of external disk drives, limit PC usefulness and
are not typically successful.
- Software Point Products. In general, we believe existing PC support
products are each designed for single PCs or servers, address one limited
issue, and are unable to scale to support the vast numbers of PCs in
place. They are impersonal solutions which do not adequately address
growing PC complexity, the distributed nature of user data, remoteness of
users, or the unique and constantly changing nature of each PC.
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<PAGE> 37
THE ESUPPORT OPPORTUNITY
eSupport combines automated data management applications with the
connectivity of the Internet to solve the complex issues of the PC lifecycle.
Using the Internet, eSupport provides the opportunity for a complete support
infrastructure which can automatically deliver highly personalized services to
PC users effectively and efficiently. A successful eSupport infrastructure must
be able to intelligently diagnose and treat user problems without burdening IT
staffs. eSupport must be simple to use and require limited interaction with the
user. According to International Data Corporation, eSupport will represent a
$14.1 billion opportunity in 2003, growing at a compound annual growth rate of
49% from $1.9 billion dollars in 1998.
[Circular diagram illustrating the cyclical nature of PC support and
management with descriptive captions enumerating different phases including:
Initial Deployment, Asset Discovery and Management, Software Upgrades, Software
Distribution, Lost System Replace, Crash & Replace, Hardware Upgrades, Virus
Repair, PC Retirement, PC Refresh, System and Application Failures, Help Desk
Support and others.]
THE CONNECTED SOLUTION
We are a leading provider of eSupport solutions and can deliver our
solutions to customers as an application service or a licensed application. Our
eSupport solution manages data, applications, configurations, and settings
either over the Internet or an intranet and is designed to ensure PC
availability. The basic components of our eSupport solution offer PC system
self-repair, automated capture of data, applications, settings and
configurations, data migration for PC upgrades, storage management, and other
capabilities. These components comprise an application that addresses the
different phases of a PC's lifecycle. With our solution, we believe users can
solve most PC problems themselves online, virtually anywhere, 24 hours a day.
Our eSupport solution acknowledges that each PC is unique and constantly
changing, and provides IT staffs with a method to deal with that individuality.
The key features of our eSupport solution include:
Preservation of Business Critical Information
Our eSupport solution captures on a central server all user data, software
applications, configurations, and personal settings. Files, including any past
versions, which are lost, overwritten, deleted, or damaged can be restored
online in real time. The design helps preserve critical information from
destructive influences.
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<PAGE> 38
Improvement of Worker Productivity
With our eSupport products and services, users can repair broken
applications or retrieve lost data quickly, minimizing disruptions. For PCs that
are lost or stolen, or damaged beyond repair, a replacement, identical down to
the user's personal screen saver, can be generated quickly using the information
stored on the server. This reduces user time and productivity lost waiting for
repairs or preparation of new equipment.
Reduction of IT Staff and Help Desk Burden
With our eSupport solution, we believe users can repair the majority of
problems encountered on PCs, without the need for help desk support. Our
solution also automates the ongoing asset maintenance and storage functions of
PCs, allowing the reallocation of IT staff resources. As PCs become obsolete and
are replaced, our eSupport solution automates their upgrade by locating and
transferring all user data from the old machines to the new machines. These
capabilities allow IT departments to support a greater number of users with
fewer personnel.
We believe our eSupport solution is unique because it offers the following
benefits over existing products:
Scalability
We have designed our eSupport architecture to be highly scalable. We can
support many thousands of PCs on a single Windows NT system. Furthermore, our
clustering software allows many servers to function in concert. High scalability
has been achieved through a combination of data reduction techniques,
hierarchical storage management methods, computationally efficient software, and
refinements due to extensive field experience.
Reliability, Performance and Efficiency
Our eSupport service provides mirrored backup servers at different
locations. If one server goes down, our eSupport solution will automatically
switch to the other server. Our SendOnce, Delta Block(TM), and file compression
technologies significantly reduce the amount of user data that must be sent to
the server for storage. The user's backup transmission can typically be
completed in the background during the time it takes that user to check e-mail,
without a noticeable reduction in performance.
Transparent, Effortless, and Certain(TM)
Our eSupport solution allows for a system capture to proceed automatically
and with minimal interference to the user. Our Hands-Free Backup(TM) runs
automatically in the background according to a preset schedule or during any
detected network connection without any effort on the part of the user. If the
backup session is interrupted, the next session will begin where the previous
left off. Our open file management technology captures files that the user has
open during the backup session, such as Microsoft Word documents.
Flexible Delivery Options
We have designed our eSupport solution to be delivered as an Internet-based
application service or as a licensed application. For those customers who
purchase our eSupport service directly from us, we are an application service
provider, and store client data on our mirrored, secure servers. We also have
strategic partnerships with Internet service providers, application
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<PAGE> 39
service providers, and other channel partners that provide our eSupport service
to their customers. For companies that prefer to support their users internally,
we license our eSupport solution software for deployment and operation by the
customer. Our solution is available for Windows operating platforms and can be
installed quickly and easily across an enterprise without user intervention.
STRATEGY
Our objective is to be the leading provider of eSupport technologies and
services for PCs and other networked devices. We intend to achieve this
objective through the following strategies:
- EXPAND OUR MARKET PRESENCE. We believe the market for eSupport spans
many geographic markets. We intend to access these markets by continuing
to expand our direct sales presence and support infrastructure worldwide.
During the next two years, we plan to establish a direct presence in
Europe and Asia and add several additional regional sales offices in the
U.S. We also plan to expand our ability to provide our eSupport
application services more efficiently by establishing additional service
facilities in Europe and Asia.
- PENETRATE THE MID-MARKET THROUGH PARTNERS. We intend to seek additional
partnerships with service providers that target small to medium size
companies to further penetrate this market segment. We currently have
over 35 partners, ranging from companies focusing on eSupport, such as
Centerbeam and Everdream, to large, diversified services companies that
are building eSupport practices, such as Compaq, GTE Internetworking, and
Concentric.
- INCREASED PENETRATION OF OUR EXISTING CUSTOMER BASE. Many of our large,
corporate customers initially implement our eSupport solution in a
particular division or geographic region of their PC population. Most of
these customers have expanded their use of our solution after the initial
deployment. Our strategy is to penetrate the entire PC population of this
customer base and establish our technology as the corporate standard.
- EXPAND THE BREADTH OF OUR SOLUTIONS. We currently offer what we believe
is one of the broadest eSupport solutions for PCs. We plan to build
additional capabilities onto our core eSupport solution to further
address the essential PC management functions performed by PC users and
their respective IT support staffs.
- EXTEND OUR ESUPPORT CAPABILITIES TO OTHER NETWORKED DEVICES. We intend
to further extend the application of our core technologies to support the
availability requirements of other end user computing devices, such as
personal digital assistants and other networked appliances.
OUR PRODUCTS AND SERVICES
We sell our eSupport solution as both an application service and as a
licensed application. As an application service provider, we operate the
application from our data centers and charge our customers a monthly fee based
on the number of PCs serviced. Our partners use our solution to provide eSupport
services to their customers in return for royalty payments to us. For
organizations that prefer to purchase the application and support their own
users, we sell a perpetual product license. License pricing depends upon the
number of PCs intended to be
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<PAGE> 40
supported. No matter how our application is used or purchased, we believe our
eSupport solution enables PC users and IT staffs to:
- Perform convenient online, PC system and software self-repair;
- Automatically recover lost files, or previous versions of a file, through
self-service restore;
- Protect a company's ownership of and access to its corporate data;
- Replicate user data, applications, and settings for lost or stolen PCs or
PCs that have experienced a hard drive crash or system failure;
- Repair virus damaged PCs or corrupted files promptly; and
- Migrate user data from the old to the new machine as part of a PC upgrade
program.
We also target smaller business and home users with data-only backup
solutions. This Internet service is charged per PC, per month.
Our eSupport solution regularly captures essential information on each PC's
hard drive and transmits this information over Internet protocol, IP,
connections to our server. With a few mouse clicks, a user can invoke any of our
eSupport functions. The server automatically responds and reassembles the
required files and delivers them online to the PC. Our software then
automatically handles the final decoding and re-imaging for the user.
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CAPABILITIES OF OUR ESUPPORT SOLUTIONS
The following tables depict the capabilities of the various components of
our software:
PC SOFTWARE AGENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
HANDS-FREE BACKUP(TM) - PC HARD DRIVE CAPTURE OCCURS - ENSURES THAT THE PC CAPTURE
AUTOMATICALLY EITHER ON OCCURS
SCHEDULE OR WHEN A NETWORK
CONNECTION IS DETECTED - REQUIRES NO USER INTERVENTION
- OCCURS TRANSPARENTLY IN THE
BACKGROUND DURING E-MAIL OR
OTHER INTERNET CONNECTION
- -------------------------------------------------------------------------------------------------------
DELTA BLOCK(TM) - AN ALGORITHM THAT REDUCES THE - SUBSTANTIALLY REDUCES
DATA TRANSFERRED BY SENDING TRANSMISSION TIME AND STORAGE
ONLY THOSE PORTIONS OF EACH NEEDS
FILE WHICH CONTAIN DIFFERENCES
FROM THE LAST CAPTURE
- -------------------------------------------------------------------------------------------------------
ENCRYPTION - ALL DATA IS SENT, STORED, AND - PROVIDES HIGH SECURITY FOR THE
RETURNED TO THE PC FULLY CUSTOMER
ENCRYPTED
- -------------------------------------------------------------------------------------------------------
COMPRESSION - PRIOR TO TRANSMISSION, ALL DATA - REDUCES TRANSMISSION TIME AND
IS COMPRESSED STORAGE NEEDS
- -------------------------------------------------------------------------------------------------------
OPEN FILE MANAGEMENT - FILES OPEN DURING DATA CAPTURE - ELIMINATES THE NEED TO EXIT
CAN BE PROCESSED APPLICATION IN ORDER TO CAPTURE
DATA
- -------------------------------------------------------------------------------------------------------
USER INTERFACE - PROVIDES A SIMPLE USER - USERS CAN TAKE CARE OF MOST PC
INTERFACE FOR REPAIR OR PROBLEMS WITH A FEW CLICKS OF
RECOVERY OF FILES, OR THE PC THEIR MOUSE
SYSTEM
- -------------------------------------------------------------------------------------------------------
POINT-IN-TIME REPAIR(TM) - AUTOMATICALLY ROLLS AN ENTIRE - EASILY FIXES PC PROBLEMS WHILE
PC SYSTEM, APPLICATION, OR FILE KEEPING THE MOST RECENT USER
BACK TO A PRIOR POINT WHEN IT DATA FILES INTACT
OPERATED CORRECTLY
- -------------------------------------------------------------------------------------------------------
HANDS-FREE INSTALL(TM) - THE PC AGENT SELF-INSTALLS WITH - AUTOMATES A ROLLOUT WITH
NO USER INTERVENTION REQUIRED MINIMAL IT STAFF OVERHEAD AND
NO USER INTERVENTION
- -------------------------------------------------------------------------------------------------------
AUTOMATIC FILE SELECTION(TM) - AUTOMATICALLY LOCATES, EXTRACTS - QUICKLY MIGRATES DATA FILES TO
AND REPLICATES USER DATA FILES THE NEW PC WITH MINIMAL
DURING PC UPGRADES PRODUCTIVITY LOSS
- -------------------------------------------------------------------------------------------------------
CONNECTION MANAGEMENT - IF ONE SERVER IS UNREACHABLE OR - HIGH ESUPPORT SYSTEM
BUSY, THE AGENT ROUTES THE DATA AVAILABILITY
TO THE OTHER SERVER
- -------------------------------------------------------------------------------------------------------
AUTOMATIC RESTART - IF A TRANSMISSION SESSION IS - SOLUTION EFFECTIVE EVEN WITH
INTERRUPTED, THE AGENT RESTARTS POOR QUALITY TRANSMISSION LINES
WHERE THE TRANSMISSION WAS
TERMINATED
- -------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 42
SERVER
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
SENDONCE - EACH FILE SENT TO THE SERVER IS - REDUCED TRANSMISSION TIME AND
GIVEN A UNIQUE DIGITAL STORAGE SPACE
SIGNATURE; FROM THEN ON, ANY
FILE WITH THE SAME SIGNATURE IS - MAKES THE FULL BACKUP OF A PC'S
NOT SENT AGAIN; DUPLICATE APPLICATIONS AND DATA PRACTICAL
COPIES ARE MAINTAINED ON THE
SERVER - SPEEDS BACKUPS AMONG USERS
BECAUSE COMMON, SHARED FILES
ARE ONLY TRANSMITTED ONCE
- FAST RECOVERY OF COMMON FILES
FROM AUTOMATED TAPE LIBRARIES
- REDUNDANCY ENHANCES DATA
PROTECTION
- -------------------------------------------------------------------------------------------------------
HSM & COMPACTION - PROPRIETARY HIERARCHICAL - LOW COST STORAGE, INEXPENSIVE
STORAGE MANAGEMENT SYSTEM SCALABILITY
DESIGNED TO TAKE DATA CAPTURED
FROM A PC OVER AN ENTIRE YEAR - FAST RECOVERY DUE TO MINIMAL
AND CONCENTRATE DATA UNIQUE TO TAPE HANDLING
THAT PC ON A SMALL NUMBER OF
TAPES
- -------------------------------------------------------------------------------------------------------
MIRROR TECHNOLOGY - ALL USER DATA IS DUPLICATED ON - HIGH AVAILABILITY FOR ANY PC
TWO SERVERS ESUPPORT FUNCTION
- PREVENTS DATA LOSS
- -------------------------------------------------------------------------------------------------------
WINDOWS NT SERVER AND CLUSTERING - WE USE WINDOWS NT SERVERS AND - INEXPENSIVE, FAST DEPLOYMENTS
CAN JOIN MULTIPLE SERVERS IN A
SINGLE SYSTEM - EXTENSIVE SCALABILITY
- -------------------------------------------------------------------------------------------------------
CD MAKER - CAN AUTOMATICALLY GATHER USER - FACILITATES LARGE SCALE FILE
FILES ON A SET OF CDS FOR ANY RECOVERY FOR USERS WITH LOW
USER SPEED NETWORK CONNECTIONS
- ENABLES USER TO HAVE ON-SITE
ARCHIVAL COPIES OF FILES
- -------------------------------------------------------------------------------------------------------
</TABLE>
REPORTS, MANAGEMENT, AND PROVISIONING
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FEATURE DESCRIPTION BENEFITS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CUSTOMER DEPLOYMENT KIT - ALLOWS IT STAFF TO DEFINE - CUSTOM DEPLOYMENT OF AGENTS TO
OPTIONS AND SETTINGS FOR THE PC USER COMMUNITIES
AGENT
- -------------------------------------------------------------------------------------------------------
SYSTEM MANAGEMENT WITH AOK - WEB-BASED MANAGEMENT CONSOLE - ENTERPRISE CUSTOMERS CAN MANAGE
THEIR EMPLOYEES' USE OF THE
APPLICATION SERVICE
- -------------------------------------------------------------------------------------------------------
</TABLE>
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Our current development initiatives include the following enhancements to
our eSupport solution which we expect to deliver in 2000:
- iRoam. Our universal web access module, iRoam, is being designed to
allow customers to access directly any file on their system from any
machine which runs a web browser that can access the server, including
public Internet kiosks and personal digital assistants.
- Expanded asset management. Currently, our eSupport solution conducts
regular inspections of our customers' PCs and maintains a database of all
software files on each PC managed across the enterprise. We are working
to expand this technology to generate comprehensive reports on demand to
allow IT organizations to analyze their inventory data and better meet
their software and hardware asset management demands.
- Extended configuration repair. We intend to expand our solution to allow
remote controlled system repair combined with the capability to make
changes in individual system settings and configurations.
- Product localization. We are currently translating our product line into
French and German versions as part of our planned expansion to the larger
European markets.
CUSTOMERS
Our eSupport solution is flexible and scalable. Our customers span many
industries and range from individual users to some of the world's largest
corporations.
APPLICATION SERVICE CUSTOMERS
<TABLE>
<S> <C>
Andataco Hitachi Data Systems Corporation
Hewlett-Packard Company Koch Industries, Inc.
</TABLE>
SOFTWARE LICENSE CUSTOMERS
<TABLE>
<S> <C>
Agilent Technologies, Inc. General Electric Investment Corporation
Amgen, Inc. Grant Thornton
Ariba, Inc. GTE Internetworking
Babson College Honeywell, Inc.
The Boston Consulting Group Interstate National Corporation
Candle Corporation Kemper Insurance Companies
Cerner Corporation Micromuse Inc.
Compuware Corporation RSA Security Inc.
East Kentucky Power Cooperative, Inc. Symantec Corporation
The Gap, Inc. The Presidio Corporation/Red River Army Depot
General Dynamics University of Michigan
Visa International Service Association
</TABLE>
Sales to a small number of customers generate a disproportionate amount of
our subscription revenue. In 1999, five customers accounted for 41% of
subscription revenue, which constituted 18% of total revenue. Hewlett-Packard
Company accounted for 13% of our total revenues in 1999. Revenues from any of
these or other customers could decline at any time due to competition,
alternative technologies, or other factors discussed under the caption "Risk
Factors." A reduction of revenues from these or other significant customers
would harm our business.
The following case studies illustrate how our eSupport solution provides
benefits across many industries. In addition, because the application solves
problems at many points of the PC
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lifecycle, customers may initially purchase it in order to solve particular
issues, with later realization of the benefits of its full features. We continue
to provide services to all of these customers, none of whom represents more than
2% of our revenues.
GTE INTERNETWORKING, a division of GTE Corporation that includes the
acquired operations of BBN Corporation, offers business customers a full range
of integrated Internet services. Historically, GTE International's IT staff gave
employees removable disks to backup data on over 1,400 PCs, 70% of which were
laptops. The company decided that this approach was not working because users
were not using the devices and regularly lost significant data and productivity
when PC hard drives failed. Because a large amount of business-critical
information is kept on user laptops, GTE needed a secure and convenient method
to capture data. After a pilot study, GTE deployed our eSupport solution. We
believe that the ease of use and scalability of our solution was critical to
GTE's decision to deploy our solution. GTE currently supports approximately
4,500 PCs with our eSupport solution.
GE INVESTMENTS, a division of General Electric Corporation which manages
over $70 billion in stock and retirement fund investments, has hundreds of
desktop and laptop PCs. Unless GE can restore a failed PC to its full working
state in a few hours, its users may lose productivity at a significant cost.
Because of these concerns, the IT department replaced its tape technology with
our solution. Our eSupport solution was deployed to protect a wide variety of
desktop and laptop PCs across the organization.
PEOPLESOFT is a leader in eBusiness and analytic applications for human
resource management. Laptop users are critical to PeopleSoft. PeopleSoft's
LAN-based backup solution did not address data loss problems faced by traveling
employees. After the initial deployment to laptops was completed, PeopleSoft
realized our eSupport solution provided many benefits not provided by its
previous approach and decided to replace its existing LAN-based solution. As a
result, our solution is used on over 5,000 PCs across the company.
BABSON COLLEGE in Wellesley, Massachusetts supports approximately 800
faculty and staff PCs. To help lower support costs, the college decided to
replace them all in 1999. Due to the value of the data scattered over these PCs,
it was imperative to ensure that all the users' data was migrated to their new
PCs. Using traditional methods of copying data to a server drive and then
downloading to the new PC was labor intensive and provided no assurance that all
user data would be transferred to the new machines. By leveraging our Automatic
File Selection(TM) technology, Babson was able to migrate the data files
automatically from one PC to another. Automatic File Selection(TM) uses powerful
algorithms to automatically identify data files versus other files such as
drivers that are unwanted on a new PC. Once deployed as the method for PC
upgrade programs, our solution became the college-wide eSupport solution.
TECHNOLOGY
Our solution's use of IP allows IT administrators and end users to ensure
data and PC system availability. Our technology-based solution has been
recognized in the industry with numerous awards, including the following:
- PC Magazine's Editors' Choice Award and Best of 1999;
- InfoWorld Magazine's "Hot Product;" and
- PC Computing Magazine's "4 Star Award."
We overcame significant technical challenges to provide our capabilities,
including:
- Reduction in the amount of data that needs to be transferred to and
stored on the server;
- Management of large amounts of data on low cost servers;
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<PAGE> 45
- Provision of highly reliable and fast PC/server synchronization and
recovery over low speed, unreliable connections; and
- Provision of effective and consistent operation.
Our solution supports remote users who can establish an IP connection. We
install a software agent on every PC we support. The agent communicates with our
highly specialized server using IP. This allows our solution to be easily
configured for operation as an application service by us or our partners, or as
a network application by corporations to support their own users. The following
diagram illustrates how the solution can be configured for either delivery
method.
[IP Network GRAPHIC]
[Diagram showing delivery of eSupport services to different types of users by
ASP operation centers and enterprise operation centers via internet and
corporate IP networks. Diagram shows arrows leading from the two types of
operation centers into a central circle representing networks with additional
arrows leading to the different types of users, including local desktop PCs,
mobile users, consumers, home offices, field offices and small to medium
enterprises.]Our proprietary server software runs on the Windows NT operating
system. Data sent over the Internet from PCs is initially stored on high
availability disk systems. As the data ages, our hierarchical storage management
software transfers the data to cost-effective, automated tape libraries.
Currently, our software agents support PCs running Windows 95, 98, NT, and
Windows 2000 operating systems.
PARTNERS AND STRATEGIC RELATIONSHIPS
We have and intend to seek additional partnerships with service providers
and other resellers that target small to medium size companies. We believe these
channels can reach targeted businesses and generate subscription revenues more
effectively than our direct sales force. Many companies with a significant
portion of their business based on Internet revenue, or a strategy to grow their
online presence, are adding services to their overall web offerings.
We offer our eSupport application and services through a growing variety of
strategic partnerships that include:
- Internet service providers, who sell the service to their customers as a
value-added offering to their Internet access service;
- Application service providers, who often bundle our service as part of
their overall solution sale, or offer it as part of a suite of services;
- PC manufacturers, who are interested in expanding their customer service
capability and recurring revenues;
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<PAGE> 46
- IT service and support companies who can use our solution to cut costs
and provide better customer service; and
- Other companies such as PC service vendors, telecommunications companies,
and Internet portals that offer our service as a value-added offering.
Although to date, revenues from our partners have not been significant, we
believe that these alliances significantly enhance our sales efforts and
represent a valuable opportunity to increase our presence in the small to medium
size business market. We intend to aggressively pursue additional relationships
in the future.
Described below are some of our current strategic partnerships:
Compaq Computer Corporation. Compaq has selected us as a technology and
service provider in order to provide online backup, restore and repair
capabilities to its customers. Compaq plans to offer these capabilities on a web
site associated with the sale of Compaq PCs.
In March 2000, Compaq signed a binding commitment to purchase 74,101 shares
of our series E preferred stock for an aggregate purchase price of $2.0 million.
The Company's obligation to close the transaction is subject to certain
conditions, including a vote of the Company's stockholders and the filing of our
amended and restated certificate of incorporation. These shares will be
converted into an aggregate of 222,303 shares of our common stock upon the
closing of this offering. As a holder of our series E preferred stock, Compaq
will be entitled to a liquidation preference senior to all of our other
stockholders, and will vote with the holders of our common stock on all matters
submitted to our stockholders. Under the terms of the commitment, Compaq will
also receive a warrant to purchase 40,002 shares of our common stock at the
initial public offering price. This warrant may be exercised at any time
beginning upon the close of this offering and expiring on the earlier of five
years from the date of its grant or one year following the close of this
offering. Compaq will also receive the right to request that its shares be
included in registrations of shares of our common stock following this offering.
These registration rights will expire one year after the close of this offering.
Compaq has agreed that it will not sell or otherwise dispose of any of our
securities until 180 days after the date of this prospectus without the prior
written consent of Deutsche Bank Securities Inc.
GTE Internetworking. GTE partnered with us as a means to increase
value-added revenue from their base of Internet service customers. GTE plans to
offer data-only file backup and restore to their corporate customer base as part
of a range of hosted solutions beginning in the first quarter of 2000.
Concentric. Concentric, a nationwide Internet service provider, has been
selling our eSupport service to its digital subscriber line-based small to
medium size customers since the fourth quarter of 1999. Concentric's goal is to
increase revenues by offering additional Internet-based services to their
customers.
Everdream. Everdream offers a bundled package of PCs, Internet service,
and full system support to small and medium size companies. Everdream bundles
our eSupport solution with every computer they ship to their small business
customers.
Centerbeam. Centerbeam is an application service provider for small
business customers providing a full set of IT services as well as PCs. Every
Centerbeam PC is equipped with our eSupport solution. Our solution is strategic
to Centerbeam's ability to support its customers' PC systems without expensive
on-site visits.
Ontrack. Ontrack is the market leader in post-crash data recovery from
damaged disks and file systems. In July 1999, Ontrack became one of our original
equipment manufacturer partners. Ontrack sells our eSupport technologies under
its brand name, Rapid Recall.
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<PAGE> 47
US West. US West markets our eSupport service to its Internet service
subscribers under the brand name E-backup. Also, starting in the second quarter
of 2000, it intends to sell our eSupport solution to its largest customers
through its direct sales force.
PeoplePC. PeoplePC provides a PC and Internet access service for one low
price. They sell our eSupport solution to their customers as a value-added
service.
Netstore. Netstore is a UK-based application service provider which uses
our technology to provide eSupport services throughout Europe.
SALES AND MARKETING
Sales. We sell our eSupport products and services to our medium size and
large customers primarily through a direct sales force. As of March 1, 2000, we
had 26 sales employees working across the United States. Typically, a sales team
includes a senior account executive and a field systems engineer. Our telesales
force initiates, contacts, and qualifies sales leads. Our telesales force refers
larger leads to our direct sales force and handles smaller leads themselves. It
also provides assistance and support to our strategic partners. We intend to
expand our sales force by adding several more regional sales offices in the
U.S., increasing the telesales force, and establishing a direct presence in
Europe and Asia.
Marketing. We focus our marketing efforts on increasing market awareness
and generating high quality leads for our sales force. We promote our eSupport
solutions through a variety of advertising media, public relations, direct
marketing, technical seminars, and trade shows. We also meet regularly with many
industry analysts and maintain relationships with a number of market research
firms. In addition, we engage in cooperative marketing programs with our
strategic partners to reach prospective customers of all sizes.
OPERATIONS AND SUPPORT
We consider our systems operations and customer service and support
departments to be critical to our success. We conduct our eSupport operations
from two independent facilities. Currently, our staff is responsible for the
operation, maintenance, and monitoring of our mirrored operations centers. In
1999, our Internet application had a 99.99% availability.
Our support staff provides assistance to our application service and
licensed application customers. Support agreements generally have terms of at
least 12 months and are priced according to the level of service required. We
provide telephone, facsimile, e-mail, and Internet assistance during extended
business hours, and 24 hour telephone support to those customers who request it.
We also offer our customers support in a wide range of areas including:
- Implementation. We assist our customers with the implementation,
configuration, and integration of our eSupport solution.
- Education. We offer our customers training in the design and operation
of our eSupport solution.
Our customer support department is located at our headquarters, although
our sales force also delivers local support as needed. We plan to expand our
service operations to Europe and Asia in the future.
PRODUCT DEVELOPMENT
To keep pace with the rapidly changing eSupport market, we have
historically devoted significant resources to research and development. Our
research and development expenditures were approximately $2.0 million in 1999,
$1.4 million in 1998, and $0.9 million in 1997. We believe that our future
success will depend in large part on our ability to quickly identify and respond
to the needs of our customers and to ensure that our products and services
remain on
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<PAGE> 48
the leading edge of the marketplace. We intend to continue to devote substantial
resources to development for the next several years.
We employ a decentralized, small team approach to project execution. Our
development group is responsible for producing new and enhanced versions of our
eSupport solution, quality assurance testing, and integrating products into our
existing service line. We believe that this approach has resulted in high
quality and rapid product delivery.
COMPETITION
The market for our eSupport solution is new, highly fragmented, and rapidly
evolving. A number of private and public companies offer products that compete
with specific aspects of our eSupport solution. Our competitors that license
backup software include Veritas Software Corporation, Legato Systems, Inc., Stac
Software Inc., and Computer Associates International, Inc. Competitors that
provide backup service include SkyDesk, Inc. We also may face competition from
resellers of these products and services.
We believe the primary factors upon which we compete are the functionality
of our solution, including performance and scalability, customer references, and
flexibility of solution delivery.
We expect to face increased competition in the future from our current
competitors. In addition, new competitors, or alliances among existing and
future competitors, may emerge and rapidly gain significant market share. We may
also face increased competition in the future from major software vendors such
as Microsoft or IBM to the extent that they enhance their product offerings with
competitive applications. To the extent these vendors are able to offer systems
that are functionally comparable or superior to our products, their significant
installed customer bases, ability to offer a broad solution, and ability to
price their products as incremental add-ons to existing systems can provide them
with a significant competitive advantage.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing, and other
resources, significantly greater name recognition, and a larger installed base
of customers than us. Many of our competitors also have well-established
relationships with our current and potential customers. As a result, they may
begin to undertake extensive marketing efforts, offer more attractive pricing
and purchase terms, or bundle their products in a manner that would put us at a
competitive disadvantage.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success and ability to compete effectively in our industry are
substantially dependent on our proprietary technology and systems designs. We
use a combination of patent, copyright, trademark, and trade secret laws to
protect our intellectual property. We also enter into confidentiality or license
agreements with our employees, consultants, customers and potential partners,
and strive to control access to and distribution of our documentation and other
proprietary information. Although we believe that these measures are adequate to
protect our intellectual property, we can give no assurances that third parties
will not be able to misappropriate or use it.
We have been awarded two patents, one in the area of backup data reduction
and another in the area of secure file archiving. We expect a third patent
related to file comparison for data backup will be issued soon. Currently we
have three patent applications pending in the United States and may seek
additional patents in the future as we deem necessary. We cannot guarantee that
any pending or future applications will result in the issuance of valid patents
for our technology. We have filed trademark applications on the service marks
"Delta Block," "eWARE," "Connected TLM," "eCONNECT," "SendOnce," and other
marks. We claim
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<PAGE> 49
common law rights in certain additional marks as well. We rely on our marks to
protect our domain and brand names.
There has been substantial litigation regarding patent and other
intellectual property rights in the software and Internet industries. We have
received notice from Stac Software, Inc. alleging that our eSupport solution
infringes one of its patents. Our intellectual property counsel, Weingarten,
Schurgin, Gagnebin & Hayes LLP, has investigated the allegations made by Stac
and, based upon their advice, we do not believe that our solutions have ever
infringed the Stac patent. In addition, we received a notice dated March 23,
2000 from John P. Shannon alleging that our eSupport solution infringes two of
his patents. Based on our preliminary investigation of Mr. Shannon's
allegations, we do not believe we are infringing any claims of his patents. We
have asked our intellectual property counsel to investigate further Mr.
Shannon's allegations. In the event of litigation with respect to either of
these notices, we are prepared to defend vigorously our position. However,
because patent litigation can be extremely expensive, time-consuming, and its
outcome uncertain, we may seek to obtain licenses to the disputed patents. We
cannot guarantee that licenses will be available to us on reasonable terms, if
at all. If a license from either Stac or Mr. Shannon is not available we could
be forced to incur substantial costs to reengineer our eSupport solution which
could diminish its value. In any case, we may face litigation with Stac and Mr.
Shannon. Such litigation could be costly and would divert our management's
attention and resources. In addition, if we do not prevail in such litigation,
we could be forced to pay significant damages or amounts in settlement.
In addition to alleging patent infringement, Stac's notice alleged that we
have been advertising and marketing our eSupport solution feature previously
known as SaveOnce in a misleading manner. Stac's allegations stem from the fact
that our solution stores applications and files unique to a particular user only
once, but stores applications and files common to multiple users twice, once
when the application or file is first encountered and then, when next
encountered, a second time to a common application and file pool. After
consulting with our intellectual property counsel, we do not believe that our
past advertising and marketing have been misleading or have diluted or tarnished
any rights of Stac. Nonetheless, we have modified our advertising and marketing
materials to clarify the operation of this feature and have renamed the feature
SendOnce. Despite these clarifications, we cannot guarantee that we will not
become involved in litigation involving our past advertising and marketing of
the SaveOnce feature. If we do become involved in such litigation we would incur
substantial costs and our management's attention and resources would be
diverted.
LAW AND GOVERNMENTAL REGULATION
We are subject to various laws and regulations affecting our business.
Congress has recently passed Internet legislation concerning children's privacy,
copyrights, taxation, and the transmission of sexually explicit material. In
addition, there are recommended uniform state laws relating to technology that
are currently under consideration in a number of state legislatures. We manage
and store sensitive customer information that may be subject to privacy laws and
regulations. As a result, in the future we may be subject to claims associated
with invasion of privacy, or inappropriate disclosure, use or loss of this
information. The European Union has recently enacted regulations relating to
online privacy protections. These laws and regulations are very recent and their
impact on us and our industry has yet to be determined. This impact could
include litigation which, whether successful or not, would likely be
time-consuming and costly and require substantial management attention and
resources. Also, while there are relatively few laws today that specifically
regulate Internet-related companies and e-commerce in general, the sizeable
growth in Internet usage and e-commerce transactions has prompted many
governmental bodies to consider legislation in such areas as pricing, content,
data protection, privacy protection, intellectual property protection, taxation,
and consumer protec-
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tion. Enactment of laws or regulations in these areas could place burdens on us,
either directly or as a burden to e-commerce in general.
FACILITIES
As of March 27, 2000, we had 85 full-time employees, including 26 in sales,
29 in development and 15 in support and operations. None of our employees is
subject to a collective bargaining agreement. We consider our relationship with
our employees to be good.
PROPERTIES
Our headquarters are located at 24 Prime Parkway in Natick, Massachusetts,
a suburb west of Boston. We lease approximately 22,350 square feet of office
space for our development, support and operations, administration and marketing
departments. The lease expires October 31, 2001. We have an option to renew the
lease for a five year period ending October 31, 2006.
We maintain sales offices in metropolitan areas of Atlanta, Boston,
Chicago, Dallas, and San Francisco, and recently opened a development office in
San Mateo, California. We believe that our existing facilities are adequate to
meet our current needs.
LEGAL PROCEEDINGS
Although, we are not currently subject to any pending legal proceedings, we
may from time to time become involved in litigation relating to claims arising
from our course of business. These claims, even if without merit, could result
in the expenditure of significant financial and managerial resources. See
"Business -- Intellectual Property and Proprietary Rights" and "Risk Factors"
for a discussion of claims alleging infringement of, or damage to, third party
intellectual property.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of our current executive officers and
directors are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
David A. Cane........................ 51 President, Chief Executive Officer and Chairman of the
Board
Wayne A. Babich...................... 47 Vice President, Engineering
Glenn D. Bolduc...................... 47 Vice President, Finance
Carl Lazarus......................... 51 Vice President, Operations
Norman Meisner....................... 53 Vice President, Business Development
James Priest......................... 41 Vice President, Sales
Craig Randall........................ 39 Vice President, Marketing
Frederick Bamber..................... 57 Director
Lawrence Bettino..................... 39 Director
Harry A. George...................... 51 Director
Robert Ketterson..................... 36 Director
Ronald D. Lachman.................... 43 Director
Ashley Leeds......................... 41 Director
</TABLE>
- -------------------------
EXECUTIVE OFFICERS
DAVID A. CANE has served as our President, Chief Executive Officer, and
director since he founded Connected in 1995. Mr. Cane became our chairman of the
board in March 2000. Prior to founding our company, Mr. Cane served as Vice
President and General Manager for Phoenix Technologies Ltd., a systems enabling
software company, from 1991 through 1994. While with Phoenix, Mr. Cane was
responsible for product development, custom engineering, and marketing for BIOS
products. From 1989 through 1991, he worked at Kendall Square Research, a
manufacturer of supercomputers, where he served as Vice President of Hardware
Engineering. Mr. Cane was the Executive Vice President for Visual Technology
from 1988 to 1989, where he was responsible for all aspects of business
operations. In 1981, Mr. Cane co-founded MASSCOMP, a UNIX system supplier. Mr.
Cane received both an SB and an SM in Electrical Engineering from the
Massachusetts Institute of Technology.
WAYNE A. BABICH has served as our Vice President, Engineering since joining
us in 1996. Before joining us, from 1994 through 1996, he served as Engineering
Manager for Atria Software, Inc., a company that creates software that manages
complex software development, enhancement, and maintenance. Prior to that, Mr.
Babich was the Senior Engineering Manager for Computervision, a vendor of
computer-aided design software, from 1991 through 1994. Mr. Babich received a BS
from Case Western Reserve University and a Ph.D. from the University of North
Carolina.
GLENN D. BOLDUC has served as our Vice President, Finance since joining us
in March 2000. Previously, Mr. Bolduc served as President and Chief Executive
Officer of Vialog Corporation, a teleconferencing service provider that he
co-founded, from 1996 to 1999. Prior to that, from 1989 to 1996, Mr. Bolduc was
the Vice President, Finance for Multilink, Incorporated, a teleconferencing
technology company. Following the completion of this offering Mr. Bolduc will
become our Chief Financial Officer.
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<PAGE> 52
CARL LAZARUS has served as our Vice President, Operations since joining us
in 1996. Before joining us, Mr. Lazarus served as the Vice President of
Technology for IDX Systems Corporation, a software and application service
provider to the healthcare industry, from 1974 through 1996. While with IDX, Mr.
Lazarus directed technical and research and development efforts and was
responsible for the configuration, installation and support of healthcare
information systems. Mr. Lazarus earned a BA from Yale University and was a
Special Graduate Student at the Massachusetts Institute of Technology.
NORMAN MEISNER has served as our Vice President, Business Development since
March 1999. Before joining us in 1998 as our Vice President, Sales, Mr. Meisner
was the Vice President of Sales and Service at Net2Net Corporation, a company
that creates enabling tools for the asynchronous transfer mode, or ATM, market,
from 1996 through 1998. From 1994 to 1996, Mr. Meisner was the Eastern Regional
Manager of 3Com Corp., a data communication systems company. Before joining
3Com, Mr. Meisner was the Vice President of U.S. Sales for Synernetics, an
ethernet switch company, from 1990 through 1994. Mr. Meisner received a BS from
the City College of New York and an MS from the Rensselaer Polytechnic
Institute, followed by an MS in Engineering Management from Northeastern
University.
JAMES PRIEST has served as our Vice President, Sales since joining us in
March 1999. Prior to joining us, from 1997 to 1998 Mr. Priest served as Vice
President of Worldwide Sales and marketing for Stac Software, Inc., one of our
competitors, where he was responsible for sales, marketing communications,
product management, and strategic partners. From 1992 through 1996 he served as
the Director of International Sales/Operations for Daimler Benz Interservices, a
business continuity company. Before that, he was the Senior Customer Support and
Sales Manager for Comdisco, Inc. from 1988 through 1992. Mr. Priest received a
BS from Brigham Young University.
CRAIG RANDALL has served as our Vice President, Marketing since joining us
in March 1999. Before joining us, from 1995 to 1999 Mr. Randall served as the
Senior Vice President of Marketing and Business Development for Omtool, an
enterprise fax technology company. Prior to Omtool, from 1994 to 1995 Mr.
Randall served as Vice President of Simplex, a hardware and software company in
the security and communications industry. From 1988 to 1994, Mr. Randall served
as Division Vice President of Racal Datacom, a network and communications
equipment company. Mr. Randall received a BS from Carnegie Mellon University and
an MBA from the Harvard Business School.
DIRECTORS
FREDERICK BAMBER has been a director since 1995. He served as the chairman
of our board of directors from 1995 until March 2000. Mr. Bamber is a general
partner at Applied Technology, a high tech venture capital firm that he founded
in 1981. Prior to founding Applied Technology, he spent nine years at Data
Resources Inc., an economic forecasting and consulting company, where he was a
Vice President of Data Resources' marketing/consulting organization and its
industry market focus practices. Mr. Bamber serves as a director of Interleaf,
Inc., a provider of enterprise-wide software tools for content management. Mr.
Bamber also serves as a director of several private companies. Mr. Bamber holds
a BA from Yale University and an MBA from the Wharton School of Finance.
LAWRENCE BETTINO has been a director since 1999. Mr. Bettino was a founding
manager of Baker Capital Partners, LLC, the general partner of Baker
Communications Fund, L.P., and has served in that capacity since 1996. The Baker
Communications Fund invests private equity in companies providing communications
services, equipment and applications. From 1989 to April 1996, Mr. Bettino
worked for Dillon Read Venture Capital, focusing on communications and
technology investments. Mr. Bettino currently serves on the board of several
private companies.
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<PAGE> 53
Mr. Bettino received his BS degree from Rensselaer Polytechnic Institute and his
MBA from the Harvard Business School.
HARRY A. GEORGE has been a director since 1999. Mr. George has served as
the Managing General Partner of Solstice Capital, a venture capital fund
investing in early-stage companies, since 1994. Prior to that, Mr. George was
the cofounder, Vice President of Finance, and a Director of Interleaf, Inc. Mr.
George currently serves on the board of directors of several private companies.
He received a BA from Bowdoin College.
ROBERT KETTERSON has been a director since 1999. Since 1993, Mr. Ketterson
has served as a Vice President at Fidelity Ventures Telecommunications and
Technology Group where he focuses on venture investments in the internet and
data communications fields. Before joining Fidelity Ventures Telecommunications
& Technology Group, Mr. Ketterson was a manager from 1990 to 1992 in the
high-tech practice of The Boston Consulting Group, a management consulting firm.
He was also a product marketing manager for personal computer products at VLSI
Technology, Inc. He serves on the board of directors of InterNAP Network
Services Corporation and several private companies. He received a BS from the
University of Arizona and his MBA from the MIT Sloan School of Management.
RONALD D. LACHMAN has been a director since 1997. Since 1994, Mr. Lachman
has served as the President of Kinetech, Inc. Mr. Lachman is the cofounder of
Lachman Goldman Ventures, LLC, and has been its general partner since 1995.
Lachman Goldman Ventures funds and builds management teams for networking and
software-related companies, and is actively involved in creating new technology
companies. Prior to that, Mr. Lachman served as Vice President for Open Systems
Strategy of Legent Corporation from 1994 until 1995. Mr. Lachman currently
serves on the board of directors of The Santa Cruz Operation, Inc. and Divine
Interventures, Inc.
ASHLEY LEEDS has been a director since 1999. Ms. Leeds was a founding
manager of Baker Capital Partners, LLC, the general partner of Baker
Communications Fund, L.P., and has served in that capacity since 1996. The Baker
Communications Fund invests private equity in companies providing communications
services, equipment, and applications. From 1984 through 1995 Ms. Leeds was a
senior investment banker at Lehman Brothers. Ms. Leeds currently serves on the
board of directors of several private companies. Ms. Leeds holds a BA from
Harvard University and an MBA from Stanford University's Graduate School of
Business.
BOARD OF DIRECTORS
The board of directors is currently fixed at seven members. Our fifth
amended and restated certificate of incorporation, as in effect immediately
following this offering, divides the board of directors into three classes. We
expect to classify our directors as follows:
<TABLE>
<CAPTION>
CLASS NAME
- ----- ----
<S> <C>
I..................... David A. Cane, Lawrence Bettino and Robert Ketterson
II.................... Frederick Bamber and Ashley Leeds
III................... Harry A. George and Ronald D. Lachman
</TABLE>
The members of each class of directors serve for staggered three-year
terms. Class I directors will be elected to hold office until the annual
stockholders' meeting to be held in 2001; Class II directors will be elected to
hold office until the annual stockholders' meeting to be held in 2002; and Class
III directors will be elected to hold office until the annual stockholders'
meeting to be held in 2003. Directors will serve until the annual meeting of
stockholders when their class is next elected and until their respective
successors are duly elected and qualified, or until their earlier death,
resignation or removal. Our certificate of incorporation provides that directors
may be removed only for cause by the holders of at least 75% of our common
stock. There are no family relationships among any of our directors or executive
officers.
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<PAGE> 54
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors designated a Compensation Committee in 1999 and an
Audit Committee in March 2000. Prior to the appointment of the Compensation
Committee, decisions regarding the compensation of executive officers were made
by the board of directors as a whole. The Compensation Committee, which consists
of Messrs. Bamber and Lachman and Ms. Leeds, makes recommendations to the board
concerning the compensation of our officers and directors and the administration
of our 1996 Equity Incentive Plan, 2000 Combination Stock Option Plan, 2000
Nonemployee Director Stock Option Plan and 2000 Employee Stock Purchase Plan.
The Audit Committee, which consists of Messrs. Bamber, George, and Lachman,
reviews our financial controls, evaluates the scope of the annual audit, reviews
audit results, consults with management and our independent auditors prior to
the presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into aspects of our internal accounting controls and
financial affairs.
DIRECTOR COMPENSATION
Our directors currently do not receive any cash compensation from us for
their services as members of the board of directors, although members are
reimbursed for expenses incurred in connection with their attendance at meetings
of the board of directors and the committees on which they serve.
Nonemployee directors are eligible to participate in our 2000 Nonemployee
Director Stock Option Plan. Under the plan, each present nonemployee director
has received and each future nonemployee director will receive upon joining the
board an initial option to purchase 90,000 shares of our common stock. Three
years after the initial grant to a director, such director will be granted a
stock option to acquire an additional 90,000 shares. All of these stock options
will vest in equal monthly installments over the three years following the date
of grant. For additional information about the 2000 Nonemployee Director Stock
Option Plan see "Management -- Stock Plans -- 2000 Nonemployee Director Stock
Option Plan."
Prior to the adoption of the 2000 Nonemployee Director Stock Option Plan,
we granted options to our directors at our discretion. On August 29, 1999, Mr.
George was granted an option to purchase 129,000 shares of common stock at an
exercise price of $0.22 per share, pursuant to the 1996 Equity Incentive Plan.
This option vests in equal monthly installments over the three years following
August 29, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Bamber and Lachman
and Ms. Leeds. Prior to the formation of the Compensation Committee in 1999, the
board of directors performed the functions typically assigned to a compensation
committee and our President, Mr. Cane, participated in the board's deliberations
concerning compensation of officers other than himself. No member of the
Compensation Committee and none of our executive officers has a relationship
that would constitute an interlocking relationship with executive officers and
directors of another entity.
Funds affiliated with Applied Technology collectively have purchased from
us shares of preferred stock for an aggregate of $2,811,744, which shares of
preferred stock are convertible into 2,825,661 shares of common stock. We also
issued a warrant to a fund affiliated with Applied Technology to purchase
107,838 shares of common stock at an exercise price of $0.22. One of our
directors, Frederick Bamber, is a general partner of Applied Technology.
Baker Communications Fund, L.P. has purchased shares of preferred stock for
an aggregate of $13,000,001, which shares of preferred stock are convertible
into 5,051,814 shares of
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<PAGE> 55
common stock. Two of our directors, Lawrence Bettino and Ashley Leeds, are
founding managers of Baker Capital Partners LLC, the general partner of Baker
Communications Fund, L.P.
Solstice Capital L.P. has purchased shares of preferred stock for an
aggregate of $1,007,031, which shares of preferred stock are convertible into
648,990 shares of common stock. We also issued a warrant to Solstice Capital
L.P. to purchase 48,576 shares of common stock at an exercise price of $0.22.
One of our directors, Harry A. George, is the Managing General Partner of
Solstice Capital L.P.
Entities affiliated with Fidelity Ventures have purchased shares of
preferred stock for an aggregate of $7,000,001, which shares of preferred stock
are convertible into 2,720,208 shares of common stock. One of our directors,
Robert Ketterson, is a Vice President at Fidelity Ventures Telecommunications
and Technology Group, an affiliate of Fidelity Ventures.
For more information on these investments, see "Certain
Transactions -- Sales of Securities."
The holders of our series D convertible preferred stock also have the right
to purchase up to an aggregate of 10% of the shares sold in this offering as
described in "Certain Transactions -- Preemptive Rights."
EXECUTIVE COMPENSATION
The following table summarizes information concerning the compensation we
paid during the year ended December 31, 1999 to our Chief Executive Officer and
our four other most highly compensated executive officers. These individuals are
referred to as the named executive officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- ------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David A. Cane...................... 1999 $125,000 $65,004 -- --
President, Chief Executive
Officer
Wayne A. Babich.................... 1999 116,058 31,637 -- 45,000
Vice President, Engineering
Carl Lazarus....................... 1999 100,000 48,700 -- --
Vice President, Operations
Norman B. Meisner.................. 1999 125,000 90,006 $2,954 --
Vice President, Business
Development
James Priest....................... 1999 96,154 63,065 3,692 300,000
Vice President, Sales
</TABLE>
Mr. Priest joined us in March 1999 and the compensation set forth in the
table represents compensation paid to Mr. Priest for the period from March 1999
through December 31, 1999. Other annual compensation consists of lease and
insurance payments made for automobiles. The options we granted to our named
executive officers in 1999 were issued pursuant to our 1996 Equity Incentive
Plan.
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<PAGE> 56
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the named executive officers,
information concerning stock options we granted during the year ended December
31, 1999.
The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table, is based upon options to purchase an aggregate of
1,919,250 shares of common stock that were granted to all employees and
directors as a group, including the named executive officers, in the fiscal year
ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
PERCENT OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED EXERCISE OPTION TERM
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 0% 5% 10%
- ---- ------------------ ---------------- --------- ---------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
David A Cane............ -- -- -- -- -- -- --
Wayne A. Babich......... 45,000 2.3% $0.22 3/7/09
Carl Lazarus............ -- -- -- -- -- -- --
Norman B. Meisner....... -- -- -- -- -- -- --
James Priest............ 300,000 15.6 0.22 3/15/09
</TABLE>
The potential realizable value of the options at assumed 0%, 5% and 10%
annual rates of stock appreciation are based upon the assumed initial public
offering price of $ per share over the ten year term, compounded annually
and subtracting from that result the total option exercise price. These rates of
appreciation are mandated by the rules of the Securities and Exchange Commission
and do not represent our estimate or projection of our future stock prices.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
Twenty-five percent of each of these stock options becomes exercisable one
year from the date of grant. The remaining portion of the stock options becomes
exercisable in equal monthly installments over the following 36 months
commencing 13 months from the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended December 31, 1999 with respect to
each of our named executive officers.
The value realized represents the difference between the deemed value of
the common stock on the date of exercise used by us for accounting purposes and
the exercise price of the option. However, because the named executive officers
may keep the shares they acquired upon the exercise of the options (or sell them
at a different price), these amounts do not necessarily reflect cash realized
upon the sale of those shares.
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<PAGE> 57
The value of unexercised in-the-money options was calculated by determining
the difference between $ (the assumed initial public offering price)
and the exercise price of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Cane......... -- -- -- -- $-- $--
Wayne A. Babich....... 30,000 $97,500 181,250 133,750
Carl Lazarus.......... -- -- -- -- -- --
Norman A. Meisner..... -- -- 87,534 212,466
James Priest.......... -- -- -- 300,000 --
</TABLE>
EMPLOYMENT CONTRACTS
Norman B. Meisner. We entered into an offer letter with Mr. Meisner, our
Vice President, Sales, on October 1, 1998. Under the terms of his offer letter,
in 1999 Mr. Meisner was entitled to an annual base salary of $125,000. Mr.
Meisner was also entitled in 1999 to a quarterly bonus based on a percentage of
our sales department bookings for each quarter, according to a mutually agreed
upon sales plan, and a $25,000 bonus based on whether we achieved planned
revenue goals.
Pursuant to Mr. Meisner's offer letter, he was granted an incentive stock
option to purchase 300,000 shares of common stock at an exercise price of $0.15
per share. This option vests over a four year period. As a condition of his
employment, Mr. Meisner was required to sign a proprietary information agreement
with respect to all information and technology developed during his period of
employment. Mr. Meisner is an "employee at will."
James M. Priest. We entered into an offer letter with Mr. Priest, our Vice
President, Sales, on March 9, 1999. Pursuant to this offer letter, in 1999 Mr.
Priest was entitled to an annual base salary of $125,000. Mr. Priest was also
entitled in 1999 to a $400 per month flat rate car plan, a quarterly bonus based
on a percentage of our revenues each quarter, and a $20,000 yearly bonus based
on whether we met our stated revenue goal.
Pursuant to the offer letter, Mr. Priest was also granted an incentive
stock option to purchase 300,000 shares of common stock, at an exercise price of
$0.22 per share. This option vests over a four year period. Mr. Priest was
required to sign a proprietary information agreement with respect to all
information and technology developed during his period of employment. Mr. Priest
is an "employee at will."
CHANGE IN CONTROL PROTECTION AGREEMENTS
We have entered into agreements with our officers to help assure continuity
of management in the event of a change in control of our company. If an officer
is terminated without cause within one year following a change in control, the
officer is entitled to severance payments of salary and bonus and to
continuation of benefits for the period from the date of termination until the
one year anniversary of the change in control. A change in control includes: (1)
any person, entity or group acquiring beneficial ownership of 30% or more of our
outstanding shares of common stock; (2) the current directors of our company, or
their successors who are approved by our current directors, ceasing for any
reason to constitute at least a majority of our board of directors; and (3) our
stockholders approving a reorganization, merger, or consolidation.
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<PAGE> 58
STOCK PLANS
1996 EQUITY INCENTIVE PLAN
Our 1996 Equity Incentive Plan was adopted by our board of directors and
approved by our stockholders in March 1996. The purpose of the plan is to
enhance our ability to retain officers and key employees and to align the
interests of such individuals with those of our stockholders. The 1996 Equity
Incentive Plan provided for the issuance of up to 5,250,000 shares of common
stock. We have fully allocated the shares issuable under this plan. We granted
these securities to employees, directors, and consultants. Our board of
directors has broad discretion in determining the terms of the grant of these
securities. Options granted under the 1996 Equity Incentive Plan have a maximum
term of 10 years from the date of grant. Our outstanding options to acquire
common stock under this plan typically vest as to 25% of the underlying shares
12 months from the date of grant and as to the remaining 75% in equal monthly
installments until the fourth anniversary of the date of grant.
2000 COMBINATION STOCK OPTION PLAN
Under our 2000 Combination Stock Option Plan we may grant incentive stock
options to our employees and nonqualified stock options to our employees and
consultants. Incentive stock options meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, referred to as the Code, and
nonqualified stock options do not qualify under the requirements of Section 422.
The purpose of the plan is to enhance our ability to attract and retain officers
and key employees and to align the interests of such individuals with those of
our stockholders.
A total of 6,000,000 shares of our common stock are reserved for issuance
pursuant to the 2000 Combination Stock Option Plan. However, the 2000
Combination Stock Option Plan also provides for automatic annual increases in
the number of shares reserved for issuance on December 31 of each year in an
amount equal to the lesser of: (1) 1.5% of the outstanding shares of our common
stock on such date; (2) 450,000 shares; and (3) an amount determined by our
board of directors. The number of shares of common stock available for issuance
under the 2000 Combination Stock Option Plan is subject to adjustment for stock
dividends, recapitalizations, stock splits, stock combinations and certain other
corporate reorganizations.
The 2000 Combination Stock Option Plan may be administered by the board of
directors or, if the board of directors so determines, by a committee of two or
more nonemployee directors (as applicable, the Committee). The Committee
currently consists of our Compensation Committee. The Committee has the power to
determine the terms of stock options, including the exercise price, number of
shares subject to each stock option, conditions of exercise, and the form of
consideration payable upon exercise.
Stock options granted under the 2000 Combination Stock Option Plan
generally are not transferable, and are exercisable only by the holder during
his or her lifetime. Stock options granted under the 2000 Combination Stock
Option Plan generally must be exercised within three months following
termination of employment or within twelve months if termination is by reason of
death or disability, but in no event later than ten years after the date of
grant. The exercise price of nonqualified stock options granted under the 2000
Combination Stock Option Plan is determined by the Committee. The exercise price
of incentive stock options granted under the 2000 Combination Stock Option Plan
must be at least equal to the fair market value of our common stock on the date
of grant. The exercise price of any incentive stock option granted to any
employee who holds 10% or more of our outstanding capital stock must equal at
least 110% of the fair market value of our common stock on the date of the grant
and the term of the incentive stock option must not exceed five years. The term
of all other stock options granted under the 2000 Combination Stock Option Plan
may not exceed ten years.
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<PAGE> 59
The 2000 Combination Stock Option Plan provides that in the event that we
merge with or into another corporation or sell substantially all of our assets,
each stock option will be assumed by the successor corporation or exchanged for
a stock option of the successor corporation.
The Committee or our board of directors may amend, suspend or terminate the
2000 Combination Stock Option Plan in whole or in part at any time. However,
neither the Committee or our board of directors may modify the 2000 Combination
Stock Option Plan without our stockholders' approval if such approval is
required by any law, rule, or regulation. Unless terminated sooner, the 2000
Combination Stock Option Plan will terminate automatically in 2010.
2000 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
Under the 2000 Nonemployee Director Stock Option Plan, we will grant
nonqualified stock options to our nonemployee directors. The 2000 Nonemployee
Director Stock Option Plan is intended to attract and retain the services of
experienced and knowledgeable nonemployee directors and to provide additional
incentives for nonemployee directors to continue to work for our best interests
through continuing ownership of our common stock.
An aggregate of 1,000,000 shares of our common stock has been reserved for
issuance under the 2000 Nonemployee Director Stock Option Plan. The number of
shares available for issuance is subject to adjustment for stock dividends,
recapitalizations, stock splits, stock combinations, and certain other corporate
reorganizations.
The 2000 Nonemployee Director Stock Option Plan provided that a stock
option to purchase 90,000 shares of our common stock was granted to each current
nonemployee director in March 2000. In addition, a stock option to acquire
90,000 shares of our common stock will be granted to each new nonemployee
director at the time they are first elected or appointed to our board of
directors. The 2000 Nonemployee Director Stock Option Plan also provides that a
stock option to acquire an additional 90,000 shares of our common stock will be
granted to each nonemployee director three years following the date of grant of
the last stock option to such nonemployee director. All stock options will vest
in equal monthly installments over a period of three years. However, in the
event of a change in control, all outstanding stock options under the 2000
Nonemployee Director Stock Option Plan will vest in full immediately.
The 2000 Nonemployee Director Stock Option Plan is administered by our
board of directors. Under the plan our board of directors will have discretion
to increase the number of shares of common stock subject to the stock options
granted to newly appointed nonemployee directors.
The exercise price of stock options granted under the 2000 Nonemployee
Director Stock Option Plan will be the fair market value of our shares of common
stock at the time the stock option is granted. Stock options granted under the
2000 Nonemployee Director Stock Option Plan generally are not transferable and
each stock option is exercisable only by the holder during his or her lifetime.
Stock options granted under the 2000 Nonemployee Director Stock Option Plan may
not be exercised after ten years from the date of grant.
If we are a party to any merger, consolidation, purchase, or acquisition of
property or stock, or any separation, reorganization, or liquidation, our board
of directors may make arrangements for the substitution of new stock options
for, or the assumption by the successor corporation of, any unexpired stock
options.
The 2000 Nonemployee Director Stock Option Plan may be amended, suspended,
or terminated at any time by our board of directors. Unless terminated sooner,
the 2000 Nonemployee Director Stock Option Plan will terminate automatically in
2010.
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<PAGE> 60
2000 EMPLOYEE STOCK PURCHASE PLAN.
The purpose of our 2000 Employee Stock Purchase Plan is to provide our
employees with additional incentives by permitting them to acquire shares of our
common stock. Employees are eligible to participate in our 2000 Employee Stock
Purchase Plan if they are customarily employed by us (or any participating
subsidiary of ours) for at least 20 hours per week and for more than five months
in any calendar year. Eligible employees may elect to participate in our 2000
Employee Stock Purchase Plan by giving us notice and instructing us to withhold
a specified dollar amount from their pay during the offering periods. Our 2000
Employee Stock Purchase Plan is intended to qualify under Section 423 of the
Code.
We have reserved a total of 500,000 shares of our common stock for issuance
under our 2000 Employee Stock Purchase Plan. The number of shares reserved for
issuance is subject to adjustment for stock dividends, recapitalizations, stock
splits, stock combinations and certain other corporate reorganization actions.
The 2000 Employee Stock Purchase Plan provides for consecutive offering
periods during which we will withhold a dollar amount specified by participating
employees from their pay. Our employees may authorize payroll deductions in an
amount not to exceed 10% of their base pay and in an amount not less than the
lesser of $5 per payroll period or 1% of their base pay. The first offering
period will commence on the first trading day on or after the effective date of
this public offering and will end September 30, 2000. Thereafter, the offering
periods will start on October 1 and end on March 31 and will start on April 1
and end on September 30. On the last business day of each offering period, the
amount withheld from an employee's pay will be used to purchase shares of our
common stock at a price equal to the lesser of 85% of the fair market value of
our common stock on either the first day of the offering period or on the last
day of the offering period.
The number of shares to be purchased at the end of any offering period may
not be more than 2,000 shares per employee. Employees may not participate to the
extent that their right to purchase shares of our common stock accrues at a rate
which exceeds $25,000 of fair market value of our common stock per year.
If we merge or consolidate with another corporation, our board of directors
may either terminate the 2000 Employee Stock Purchase Plan and refund without
interest the entire balance of each participating employee's payroll deductions,
or entitle each participating employee to receive for each share of our common
stock to which they would otherwise be entitled the securities or property which
they would have received at the time of such merger or consolidation if their
payroll deductions had already been used to purchase shares of our common stock.
Our 2000 Employee Stock Purchase Plan may be amended by our board of
directors from time to time in any respect. Unless sooner terminated, the 2000
Employee Stock Purchase Plan will terminate when all of the shares of our common
stock reserved for issuance pursuant to the plan have been purchased.
401(K) PLAN
We have established a savings plan for our employees which is designed to
be qualified under Section 401(k) of the Code. Eligible employees are permitted
to contribute to the 401(k) plan through payroll deductions within statutory and
plan limits.
BONUS PLAN
We maintain an informal bonus program for certain employees, including
executive officers, under which those employees may be awarded discretionary
cash bonuses based upon an evaluation of individual performance and our
performance during the year.
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<PAGE> 61
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
corporation may specify in its certificate of incorporation that directors will
not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for any liability arising with respect to:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation further provides that we are authorized to
indemnify our directors, officers, and employees and agents to the fullest
extent permitted by Delaware law. We believe the indemnification under our
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.
Our bylaws provide that directors and officers shall be, and at the
discretion of our board of directors, non-officer employees and agents may be,
indemnified by us to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of our company.
The bylaws also provide for the advancement of expenses to directors and
officers, and, at the discretion of our board of directors, non-officer
employees and agents. In addition, our bylaws provide that the right of
directors and officers to indemnification is a contract right and is not
exclusive of any other right now possessed or hereafter acquired under any
bylaw, agreement, vote of stockholders, or otherwise. We also have directors'
and officers' insurance covering certain liabilities.
In addition to and consistent with the indemnification provided for in our
certificate of incorporation and bylaws, we have entered into agreements to
indemnify our directors and officers. These agreements, among other things,
require us to indemnify our directors and officers for certain expenses
(including attorneys' fees), judgments, fines, and settlement amounts incurred
by any such person in any action or proceeding, including any action by us or in
our right arising out of that person's services as our director or officer, any
subsidiary of ours or any other company or enterprise to which the person
provides services at our request. Under the indemnification agreements, a
director or officer will not receive indemnification if he is found to have
received any improper personal benefit or if he has not acted in good faith or
in a manner he reasonably believed to be in our best interests.
We believe that the indemnification agreements, together with the
limitation of liability and indemnification provisions of our certificate of
incorporation and bylaws and directors' and officers' insurance will assist us
in attracting and retaining qualified individuals to serve as our directors and
officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees, or agents where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers, or persons controlling our company as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 62
CERTAIN TRANSACTIONS
SALES OF SECURITIES
Series A Preferred Stock. In November 1995, we sold shares of our series A
preferred stock at a price of $1.00 per share to raise capital to finance our
operations. These shares are convertible into an aggregate of 3,150,000 shares
of common stock.
Series B Preferred Stock. In June 1996, we sold shares of our series B
preferred stock at a price of $4.00 per share to raise capital to finance our
operations. These shares are convertible into an aggregate of 3,128,250 shares
of common stock.
Series C Preferred Stock. In May 1997, we sold shares of our series C
preferred stock at a price of $4.20 per share to raise capital to finance our
operations. These shares are convertible into an aggregate of 4,145,880 shares
of common stock.
Unsecured Subordinated Convertible Promissory Notes and Warrants. In June
1999, we sold unsecured subordinated convertible promissory notes to raise
capital to finance our operations. These notes converted into shares of our
series D preferred stock in connection with the series D financing. In
connection with the sale of unsecured subordinated convertible promissory notes,
we also sold warrants to purchase the shares of our common stock at an exercise
price of $0.22. In connection with the series D financing, the warrants were
amended to reduce the number of shares of common stock issuable upon the
exercise of the warrants to an aggregate of 582,933 shares of common stock. The
warrants are described in "Description of Capital Stock -- Warrants."
Series D Preferred Stock. In November 1999, we sold shares of our series D
preferred stock at a price of $7.72 per share to raise capital to finance our
operations. These shares are convertible into an aggregate of 7,966,323 shares
of common stock. In addition, the principal and outstanding interest due on the
unsecured subordinated convertible promissory notes mentioned above were
converted into shares of our series D preferred stock at the time of our series
D financing. The shares of series D preferred stock issued upon such conversion
are convertible into an aggregate of 1,197,753 shares of our common stock.
The following table summarizes our financing transactions involving our
officers, directors and 5% stockholders. The preferred stock numbers reflect the
number of shares of common stock into which the preferred stock will
automatically convert immediately prior to the closing of this offering. The
number of shares of series D preferred stock includes the shares acquired upon
the conversion of the notes. The exercise price of the warrants identified below
is $0.22 per share.
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<PAGE> 63
<TABLE>
<CAPTION>
NO. OF
NO. OF NO. OF NO. OF NO. OF SHARES OF
SHARES OF SHARES OF SHARES OF SHARES OF COMMON
SERIES A SERIES B SERIES C SERIES D STOCK
PREFERRED PREFERRED PREFERRED PREFERRED TOTAL COVERED BY AGGREGATE
STOCK STOCK STOCK STOCK SHARES WARRANTS CONSIDERATION
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Funds affiliated with Applied
Technology
Technologies for Information
and Entertainment III,
L.P.......................... 1,500,000 431,250 481,428 338,319 2,750,997 107,838 $2,619,607
The TIE Mezzanine Fund, L.P.... -- -- -- 74,664 74,664 -- 192,135
Baker Communications Fund,
L.P............................ -- -- -- 5,051,814 5,051,814 -- 13,000,001
Entities affiliated with Fidelity
Ventures
Fidelity Ventures Telecom and
Technology II Limited
Partnership.................. -- -- -- 1,360,104 1,360,104 -- 3,500,001
Fidelity Investors II Limited
Partnership.................. -- -- -- 680,052 680,052 -- 1,750,000
FTT Ventures Limited........... -- -- -- 680,052 680,052 -- 1,750,000
H&Q Connected Investors, L.P..... 1,500,000 431,250 481,428 200,790 2,613,468 97,980 2,265,698
Intel Corporation................ -- -- 2,142,858 199,764 2,342,622 97,149 3,514,060
Entities affiliated with Softbank
Softbank America, Inc.......... -- -- -- 139,836 139,836 68,004 359,845
Softbank Ventures, Inc......... -- 1,508,250 -- -- 1,508,250 -- 2,011,000
Solstice Capital, L.P............ -- 281,250 267,858 99,882 648,990 48,576 1,007,031
Our officers and directors
David A. Cane.................. -- -- -- 19,974 19,974 9,714 51,400
Carl Lazarus................... -- -- -- 19,974 19,974 9,714 51,400
Norman Meisner................. -- -- -- 9,987 9,987 4,857 25,700
James Priest................... -- -- -- 9,987 9,987 4,857 25,700
Craig Randall.................. -- -- -- 9,987 9,987 4,857 25,700
Ronald Lachman................. -- 225,000 -- 119,859 344,859 58,290 608,437
</TABLE>
ELECTION OF DIRECTORS
The holders of our series A, B, and C preferred stock collectively have the
right to appoint two members, currently Frederick Bamber and Harry A. George, to
our board of directors in connection with their investment. This right expires
upon closing of this offering.
The holders of our series D preferred stock have the right to appoint three
members to our board of directors. Currently these directors are Lawrence
Bettino, Robert Ketterson, and Ashley Leeds. This right expires upon closing of
this offering.
Frederick Bamber is a general partner of Applied Technology Associates III,
L.P., the general partner of Technologies for Information and Entertainment III,
L.P., and The TIE Mezzanine Fund, L.P. Harry George is the managing general
partner of Solstice Capital, L.P. Lawrence Bettino and Ashley Leeds are managers
of Baker Capital Partners, LLC, the general partner of Baker Communications
Fund, L.P. Another of our directors, Robert Ketterson, is a vice president of
FTT Ventures Limited. Ronald Lachman is also a director.
REGISTRATION RIGHTS
In connection with the transactions described above, we entered into
agreements with the investors that provided for registration rights with respect
to these shares. The most recent such agreement is the Third Amended and
Restated Rights Agreement, dated November 3, 1999, which restates and
incorporates the registration rights of all investors. For more information
regarding this agreement, see "Description of Capital Stock -- Registration
Rights."
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<PAGE> 64
PREEMPTIVE RIGHTS
In connection with the series D preferred stock transaction we granted a
preemptive right to the series D investors to purchase collectively up to an
aggregate of 10% of the shares of common stock to be sold in this offering.
Assuming full exercise of the preemptive rights by all persons possessing
such rights, the following persons have the right to purchase the portion
indicated in the table below of 10% of our shares of common stock to be sold in
the offering:
<TABLE>
<CAPTION>
NO. OF SHARES
PERCENTAGE RIGHT PURCHASABLE
TO PURCHASE PURSUANT TO
NAME IN OFFERING PREEMPTIVE RIGHTS
- ---- ---------------- -----------------
<S> <C> <C>
Technologies for Information and
Entertainment III, L.P. ............... 3.8
The TIE Mezzanine Fund L.P. ............. 0.8
Baker Communications Fund, L.P. ......... 55.2
Fidelity Ventures Telecom and Technology
II Limited Partnership................. 14.9
Fidelity Investors II Limited
Partnership............................ 7.4
FTT Ventures Limited..................... 7.4
H&Q Connected Investors, L.P. ........... 2.2
Hambrecht & Quist Employee Venture Fund,
L.P. II................................ 0.2
Intel Corporation........................ 2.2
Softbank America, Inc. .................. 1.5
Solstice Capital, L.P. .................. 1.1
David A. Cane............................ 0.2
David Hirschman.......................... *
J3D...................................... 0.2
William Keating.......................... 0.3
Charles Kline............................ 0.3
Ronald Lachman........................... 1.3
Carl Lazarus............................. 0.2
Norman Meisner........................... 0.1
David Arthur Norman...................... 0.4
James Priest............................. 0.1
Craig Randall............................ 0.1
Charles Robbins.......................... 0.1
</TABLE>
- ---------------
*Less than 0.05%.
To the extent that one or more persons possessing the preemptive rights
described above do not exercise such rights in this offering, the persons
exercising such rights may purchase the untaken shares on a pro rata basis.
INTEL CORPORATION SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
In 1997, we entered into a software development and license agreement with
Intel Corporation which presently holds approximately 9.8% of our outstanding
common stock. Pursuant to this agreement we licensed our backup software to
Intel. During 1997, 1998, and 1999 we recognized approximately $225,000,
$695,000, and $134,000 in revenues from this arrangement.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 27, 2000, and as adjusted
to reflect the sale of common stock offered in this offering, for: (1) each
person whom we know to beneficially own more than 5% of our common stock; (2)
each of our directors; (3) each of the named executive officers; and (4) all
directors and executive officers as a group. Except as indicated in the table
below or the related footnotes, and pursuant to applicable community property
laws, the stockholders named in the table have sole voting and investment power
with respect to the shares set forth opposite each stockholder's name.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OUTSTANDING
NUMBER OF SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS** OWNED(1) OFFERING OFFERING(2)
- ------------------ ---------------- -------- -----------
<S> <C> <C> <C>
Baker Communications Fund, L.P.(3).................... 5,051,814 19.7%
c/o Baker Capital Partners, LLC
540 Madison Avenue
New York, NY 10022
Funds affiliated with Applied Technology(4)........... 3,163,335 12.3
One Cranberry Hill
Lexington, MA 02421
Entities affiliated with Fidelity Ventures(5)......... 2,720,208 10.6
82 Devonshire Street
Boston, MA 02109
H&Q Connected Investors, L.P.(6)...................... 2,711,451 10.6
1 Bush Street, 15th Floor
San Francisco, CA 94104
Intel Corporation(7).................................. 2,507,781 9.8
2200 Mission College Blvd
Mail Stop RN 6-46
Santa Clara, CA 95052
Entities affiliated with Softbank(8).................. 1,614,756 6.3
10 Langley Road
Suite 403
Newton Center, MA 02159
David A. Cane(9)...................................... 1,462,689 5.7
Wayne Babich(10)...................................... 222,420 * *
Carl Lazarus(11)...................................... 487,191 1.9
Norman Meisner(12).................................... 133,626 * *
James Priest(13)...................................... 102,381 * *
Frederick Bamber(4)(14)............................... 3,163,335 12.4
Lawrence Bettino(3)(15)............................... 5,051,814 19.8
Harry A. George(16)................................... 733,434 2.9
Robert Ketterson(5)(17)............................... 2,720,208 10.6
Ronald D. Lachman(18)................................. 970,260 3.8
Ashley Leeds(19)...................................... 5,051,814 19.7
All directors and executive officers as a group (14
persons)(9)(10)(11)(12)(13)......................... 15,149,739 59.1
</TABLE>
- -------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
March 27, 2000 are deemed outstanding. Such shares,
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<PAGE> 66
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. Percentage ownership is based on
25,694,865 shares of common stock outstanding at March 27, 2000, assuming
the conversion of all outstanding shares of preferred stock and certain
warrants into common stock immediately prior to the closing of this
offering.
(2) Assumes that the underwriters do not exercise their over-allotment option
and that the current holders of our series D preferred stock fully exercise
their preemptive right, described in "Certain Transactions -- Preemptive
Rights."
(3) Lawrence Bettino and Ashley Leeds are members of our board of directors and
managers of Baker Capital Partners LLC, the general partner of Baker
Communications Fund, L.P. The following natural persons exercise voting
and/or dispositive power for the shares held by Baker Communications Fund,
L.P.: John C. Baker, Edward W. Scott, Lawrence Bettino, Henry Baker, and
Ashley Leeds.
(4) Consists of 2,969,037 shares held by Technologies for Information and
Entertainment III, L.P., including up to 107,838 issuable shares upon the
exercise of immediately exercisable warrants, and 90,000 shares issuable
pursuant to vested options, and 194,298 shares of common stock held by The
TIE Mezzanine Fund, L.P. An aggregate of 46,612 shares were purchased by
these funds from Softbank America, Inc. Frederick Bamber is a member of our
board of directors and the general partner of Applied Technology Associates
III, L.P., the general partner of these funds. The following natural
persons exercise voting and/or dispositive power for the shares held by
these funds: Frederick Bamber, David A. Boucher and Thomas H. Grant.
(5) Consists of 1,360,104 shares held by Fidelity Ventures Telecom and
Technology II Limited Partnership, and 680,052 shares held by Fidelity
Investors II Limited Partnership, each affiliates of Fidelity Ventures, and
680,052 held by FTT Ventures Limited, a unit of Fidelity Ventures. Robert
Ketterson is a member of our board of directors and a vice president at FTT
Ventures Limited. John J. Remondi and Donald Heaton, managers of Fidelity
Investors Management, LLC, the general partner of Fidelity Ventures Telecom
and Technology II, Limited Partnership and the general partner Fidelity
Investors II Limited Partnership exercise voting and/or dispositive power
for the shares held by these funds. Donald Heaton and Robert Ketterson
exercise voting and/or dispositive power for the shares held by FTT
Ventures Limited.
(6) Includes up to 97,983 shares of common stock issuable upon the exercise of
immediately exercisable warrants. Standish H. O'Grady exercises voting
and/or dispositive power for the shares held by H&Q Connected Investors,
L.P.
(7) Includes 97,152 shares issuable upon the exercise of an immediately
exercisable warrant.
(8) Consists of 1,508,250 shares held by Softbank Ventures, Inc., 38,499 shares
of common stock issuable upon the exercise of an immediately exercisable
warrant held by Softbank Holdings, Inc. and 68,007 shares held by Softbank
America, Inc. pursuant to an immediately exercisable warrant. The following
natural persons exercise voting and/or dispositive power over the shares
and warrants held by (a) Softbank Ventures: , (b) Softbank
Holdings: , and (c) Softbank America: Ronald Fisher, Francis
Jacobs, Masayoshi Son, and Yoshitaka Kitao.
(9) Includes 9,717 shares issuable pursuant to an immediately exercisable
warrant. Excludes 600,000 shares held in trusts for the benefit of Mr.
Cane's children. Mr. Cane does not have voting and/or dispositive power for
the shares held in these trusts and disclaims beneficial ownership of these
shares.
(10) Includes a total of 189,294 shares issuable upon the exercise of options
that are currently vested or vest within 60 days of March 27, 2000.
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<PAGE> 67
(11) Includes 66,876 shares issuable upon the exercise of options and warrants
that are currently vested or vest within 60 days of March 27, 2000.
(12) Includes a total of 23,607 shares issuable upon the exercise of options and
warrants that are currently vested or vest within 60 days of March 27,
2000.
(13) Includes a total of 92,394 shares issuable upon the exercise of options
that are currently vested or vest within 60 days of March 27, 2000.
(14) Mr. Bamber disclaims beneficial ownership of the shares held by the fund
affiliated with Applied Technology, except to the extent of his
proportionate pecuniary interest in the funds.
(15) Mr. Bettino disclaims beneficial ownership of the shares held by Baker
Communications Fund, L.P., except to the extent of his proportionate
pecuniary interest therein.
(16) Includes 733,434 shares held by Solstice Capital L.P., including up to
48,576 shares issuable upon the exercise of immediately exercisable
warrants and 35,868 shares issuable upon the exercise options that
currently are vested or vest within 60 days of March 27, 2000. Mr. George
is the managing general partner of Solstice Capital. Mr. George disclaims
beneficial ownership of the shares held by Solstice Capital, except to the
extent of his pecuniary interest in Solstice Capital. The following natural
persons exercise voting and/or dispositive power for the shares held by
Solstice Capital: Harry George and Henry Newman.
(17) Mr. Ketterson disclaims beneficial ownership of the shares held by the
entities comprising Fidelity Ventures, except to the extent of his
pecuniary interest in the funds.
(18) Includes 325,005 shares held by Kinetech, Inc. and 645,255 shares held
Lachman Goldman Ventures, LLC. Mr. Lachman is the president of Kinetech and
general partner of Lachman Goldman Ventures.
(19) Ms. Leeds disclaims beneficial ownership of the shares held by Baker
Communications Fund, L.P., except to the extent of her proportionate
pecuniary interest therein.
* Less than 1% of the outstanding common stock.
** Unless otherwise indicated, the address of each 5% stockholder is c/o
Connected Corporation, 24 Prime Parkway, Natick, Massachusetts 01760.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock as of March 27, 2000 consisted of 12,000,000
shares of common stock, and 13,387,086 shares of preferred stock. As of March
27, 2000, there were outstanding 5,482,203 shares of common stock and 6,529,402
shares of preferred stock. Such shares were held of record by a total of 63
stockholders.
Upon the closing of this offering:
- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock;
- all shares of preferred stock and certain warrants will convert into
common stock, and a total of 25,694,865 shares of common stock and no
shares of preferred stock will be outstanding, based on the number of
shares outstanding as of March 27, 2000 and assuming no exercise of the
underwriters' over-allotment option, after giving effect to the sale of
common stock we are offering; and
- there will be outstanding warrants to purchase 147,849 shares of common
stock, all of which will be then currently exercisable.
Except as otherwise indicated, the following information reflects the
filing, as of the closing of the offering, of our fifth amended and restated
certificate of incorporation and the adoption of our third amended and restated
bylaws.
COMMON STOCK
Voting Rights. The holders of our common stock have one vote per share on
all matters voted upon by our stockholders. Holders of our common stock are not
entitled to vote cumulatively for the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority, or, in
the case of the election of directors, by a plurality, of the votes cast at
meeting at which a quorum is present, voting together as a single class, subject
to any voting rights granted to holders of any then outstanding preferred stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common stock
may be paid to holders of shares of common stock.
Other Rights. Upon the liquidation, dissolution or winding up of
Connected, all holders of common stock are entitled to share ratably in any
assets available for distribution to holders of shares of common stock. No
shares of common stock are subject to redemption and none of our stockholders
have preemptive rights to purchase additional shares of common stock.
PREFERRED STOCK
As of the closing date of this offering, each outstanding share of our
existing preferred stock will automatically convert into one share of common
stock. Pursuant to our amended and restated certificate of incorporation, a
total of 5,000,000 shares of preferred stock will be authorized for future
issuance by our board of directors in one or more series. Our board of directors
may fix the voting rights, if any, designations, powers, preferences,
qualifications,
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limitations and restrictions thereof, applicable to the shares of each series of
preferred stock, including the dividend rights, dividend rates, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. Our board of directors may, without
stockholder approval, issue preferred stock with voting and other rights that
could adversely affect the voting power and other rights of the holders of the
common stock and could have anti-takeover effects, including preferred stock or
rights to acquire preferred stock in connection with implementing a shareholder
rights plan. Thus, our board of directors has the ability to quickly issue
preferred stock with terms calculated to delay, defer or prevent a change of
control of our company or to make the removal of existing management more
difficult. We have no present plans to issue any additional shares of preferred
stock.
WARRANTS
As of March 27, 2000, we had outstanding warrants to purchase an aggregate
of 730,782 shares of our common stock. The weighted average exercise price of
these warrants is $0.36 per share. These warrants consist of:
- a warrant, expiring on June 12, 2001, issued to Softbank Holdings, Inc.
to purchase up to 301,650 shares of common stock at an exercise price of
$1.33 per share, the right to purchase 38,499 shares is currently
exercisable and the right to purchase the remaining shares has expired
pursuant to the terms of the warrant;
- a warrant, expiring on June 12, 2001, issued to Carl Lazarus to purchase
up to 56,250 shares of common stock at an exercise price of $1.33 per
share, the right to purchase 52,734 shares is currently exercisable;
- a warrant, expiring on June 12, 2001, issued to Sandpiper Software
Consulting to purchase up to 53,100 shares of common stock at an exercise
price of $0.13 per share; and
- warrants, expiring on June 11, 2004, to purchase up to 582,933 shares of
common stock at an exercise price of $0.22 per share issued in connection
with the sale of the unsecured subordinated convertible promissory notes
described under "Certain Transactions." Upon the closing of this
offering, these warrants will be converted into
shares of our common stock as described below.
In connection with certain credit arrangements, we issued warrants,
expiring on June 11, 2004, to Silicon Valley Bank to purchase an aggregate of
13,842 shares of series D preferred stock. These warrants, upon conversion of
the series D preferred stock, will be exercisable for up to 41,526 shares of
common stock at an exercise price of $1.99 per share. Immediately prior to this
offering these warrants will automatically convert into shares of our
common stock.
Upon the closing of this offering, the warrants issued in connection with
the sale of the unsecured subordinated convertible promissory notes and the
warrant issued to Silicon Valley Bank will be automatically converted. The
number of shares of common stock issued upon conversion will be equal to the
number of shares issuable upon full exercise of the warrant multiplied by the
difference between the offering price and the exercise price and divided by the
offering price. Assuming an offering price of $ per share, an aggregate of
shares of common stock will be issued to holders of warrants issued in
connection with the sale of the notes and shares of common stock will be
issued to Silicon Valley Bank.
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REGISTRATION RIGHTS
Set forth below is a summary of the common stock registration rights of the
holders of our existing preferred stock and warrants, which will convert
automatically into common stock immediately prior to the consummation of this
offering. The rights described currently apply to the shares held by our
preferred stockholders and the shares underlying the warrants issued in
connection with the notes and the Silicon Valley Bank warrant. Upon the closing
of this offering these rights will apply to an aggregate of 22,711,122 shares of
our common stock.
Demand Registrations. At any time, the holders of a majority of the common
stock issued upon conversion of series D preferred stock or the holders of at
least 40% of the shares of common stock issued upon conversion of the series A,
series B, series C and series D preferred stock (referred to as registrable
securities) may request that we register shares of common stock, subject to
certain minimum offering criteria and other limitations, including our right,
upon advice of our underwriters, to reduce the number of shares proposed to be
registered ratably among the demanding holders. We are obligated to effect two
registrations pursuant to such requests by holders of shares of common stock
issued upon conversion of series D preferred stock and two registrations
pursuant to such requests by all other holders of registration rights. We are
not obligated to effect a registration for 180 days following effectiveness of
the most recent registration.
Piggyback Registration Rights. Prior to the fifth anniversary of this
offering, the holders who have registration rights have the right to request
that shares be included in any and all company-initiated registration of common
stock other than registrations relating to employee benefit plans, business
combinations subject to Rule 145 under the Securities Act, convertible debt or
certain other registrations. In our initial registration and subsequent
registrations, the underwriters may, for marketing reasons, exclude all or part
of the shares requested to be registered on behalf of all stockholders having
the right to request inclusion in such registration. In addition, we have the
right to terminate any registration we initiated prior to its effectiveness
regardless of any request for inclusion by any stockholders.
Form S-3 Registrations. After we have qualified for registration on Form
S-3, which will not be until at least 12 months after the closing of this
offering, holders of 10% or more of the registrable securities or a majority of
the then outstanding shares of common stock issued upon conversion of the series
D preferred stock may request in writing that we effect a registration of these
shares on Form S-3, provided that the gross offering price of the shares to be
so registered in each such registration exceeds $500,000. The holders may
request an unlimited number of registrations on Form S-3.
Future Grants of Registration Rights. Without the consent of the holders
of at least a majority of the shares of common stock issued upon conversion of
the series D preferred stock and a majority of the then outstanding registrable
securities, we may not grant further registration rights which would be on equal
or more favorable terms than the existing registration rights.
Transferability. The registration rights are transferable upon transfer of
registrable securities and notice by the holder to us of the transfer, provided
that the transferee or assignee (1) assumes the rights and obligations of the
transferor for such shares and (2) transferee either acquires at least 100,000
shares of registrable securities or is an affiliate or beneficial owner of the
transferor.
PREEMPTIVE RIGHTS
The holders of our series D preferred stock have the right to purchase
collectively up to 10% of our common stock to be sold in this offering.
Following the offering, none of the
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holders of our capital stock will have preemptive rights. For a list of holders
of these preemptive rights, see "Certain Transactions -- Preemptive Rights."
ANTITAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
The provisions of our certificate of incorporation and bylaws described
below, as well as the ability of our board of directors to issue shares of
preferred stock and to set the voting rights, preferences and other terms
thereof, are designed to reduce our vulnerability to an unsolicited proposal for
the restructuring or sale of all or substantially all of our assets or an
unsolicited takeover attempt which is unfair to our stockholders. These
provisions may discourage takeover attempts not first approved by our board of
directors, including takeovers that particular stockholders may deem to be in
their best interests. These provisions also could have the effect of
discouraging open market purchases of our common stock because they may be
considered disadvantageous by stockholders seeking to participate in a business
combination transaction with us or to elect a new director to our board. The
following description is general, and you should read it with our certificate of
incorporation and bylaws.
Classified Board of Directors. Our board of directors is divided into
three classes serving staggered three-year terms, with approximately one-third
of the board being elected each year. Our classified board, together with
certain other provisions of our certificate of incorporation authorizing the
board of directors to fill vacant directorships or increase the size of the
board, may prevent or delay a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling vacancies
created by this removal with its own nominees.
Director Vacancies and Removal. Our certificate of incorporation provides
that vacancies in our board of directors shall be filled only by the affirmative
vote of a majority of the remaining directors. Our certificate of incorporation
provides that directors may be removed from office only with cause with the
affirmative vote of holders of at least 75% of our outstanding shares of common
stock. Our bylaws provide that the size of our board of directors may be
increased by our directors or by the affirmative vote of the holders of at least
75% of our outstanding shares of common stock.
No Stockholder Action by Written Consent. Our certificate of incorporation
and bylaws provide that any action required or permitted to be taken by our
stockholders at an annual or special meeting of stockholders must be effected at
a duly called meeting and may not be taken or effected by a written consent of
stockholders.
Special Meetings of Stockholders. Our certificate of incorporation and
bylaws provide that a special meeting of stockholders may be called only by our
president or our board of directors. Our bylaws provide that only those matters
included in the notice of the special meeting may be considered or acted upon at
that special meeting.
Advance Notice of Director Nominations and Stockholder Proposals. Our
bylaws include advance notice, informational requirements and time limitations
on any director nomination or any proposal which a stockholder wishes to make at
an annual meeting of stockholders. For the first annual meeting following the
completion of this public offering, a stockholder's notice of a director
nomination or proposal will be timely if delivered to our corporate secretary at
our principal executive offices not later than the close of business on the
later of the 75th day prior to the scheduled date of the annual meeting or the
10th day following the day on which publicly announce the date of our annual
meeting. For subsequent annual meetings, a stockholders' notice of a director
nomination or proposal must be generally delivered not later than 75 days
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<PAGE> 72
and not earlier than 105 days prior to the first anniversary of the preceding
year's annual meeting.
Prohibition Against Greenmail. Our certificate of incorporation prohibits
the payment of so-called "greenmail" without the approval of the holders of 75%
of our outstanding shares of common stock other than the shares of common stock
held by the person to whom such greenmail payment is to be made. Greenmail is
the practice of purchasing shares of capital stock from a person at a price in
excess of fair market value. Our certificate of incorporation prohibits this
practice of purchasing shares from any person who holds 5% or more of our
outstanding shares of common stock and who has held such shares for less than
two years prior to the date of such proposed greenmail payment.
Stockholder Action and Amendment of our Certificate of Incorporation. Any
vote required of our stockholders under Delaware law, other than the election of
directors which requires a plurality vote, shall be effective if recommended by
a majority of our Continuing Directors, as defined in our certificate of
incorporation, and approved by the vote of the holders of a majority of our
outstanding shares of common stock. If any vote is not recommended by a majority
of our Continuing Directors, to be approved it must be voted by the holders of
at least 75% of our outstanding shares of common stock. Continuing Directors
include those individuals who are directors prior to the time that any person
becomes a holder of 5% or more of our outstanding shares of common stock after
this public offering.
As required by Delaware law, any amendment to our certificate of
incorporation must first be approved by a majority of our Continuing Directors
and, if required by law, thereafter approved by a majority of the outstanding
shares entitled to vote with respect to the amendment; and if not recommended by
a majority of Continuing Directors, then by vote of 75% of our outstanding
shares of common stock. Any amendment to the provisions relating to stockholder
action by written consent, special meetings of stockholders, directors,
greenmail, stockholder action, limitation of liability and the amendment of our
certificate of incorporation must be approved by not less than 75% of our
outstanding shares of common stock.
Amendment of Bylaws. Our certificate of incorporation and bylaws provide
that our bylaws may be amended or repealed by our board of directors or by our
stockholders. Such action by the board of directors requires the affirmative
vote of a majority of the directors then in office. Such action by the
stockholders requires the affirmative vote of at least 75% of our outstanding
shares of common stock at an annual meeting of stockholders or a special meeting
called for this purpose unless a majority of our Continuing Directors recommends
that the stockholders approve the amendment or repeal at such meeting, in which
case the amendment or repeal only requires the affirmative vote of a majority of
our outstanding shares of common stock.
STATUTORY BUSINESS COMBINATION PROVISION
Following this public offering, we will be subject to Section 203 of the
Delaware General Corporation Law, which prohibits a publicly-held Delaware
corporation from consummating, except under certain circumstances, a "business
combination" with an interested stockholder for a period of three years after
the date the stockholder became an "interested stockholder" unless:
- the transaction was approved by the board of directors prior to the date
on which the interested stockholder became an interested stockholder;
- upon the closing of the transaction that resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares held by directors who are also
officers of the corporation and shares held by employee stock plans; or
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- following the transaction in which the stockholder became an interested
stockholder, the business combination is approved by the board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder.
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder. The
term "interested stockholder" generally is defined as a person who, together
with affiliates and associates, owns, or, within the prior three years, owned,
15% or more of a corporation's outstanding voting stock. Under certain
circumstances, Section 203 makes it more difficult for an interested stockholder
to effect various business combinations with a corporation for a three-year
period. A Delaware corporation may opt out of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from an amendment
approved by holders of at least a majority of the outstanding voting stock.
Neither our certificate of incorporation nor our bylaws contain any such
exclusion. The provisions of Section 203 may encourage persons interested in
acquiring us to negotiate in advance with our board of directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approves either the business combination or the transaction which
results in any stockholder becoming an interested stockholder. These provisions
may also have the effect of preventing changes in our management. It is possible
that such provisions could make it more difficult to accomplish transactions
which our stockholders may otherwise deem to be in their bests interests.
LISTING ON THE NASDAQ NATIONAL MARKET
We have applied to have our common stock approved for quotation on The
Nasdaq National Market under the symbol "CNTD."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of
common stock outstanding. Of these shares, the shares sold in
this offering, excluding the shares purchased by our existing stockholders
pursuant to preemptive rights described under "Certain
Transactions -- Preemptive Rights," will be freely tradable without restriction
under the Securities Act, unless purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act. Substantially all of our remaining
securities outstanding prior to this offering are subject to 180-day lock-up
agreements, and may not be sold in the public market prior to the expiration of
the lock-up agreements. Deutsche Bank Securities Inc. may release the securities
subject to the lock-up agreements in whole or in part at any time without prior
public notice. Upon the expiration of the lock-up agreements, approximately
27,088,976 additional shares will be available for sale in the public market,
subject in some cases to compliance with the volume and other limitations of
Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES ELIGIBLE
OF THIS PROSPECTUS FOR SALE COMMENT
- ------------------ --------------- -------
<S> <C> <C>
Upon effectiveness........................... Freely tradable shares sold in this
offering and certain other shares
eligible for sale under Rule 144(k)
which are not subject to lock-up
agreements
90 days...................................... 889,460 Holders of all securities whose
holdings exceed 0.5% of our fully
diluted capital stock prior to the
offering are bound by lock-up
agreements; certain other shares are
eligible for sale under Rule 144,
144(k), or 701; includes 212,043
shares issuable pursuant to options
and warrants
180 days..................................... 23,877,873 Lock-ups released; shares eligible for
sale under Rule 144, 144(k) or 701;
includes 1,330,740 shares issuable
pursuant to options and warrants
Various dates thereafter..................... 165,999 Restricted securities held for one
year or less as of 180 days following
effectiveness
</TABLE>
RULE 144
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of the following:
- 1% of the then outstanding shares of our common stock (approximately
shares immediately after this offering) or
- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
and who has beneficially
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owned his or her shares for at least two years is entitled to sell these shares
pursuant to Rule 144(k) without regard to the limitations described above.
Affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may depress the market price of our common
stock.
LOCK-UP AGREEMENTS
We and our directors, executive officers and substantially all of our
stockholders and holders of options and warrants to purchase our capital stock
whose holdings exceed 0.5% of our fully diluted capital stock have agreed
pursuant to the underwriting agreement and other agreements not to sell or
otherwise dispose of any of our securities without the prior consent of Deutsche
Bank Securities Inc. until 180 days from the date of this prospectus, except
that we may, without such consent, grant options and sell shares pursuant to our
1996 Equity Incentive Plan, our 2000 Combination Stock Option Plan, our 2000
Employee Stock Purchase Plan and our 2000 Nonemployee Director Stock Option
Plan.
STOCK OPTIONS
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or warrants or are reserved for issuance under our 1996 Equity Incentive
Plan, our 2000 Combination Stock Option Plan, our 2000 Employee Stock Purchase
Plan and our 2000 Nonemployee Director Stock Option Plan within 180 days after
the date of this prospectus, thus permitting the resale of these shares by
nonaffiliates in the public market without restriction under the Securities Act.
RULE 701
Any of our employees or consultants who received his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 of the Securities Act. Under Rule 701, nonaffiliates may
resell their covered shares without compliance with the public information,
holding period, volume limitation or notice provisions of Rule 144, and
affiliates may resell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after the
date of this prospectus. As of December 6, 2000, the holders of approximately
960,036 shares of our common stock will be eligible to sell their shares in
reliance upon Rule 701 on the expiration of the 180-day lock-up period described
above.
REGISTRATION RIGHTS
Set forth in "Description of Capital Stock -- Registration Rights" is a
summary of the common stock registration rights of the holders of our
outstanding preferred stock, which will convert automatically into common stock
immediately prior to the consummation of this offering. The rights described
apply to an aggregate of 22,086,663 shares of our common stock plus up to
624,459 shares of our common stock issued upon the conversion of certain
warrants as described in "Description of Capital Stock -- Warrants."
The holders of our outstanding preferred stock have each waived their right
to have shares registered in this offering.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Bear, Stearns & Co. Inc. and Wit SoundView Corporation, have severally
agreed to purchase from us the following respective number of shares of common
stock at a public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc. ..............................
Bear, Stearns & Co. Inc. ...................................
Wit SoundView Corporation ..................................
Total Underwriters ( )...................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may reallow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover over-
allotments made in connection with the sale of the common stock offered hereby.
To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of commons stock as the
number of shares of common stock to be purchased by it in the above table bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the shares are
being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is of the initial public offering price. We
have agreed to pay the underwriters the following fees, assuming either no
exercise or full exercise by the underwriters of the underwriters' over-
allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees we pay...............
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
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We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the date of this prospectus without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
sell shares pursuant to our 1996 Equity Incentive Plan, our 2000 Combination
Stock Option Plan, our 2000 Employee Stock Purchase Plan and our 2000
Nonemployee Director Stock Option Plan without such consent. There are no
agreements between the representatives and any of our stockholders or affiliates
releasing them from these lock-up agreements prior to the expiration of the
180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
A prospectus in electronic format is being made available on Internet web
sites maintained by one or more of the lead underwriters of this offering,
including Wit SoundView Corporation's affiliate, Wit Capital Corporation, and
may be made available on web sites maintained by other underwriters. In
addition, other dealers purchasing shares from Wit SoundView Corporation in this
offering have agreed to make a prospectus in electronic format available on web
sites maintained by each of these dealers. Other than the prospectus in
electronic format, the information on any underwriter's web site and any
information contained in any other web site maintained by an underwriter is not
part of the prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any underwriter in
its capacity as underwriter and should not be relied upon by investors.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on The Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved
74
<PAGE> 78
shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
Pursuant to exercise of the preemptive right described in "Certain
Transactions -- Preemptive Rights" the holders of our series D preferred stock
have the right to purchase up to an aggregate of 10% of the shares offered
hereby at the public offering price and otherwise on the same terms as the
shares sold to the public.
In November 1999, we sold 3,054,692 shares of our series D preferred stock
in a private placement at a price of $7.72 per share. Each share of our series D
preferred stock will be automatically converted upon the closing of this
offering into three shares of our common stock. Baker Communications Fund, L.P.
purchased 1,683,938 shares of our series D preferred stock in this private
placement on the same terms as the other investors in the private placement. BT
Investment Partners, Inc. has a 2.46% limited partnership interest in Baker
Communications Fund, L.P. BT Investment Partners, Inc. is under common control
with one of our underwriters, Deutsche Bank Securities Inc. Its limited
partnership interest in Baker Communications Fund, L.P. gives BT Investment
Partners, Inc. a pecuniary interest in approximately 41,424 shares of our series
D preferred stock. Upon the automatic conversion of these shares into 124,272
shares of our common stock, the value of these shares of common stock, based
upon an initial public offering price of $ per share, will be $ ,
representing an increase from the price paid for the corresponding series D
preferred stock of $ . Similarly, BSC Employee Fund, L.P. has a 1.23%
limited partnership interest in Baker Communications Fund, L.P. BSC Employee
Fund, L.P. is under common control with one of our underwriters, Bear, Stearns &
Co. Inc. This limited partnership interest in Baker Communications Fund, L.P.
gives BSC Employee Fund, L.P. a pecuniary interest in approximately 20,712
shares of our series D preferred stock. Upon the automatic conversion of these
shares into 62,136 shares of our common stock, the value of these shares of
common stock, based upon an initial public offering price of $ per share,
will be $ , representing an increase for the price paid for the
corresponding series D preferred stock of $ .
Pursuant to the rules and regulations of the National Association of
Securities Dealers, Inc., if any of the shares currently held by Baker
Communications Fund, L.P. are deemed underwriting compensation, such shares may
not be sold, transferred, assigned, pledged or hypothecated by any person for a
period of one year after the effective date of this offering, except, in each
case, to officers or partners of the underwriters and members of the selling
group and their officers and partners.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
- estimates of our business potential.
75
<PAGE> 79
LEGAL MATTERS
The validity of the common stock offered under this prospectus will be
passed upon for us by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
Certain legal matters with respect to our patents and proprietary rights
described in this prospectus will be passed upon by Weingarten, Schurgin,
Gagnebin & Hayes LLP, Boston, Massachusetts. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Palmer & Dodge
LLP, Boston, Massachusetts.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed as part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. You can inspect and copy the registration statement and the
exhibits and schedules thereto at the public reference facility maintained by
the SEC at Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at the
SEC's regional offices at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
may call the SEC at 1-800-732-0330 for further information about the operation
of the public reference rooms. Copies of all or any portion of the registration
statement can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, NW., Washington, DC 20549, at prescribed rates. The Securities and
Exchange Commission maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the website of the SEC referred to above.
We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
financial data for the first three quarters of each year.
76
<PAGE> 80
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999.................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 81
After the recapitalization discussed in Note 9(a) to Connected
Corporation's consolidated financial statements is effected, we expect to be in
a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
- --------------------------------
Boston, Massachusetts
March 28, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Connected Corporation:
We have audited the accompanying consolidated balance sheets of Connected
Corporation (a Delaware corporation) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, redeemable convertible preferred
stock and stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Connected Corporation as of
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
F-2
<PAGE> 82
CONNECTED CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,822,662 $ 20,356,564 $ 20,356,564
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $85,000 in 1998 and 1999,
respectively............................................ 520,883 2,004,822 2,004,822
Prepaid expenses and other current assets................. 78,587 168,212 168,212
------------ ------------ ------------
Total current assets.................................... 2,422,132 22,529,598 22,529,598
------------ ------------ ------------
Property and Equipment, net................................. 375,051 1,003,206 1,003,206
------------ ------------ ------------
Other Assets................................................ 16,498 106,210 106,210
------------ ------------ ------------
$ 2,813,681 $ 23,639,014 $ 23,639,014
============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of equipment note with bank............... $ 210,121 $ 127,080 $ 127,080
Accounts payable.......................................... 116,901 800,962 800,962
Accrued expenses.......................................... 838,718 1,243,482 1,243,482
Deferred revenue.......................................... 442,916 1,342,331 1,342,331
Line of credit borrowings................................. 550,000 -- --
------------ ------------ ------------
Total current liabilities............................... 2,158,656 3,513,855 3,513,855
------------ ------------ ------------
Equipment Note with Bank, net of current portion............ 109,832 -- --
------------ ------------ ------------
Commitments and Contingencies (Note 10)
Series D Redeemable Convertible Preferred Stock, at
redemption value (Note 8)................................. -- 23,582,222 --
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value -- no shares authorized,
issued or outstanding at December 31, 1999, 5,000,000
shares authorized, no shares issued or outstanding, pro
forma................................................... -- -- --
Convertible preferred stock, $.001 par value --
Authorized -- 13,387,086 shares; no shares pro forma
Issued and outstanding -- 3,474,710 shares; no shares
pro forma (preference in liquidation of
$11,025,232).......................................... 3,475 3,475 --
Common stock, $.001 par value --
Authorized -- 12,000,000 shares; 100,000,000 shares pro
forma
Issued -- 6,226,893 and 6,638,544 shares at December 31,
1998 and 1999, respectively and 26,851,209 shares pro
forma................................................. 6,227 6,639 26,852
Additional paid-in capital................................ 11,119,256 14,800,956 38,366,440
Accumulated deficit....................................... (10,531,401) (16,671,462) (16,671,462)
Deferred compensation..................................... -- (1,544,307) (1,544,307)
Treasury stock -- 1,370,448 shares........................ (52,364) (52,364) (52,364)
------------ ------------ ------------
Total stockholders' equity (deficit).................... 545,193 (3,457,063) 20,125,159
------------ ------------ ------------
$ 2,813,681 $ 23,639,014 $ 23,639,014
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 83
CONNECTED CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
License........................................... $ 111,526 $ 1,166,012 $ 3,157,080
Subscription...................................... 210,030 975,109 2,586,015
Other............................................. 230,002 899,012 196,075
----------- ----------- ------------
Total revenues................................. 551,558 3,040,133 5,939,170
Cost of revenues.................................... 551,370 602,008 928,407
----------- ----------- ------------
Gross profit........................................ 188 2,438,125 5,010,763
----------- ----------- ------------
OPERATING EXPENSES:
Sales and marketing............................... 2,504,281 2,838,386 5,164,568
Research and development.......................... 942,603 1,418,267 1,979,022
General and administrative........................ 1,103,063 1,059,028 1,731,176
Stock-based compensation (Note 9(d)).............. -- -- 594,454
----------- ----------- ------------
Total operating expenses....................... 4,549,947 5,315,681 9,469,220
----------- ----------- ------------
Operating loss...................................... (4,549,759) (2,877,556) (4,458,457)
----------- ----------- ------------
INTEREST INCOME (EXPENSE):
Interest income................................... 169,186 118,215 222,658
Interest expense.................................. -- (34,225) (674,651)
----------- ----------- ------------
Total interest income (expense)................ 169,186 83,990 (451,993)
----------- ----------- ------------
Net loss............................................ (4,380,573) (2,793,566) (4,910,450)
Accretion of preferred stock........................ -- -- (1,229,611)
----------- ----------- ------------
Net loss available to common stockholders........... $(4,380,573) $(2,793,566) $ (6,140,061)
=========== =========== ============
Net loss per share -- basic and diluted............. $ (1.51) $ (0.77) $ (1.31)
=========== =========== ============
Weighted average common shares outstanding -- basic
and diluted....................................... 2,909,144 3,634,081 4,679,388
=========== =========== ============
Pro forma net loss per share -- basic and diluted
(unaudited)....................................... $ (0.37)
============
Pro forma weighted average common shares
outstanding -- basic and diluted (unaudited)...... 16,572,758
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 84
CONNECTED CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
SERIES C
SERIES D CONVERTIBLE
REDEEMABLE CONVERTIBLE SERIES A CONVERTIBLE SERIES B CONVERTIBLE PREFERRED
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK STOCK
------------------------- ---------------------- ---------------------- ----------
NUMBER REDEMPTION NUMBER $.001 NUMBER $.001 NUMBER
OF SHARES VALUE OF SHARES PAR VALUE OF SHARES PAR VALUE OF SHARES
---------- ------------ ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. -- $ -- 1,050,000 $ 1,050 1,042,750 $ 1,043 --
Sale of Series C convertible preferred
stock, net of issuance costs of
$39,441.............................. -- -- -- -- -- -- 1,381,960
Exercise of stock options............. -- -- -- -- -- -- --
Cash received for restricted stock.... -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
---------- ------------ ---------- ------- ---------- ------- ----------
Balance, December 31, 1997............. -- -- 1,050,000 1,050 1,042,750 1,043 1,381,960
Exercise of stock options............. -- -- -- -- -- -- --
Repurchase of restricted shares....... -- -- -- -- -- -- --
Exercise of warrants.................. -- -- -- -- -- -- --
Sale of common stock.................. -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
---------- ------------ ---------- ------- ---------- ------- ----------
Balance, December 31, 1998............. -- -- 1,050,000 1,050 1,042,750 1,043 1,381,960
Issuance of warrants in connection
with bridge financing................ -- -- -- -- -- -- --
Sale of Series D redeemable
convertible preferred stock, net of
issuance costs of $259,593........... 3,054,692 22,612,204 -- -- -- -- --
Accretion of Series D redeemable
convertible preferred stock.......... -- 970,018 -- -- -- -- --
Deferred compensation related to stock
option grants to employees........... -- -- -- -- -- -- --
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
Exercise of stock options............. -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
---------- ------------ ---------- ------- ---------- ------- ----------
Balance, December 31, 1999............. 3,054,692 23,582,222 1,050,000 1,050 1,042,750 1,043 1,381,960
Pro forma conversion of preferred
stock to common stock and conversion
of warrants into common stock........ (3,054,692) (23,582,222) (1,050,000) (1,050) (1,042,750) (1,043) (1,381,960)
---------- ------------ ---------- ------- ---------- ------- ----------
Pro Forma Balance, December 31, 1999
(unaudited)........................... -- $ -- -- $ -- -- $ -- --
========== ============ ========== ======= ========== ======= ==========
COMMON STOCK
----------------------
--------- ---------------------- ADDITIONAL
$.001 NUMBER $.001 PAID-IN ACCUMULATED SUBSCRIPTION
PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT RECEIVABLES
--------- ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. $ -- 6,179,274 $ 6,180 $ 5,327,680 $ (3,357,262) $(121,420)
Sale of Series C convertible preferred
stock, net of issuance costs of
$39,441.............................. 1,382 -- -- 5,763,409 -- --
Exercise of stock options............. -- 8,823 8 1,169 -- --
Cash received for restricted stock.... -- -- -- -- -- 121,420
Net loss.............................. -- -- -- -- (4,380,573) --
------- ---------- ------- ----------- ------------ ---------
Balance, December 31, 1997............. 1,382 6,188,097 6,188 11,092,258 (7,737,835) --
Exercise of stock options............. -- 2,826 3 374 -- --
Repurchase of restricted shares....... -- -- -- -- -- --
Exercise of warrants.................. -- 17,970 18 23,942 -- --
Sale of common stock.................. -- 18,000 18 2,682 -- --
Net loss.............................. -- -- -- -- (2,793,566) --
------- ---------- ------- ----------- ------------ ---------
Balance, December 31, 1998............. 1,382 6,226,893 6,227 11,119,256 (10,531,401) --
Issuance of warrants in connection
with bridge financing................ -- -- -- 1,486,186 -- --
Sale of Series D redeemable
convertible preferred stock, net of
issuance costs of $259,593........... -- -- -- -- (259,593) --
Accretion of Series D redeemable
convertible preferred stock.......... -- -- -- -- (970,018) --
Deferred compensation related to stock
option grants to employees........... -- -- -- 2,138,761 -- --
Amortization of deferred
compensation......................... -- -- -- -- -- --
Exercise of stock options............. -- 411,651 412 56,753 -- --
Net loss.............................. -- -- -- -- (4,910,450) --
------- ---------- ------- ----------- ------------ ---------
Balance, December 31, 1999............. 1,382 6,638,544 6,639 14,800,956 (16,671,462) --
Pro forma conversion of preferred
stock to common stock and conversion
of warrants into common stock........ (1,382) 20,212,665 20,213 23,565,484 -- --
------- ---------- ------- ----------- ------------ ---------
Pro Forma Balance, December 31, 1999
(unaudited)........................... $ -- 26,851,209 $26,852 $38,366,440 $(16,671,462) $ --
======= ========== ======= =========== ============ =========
TREASURY STOCK
-------------------- TOTAL
-------------------- STOCKHOLDERS'
DEFERRED NUMBER EQUITY
COMPENSATION OF SHARES COST (DEFICIT)
------------ --------- -------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996............. $ -- -- $ -- $ 1,857,271
Sale of Series C convertible preferred
stock, net of issuance costs of
$39,441.............................. -- -- -- 5,764,791
Exercise of stock options............. -- -- -- 1,177
Cash received for restricted stock.... -- -- -- 121,420
Net loss.............................. -- -- -- (4,380,573)
----------- --------- -------- -----------
Balance, December 31, 1997............. -- -- -- 3,364,086
Exercise of stock options............. -- -- -- 377
Repurchase of restricted shares....... -- 1,370,448 (52,364) (52,364)
Exercise of warrants.................. -- -- -- 23,960
Sale of common stock.................. -- -- -- 2,700
Net loss.............................. -- -- -- (2,793,566)
----------- --------- -------- -----------
Balance, December 31, 1998............. -- 1,370,448 (52,364) 545,193
Issuance of warrants in connection
with bridge financing................ -- -- -- 1,486,186
Sale of Series D redeemable
convertible preferred stock, net of
issuance costs of $259,593........... -- -- -- (259,593)
Accretion of Series D redeemable
convertible preferred stock.......... -- -- -- (970,018)
Deferred compensation related to stock
option grants to employees........... (2,138,761) -- -- --
Amortization of deferred
compensation......................... 594,454 -- -- 594,454
Exercise of stock options............. -- -- -- 57,165
Net loss.............................. -- -- -- (4,910,450)
----------- --------- -------- -----------
Balance, December 31, 1999............. (1,544,307) 1,370,448 (52,364) (3,457,063)
Pro forma conversion of preferred
stock to common stock and conversion
of warrants into common stock........ -- -- -- 23,582,222
----------- --------- -------- -----------
Pro Forma Balance, December 31, 1999
(unaudited)........................... $(1,544,307) 1,370,448 $(52,364) $20,125,159
=========== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 85
CONNECTED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(4,380,573) $(2,793,566) $(4,910,450)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 163,007 231,484 264,643
Amortization of original issuance discount and
deferred financing costs......................... -- -- 537,489
Amortization of stock-based compensation........... -- -- 594,454
Change in assets and liabilities:
Accounts receivable.............................. (151,230) (345,771) (1,483,939)
Prepaid expenses and other current assets........ (22,776) (48,240) (89,625)
Accounts payable................................. (52,810) 11,182 684,061
Accrued expenses................................. 173,495 382,868 487,041
Deferred revenue................................. 173,446 267,468 899,415
----------- ----------- -----------
Net cash used in operating activities......... (4,097,441) (2,294,575) (3,016,911)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (109,188) (312,722) (892,798)
Decrease (increase) in other assets.................. 15,559 4,491 (89,712)
----------- ----------- -----------
Net cash used in investing activities......... (93,629) (308,231) (982,510)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock, net of
issuance costs..................................... 5,764,791 -- 20,275,890
Proceeds from issuance of bridge notes and
warrants........................................... -- -- 3,000,000
Deferred financing costs............................. -- -- (56,859)
Proceeds from sale of restricted stock............... 121,420 2,700 --
Proceeds from (payments on) equipment note........... 250,724 230,537 (192,873)
Payments on long term debt........................... (50,146) (111,164) --
Payments on capital lease obligation................. (9,641) (11,752) --
Proceeds from exercise of warrants and stock
options............................................ 1,177 24,337 57,165
Repurchase of restricted stock....................... -- (52,364) --
Borrowings (repayments) under working capital line of
credit............................................. -- 550,000 (550,000)
----------- ----------- -----------
Net cash provided by financing activities..... 6,078,325 632,294 22,533,323
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents... 1,887,255 (1,970,512) 18,533,902
Cash and Cash Equivalents, beginning of period......... 1,905,919 3,793,174 1,822,662
----------- ----------- -----------
Cash and Cash Equivalents, end of period............... $ 3,793,174 $ 1,822,662 $20,356,564
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................... $ 16,790 $ 34,225 $ 137,102
=========== =========== ===========
Supplemental Disclosure of Noncash Financing
Activities:
Accretion on Series D redeemable convertible
preferred stock.................................... $ -- $ -- $ 1,229,611
=========== =========== ===========
Conversion of subordinated convertible promissory
notes to Series D redeemable convertible preferred
stock.............................................. $ -- $ -- $ 2,076,721
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 86
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND OPERATIONS
Connected Corporation (the Company) (a Delaware corporation) is provider of
application services and software that support personal computers over the
Internet and corporate intranets. The Company's solution automates diagnosis and
self-repair, supports upgrades, and restores data and applications lost due to
such problems as virus damage, lost or stolen PCs, and hard drive crashes. The
Company introduced its first service in 1996 and began licensing its software to
end-users in 1997.
The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key individuals, competition from
substitute services and larger companies, the need for successful ongoing
development and marketing of products and the Company's need either to generate
or otherwise obtain adequate financing to fund future operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying consolidated financial statements and notes.
(A) USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results may differ from those estimates.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the results of
operations of Connected Corporation and its wholly owned subsidiary. All
significant intercompany transactions and balances have been eliminated in
consolidation.
(C) PRO FORMA INFORMATION (UNAUDITED)
Immediately prior to the closing of the Company's proposed initial public
offering of common stock, each outstanding share of convertible preferred stock
and redeemable convertible preferred stock will be automatically converted into
shares of common stock (see Notes 8 and 9(b)). In addition, holders of warrants
to purchase 624,459 shares of common stock will convert their warrants into
common stock upon the closing of the proposed initial public offering pursuant
to the automatic cashless exercise provision in the related agreements (see
Notes 5 and 6). The preferred stock and warrant conversions have been reflected
on a pro forma basis in the consolidated balance sheet and consolidated
statements of redeemable convertible preferred stock and stockholders' equity
(deficit) as of December 31, 1999.
(D) REVENUE RECOGNITION
The Company generates revenue from software licenses, subscriptions and
other services. The Company executes separate arrangements that govern the terms
and conditions of each software license, subscription arrangement and support
and maintenance arrangement. The
F-7
<PAGE> 87
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company applies Statement of Position (SOP) 97-2, Software Revenue Recognition
and recognizes software license revenue upon execution of a signed license
agreement, delivery of the software to a customer and determination that
collection of a fixed license fee is probable . Revenues under multiple element
arrangements, which typically include software products and maintenance and
support services sold together, are allocated to each element based on the
residual method in accordance with SOP 98-9, Software Revenue Recognition with
Respect to Certain Arrangements. Under the residual method, the fair value of
the undelivered elements is deferred and subsequently recognized. The Company
has established sufficient vendor specific objective evidence for training and
maintenance based on the price charged when these elements are sold separately.
Subscription revenues consist of (1) revenue from customers who use the
Company's eSupport application and (2) support and maintenance services fees
related to licensed software applications and (3) royalty payments from reseller
partners. The Company recognizes such revenues ratably as the services are
provided from monthly, quarterly and annual arrangements. Support and
maintenance sold to licencees of software include the right to unspecified
upgrades on a when-and-if-available basis and on-going technical support.
Maintenance and customer support fees are recognized ratably over the term of
the maintenance and support contract on a straight-line basis.
Costs of revenues consist primarily of personnel and operating costs
associated with the Company's subscription business. Costs related to software
licenses and other revenue are not significant for any period presented.
(E) CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company's cash equivalents are invested in financial
instruments with high credit ratings. To control credit risk, the Company
performs regular credit evaluations of its customers' financial condition and
maintains allowances for potential credit losses. The Company maintains an
allowance for potential credit issues but historically has not experienced any
significant losses related to individual customers or groups of customers in any
particular industry or geographic area. Concentration of credit risk with
respect to accounts receivable is limited to customers to whom the Company makes
significant sales.
Revenues from two customers represented 26% and 41% of the Company's total
revenues for the year ended December 31, 1997.
Revenues from two customers represented 11% and 23% of the Company's total
revenues for the year ended December 31, 1998. Accounts receivable from two
customers represented 18% and 35% of the Company's total accounts receivable as
of December 31, 1998.
Revenues from one customer represented 13% of the Company's total revenues
for the year ended December 31, 1999. Accounts receivable from two customers
represented 12% and 26% of the Company's total accounts receivable as of
December 31, 1999.
(F) EARNINGS PER SHARE
Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of unrestricted common shares outstanding
during the period. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common shares and
potential common stock outstanding during the period, if dilutive.
F-8
<PAGE> 88
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Potential common stock consists of the incremental common shares issuable upon
the exercise of stock options and warrants. Shares of common stock issuable upon
the conversion of convertible preferred stock and redeemable convertible
preferred stock have also been excluded from the date of issuance. In accordance
with Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 98,
Earnings Per Share in an Initial Public Offering, the Company has determined
there were no nominal issuances of common stock prior to the Company's proposed
initial public offering. The following potential common shares were excluded
from the calculation of dilutive weighted average shares outstanding as their
effect would be anti-dilutive.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Convertible preferred stock............ 8,738,443 10,424,130 11,893,370
Common stock options................... 1,356,000 2,183,757 2,976,456
Warrants............................... 448,500 147,849 772,308
---------- ---------- ----------
Total........................ 10,542,943 12,755,736 15,642,134
========== ========== ==========
</TABLE>
Unaudited pro forma basic and diluted net loss per share for the year ended
December 31, 1999 is computed using the weighted average number of unrestricted
common shares outstanding, including the pro forma effects of the automatic
conversion of convertible preferred stock and redeemable convertible preferred
stock into common stock on a three-for-one basis, which will automatically occur
upon the closing of the Company's proposed initial public offering, as if such
conversion occurred at the date of original issuance.
The calculation of pro forma basic and diluted shares outstanding is as
follows:
<TABLE>
<S> <C>
Shares used in computing basic and diluted net loss per
share..................................................... 4,679,388
Adjustment to reflect the effect of the conversion of
preferred stock........................................... 11,893,370
----------
Shares used in computing pro forma basic and diluted net
loss per share............................................ 16,572,758
==========
</TABLE>
(G) COMPREHENSIVE LOSS
Statement of Financial Accounting Standards, (SFAS), No. 130, Reporting
Comprehensive Income, requires disclosure of all components of comprehensive
income on an annual and interim basis. Comprehensive income (loss) is defined as
the change in stockholders' equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. The
Company did not have any items of comprehensive loss, other than its net loss,
for any of the periods presented in the accompanying consolidated financial
statements; thus, the Company's comprehensive net loss is the same as its
reported net loss for all periods presented.
(H) CASH AND CASH EQUIVALENTS
The Company accounts for investments under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Under SFAS No. 115,
investments for which the Company has the positive intent and ability to hold to
maturity, consisting of cash equivalents, are reported at amortized cost, which
approximates fair market value. Cash equivalents are
F-9
<PAGE> 89
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
highly liquid investments with original maturities of three months or less. Cash
and cash equivalents consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- -----------
<S> <C> <C>
Cash and cash equivalents --
Cash............................................... $ 40,472 $ 152,742
Money market funds................................. 72,190 46,762
Commercial paper................................... 1,710,000 20,157,060
---------- -----------
Total cash and cash equivalents............ $1,822,662 $20,356,564
========== ===========
</TABLE>
(I) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using the
straight-line method based on the estimated useful lives of the related assets.
Substantially all of the Company's assets are depreciated over three years,
except leasehold improvements, which are amortized over the shorter of the
remaining lease term or three years.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash and cash equivalents, investments, accounts
receivable, accounts payable and notes payable. The estimated fair value of
these financial instruments approximates their carrying value.
(K) LONG-LIVED ASSETS
In accordance with the provisions of SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, the
Company evaluates the realizability of its long-lived assets at each reporting
period. As of December 31, 1998 and 1999, the Company has determined that no
material adjustment to the carrying value of its long-lived assets was required.
(L) SOFTWARE DEVELOPMENT COSTS
The Company accounts for its software development costs in accordance with
SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Accordingly, the costs for the development of new software
and substantial enhancements to existing software are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized. The Company has determined that technological
feasibility is established at the time a working model of the software is
completed. Because the Company believes its current process for developing
software is essentially completed concurrently with the establishment of
technological feasibility, no costs have been capitalized to date.
(M) NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board, (FASB), 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
F-10
<PAGE> 90
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of SFAS No. 133 will have a material
impact on its financial position or results from operations.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following at
December 31,
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Computer hardware and software........................... $790,966 $1,563,908
Assets under capital lease............................... 31,260 --
Furniture and fixtures................................... 6,228 51,194
Leasehold improvements................................... 14,585 120,734
-------- ----------
843,039 1,735,836
Less -- Accumulated depreciation and amortization........ 467,988 732,630
-------- ----------
$375,051 $1,003,206
======== ==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31,
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Accrued payroll and benefits............................. $380,427 $ 595,240
Accrued other............................................ 278,541 440,549
Accrued marketing........................................ 177,548 207,693
-------- ----------
$836,516 $1,243,482
======== ==========
</TABLE>
5. EQUIPMENT NOTE AND LINE OF CREDIT
On February 18, 1997, the Company entered into an equipment note with a
bank, which was amended on May 15, 1998. Under the terms of the equipment note,
the Company borrowed at total of $481,260, for the purchase of equipment. The
amended equipment note also included a provision for working capital advances
under a revolving line of credit (the line of credit). The maximum borrowings
outstanding under the line of credit were $1,000,000. The equipment note is
secured by substantially all assets of the Company and bears interest at the
bank's prime rate (8.5% at December 31, 1999) plus 1%. The Company is required
to make monthly principal and interest payments on the equipment note. In June
1999, the Company entered into a bridge loan that extended the Company's
$1,000,000 line of credit and allowed the existing equipment term notes to
amortize in accordance with the original agreement. During the bridge period,
all borrowings under the working capital line of credit and equipment term notes
bore interest at the prime rate plus 2%. All borrowings under the bridge loan
were repaid in November 1999 and the Company has no borrowing capabilities at
December 31, 1999.
In connection with the bridge loan, the Company issued a warrant to the
bank. Under the terms of the warrant, the bank may purchase 13,842 shares of
Series D Redeemable Convertible Preferred Stock (Series D preferred stock) at an
exercise price of $5.96 per share through the earlier of June 2004 or at the
close of a qualifying public offering, as defined. The
F-11
<PAGE> 91
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company computed the fair value of the warrant using the Black-Scholes option
pricing model and amortized the resulting original issue discount of $72,749
over the life of the bridge loan. Upon the closing of the proposed initial
public offering, the warrant will be automatically converted into common stock
pursuant to the cashless exercise provision in the related agreement.
6. SUBORDINATED CONVERTIBLE PROMISSORY NOTES
On June 11, 1999 the Company entered into an unsecured subordinated
convertible promissory note and warrant purchase agreement with investors
totaling $3,000,000 (the Notes). The Notes accumulated interest at a rate of 7%
per annum, and had a maturity date of the earlier of June 11, 2000 or upon the
closing date of a qualified financing, as defined. Upon closing of the Series D
preferred stock financing on November 3, 1999 (See Note 8) all principal and
interest on the Notes automatically converted into 399,251 shares of Series D
preferred stock at a conversion price equal to $7.72 per share.
Pursuant to the terms of the warrant purchase agreement, the noteholders
received warrants to purchase 582,933 shares of common stock at an exercise
price of $0.22 per share. The warrants are exercisable through the earlier of
(i) the closing of an initial public offering, meeting certain criteria or (ii)
June 11, 2004. Upon the closing of the proposed initial public offering, the
warrants will be automatically converted into common stock pursuant to the
cashless exercise provision in the related agreements. The Company computed the
fair value of the warrants using the Black-Scholes option pricing model. The
resulting original issuance discount of $1,413,437 will be amortized over the
life of the Notes; $443,418 of such original issuance discount was amortized to
interest expense through the date of conversion, with the remainder charged to
stockholders' equity (deficit) upon the conversion of the Notes into Series D
preferred stock.
7. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets or
liabilities are computed based on the differences between the financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate.
No provision for federal or state income taxes has been recorded, as the
Company has incurred losses for all periods presented. As of December 31, 1999,
the Company has net operating loss and research credit carryforwards of
approximately, $14,200,000 and $190,000, respectively, available to reduce
future federal and state income taxes, if any. If not utilized, these
carryforwards expire at various dates through 2019. If substantial changes in
the Company's ownership should occur, as defined in section 382 of the Internal
Revenue Code (the Code), there could be annual limitations on the amount of
carryforwards which can be realized in future periods. The Company has completed
several financings since its inception and believes that it has not incurred an
ownership change as defined under the Code. The Company believes that the
proposed initial public offering will result in an ownership change as defined
under the Code. The Company does not believe that such change will place a
significant limitation on its ability to utilize its net operating loss
carryforward.
F-12
<PAGE> 92
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate income tax effects of each type of temporary difference and
carryforward are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss and credit carryforwards......... $ 4,100,000 $ 5,867,000
Other temporary differences......................... 84,000 526,000
Valuation allowance................................. (4,184,000) (6,393,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company has recorded a full valuation allowance against the net
deferred tax asset as of December 31, 1998 and 1999, because the future
realizability of such asset is uncertain. The increase in the valuation
allowance during these periods relates primarily to the Company's net losses
recorded in each period.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In November 1999, the Company sold 2,655,441 shares of Series D preferred
stock for aggregate proceeds of $20,500,004. In addition, holders of the Notes
described in Note 6 converted $3,082,217 of such Notes and accrued interest
thereon, into 399,251 shares of Series D preferred stock. The rights,
preferences and privileges of the Series D preferred stock are as follows:
VOTING
The holders are entitled to the number of votes equal to the number of
whole shares of common stock into which the preferred shares are convertible.
The holders vote together with the holders of common stock as a single class.
DIVIDENDS
The holders are entitled to receive dividends equal to 10% of their
original investment, when and if declared by the Board of Directors. If the
Board declares such dividends, they will be cumulative and payable in preference
to any dividends payable on all other classes of stock. As of December 31, 1999,
no dividends had been declared by the Board of Directors.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders shall be entitled to receive, in
preference to the holders of all other classes and series of stock, an amount
equal to $7.72 per share plus all accrued and unpaid dividends. If the assets of
the Company are insufficient to pay the full preferential amounts to the
shareholders, the assets legally available for distribution shall be distributed
first to the holders as described above in proportion to the preferential amount
each holder is entitled to, and then ratably among the holders of other classes
of preferred stock.
CONVERSION
The Series D preferred stock is convertible, at the option of the holder,
into three shares of common stock, adjustable for certain dilutive events. All
shares shall automatically convert into common stock upon the closing of an
underwritten initial public offering of the Company's common stock at per share
offering price of at least $5.79 and yielding aggregate gross
F-13
<PAGE> 93
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds to the Company of at least $25,000,000. Automatic conversion shall also
take place upon the consent of the holders of at least a majority of the then
outstanding shares of preferred stock (voting on an as-converted basis).
REDEMPTION
At any time on or after October 29, 2006, upon receipt of written request
for redemption from holders of at least a majority of the shares then
outstanding, the Company will redeem all of the outstanding shares. The price
per share to be paid to redeem the shares shall be an amount equal to the sum of
$7.72 plus all accrued and unpaid dividends, calculated at a rate of 10%, or the
fair market value per share as determined by an independent appraiser.
9. STOCKHOLDERS' EQUITY
As of December 31, 1999, the authorized capital stock of the Company was
12,000,000 shares of common stock, $.001 par value per share, and 13,387,086
shares of preferred stock, $.001 par value per share, of which 2,100,000 shares
are designated Series A convertible preferred stock, 2,085,500 shares are
designated Series B convertible preferred stock, 3,064,516 shares are designated
Series C convertible preferred stock and 3,054,692 shares are designated Series
D redeemable convertible preferred stock.
(A) RECAPITALIZATION
On March 23, 2000, the company's Board of Directors approved a
three-for-one stock split of the Company's common stock which will be effective
prior to the effective date of the proposed initial public offering of common
stock. All share and per share amounts of common stock for all periods have been
retroactively adjusted to reflect the stock split. Upon the closing of the
Company's proposed initial public offering, the Company's certificate of
incorporation will be amended and restated to, among other things, change its
authorized capital stock to 100,000,000 shares of $0.001 par value common stock
and 5,000,000 shares of $0.001 par value preferred stock.
(B) CONVERTIBLE PREFERRED STOCK
In 1995, the Company issued 1,050,000 shares of Series A convertible
preferred stock, $.001 par value (Series A preferred stock), for $1.00 per
share. In 1996, the Company also issued 1,042,750 shares of Series B convertible
preferred stock, $.001 par value (Series B preferred stock), for $4.00 per
share. In 1997, the Company issued 1,381,960 shares of Series C convertible
preferred stock, $.001 par value (Series C preferred stock), for $4.20 per
share. The rights, preferences and privileges of Series A, B and C preferred
stock listed below are identical, except as noted.
Conversion
Series A, B and C preferred stock are convertible into common stock on a
three-for-one basis, adjustable for certain dilutive events. Conversion is at
the option of the Series A, B and C preferred stockholders, although conversion
is mandatory upon the earlier of the consummation of an initial public offering
resulting in gross proceeds to the Company of at least $10,000,000 at a price of
at least $1.00, $2.67 and $2.67 per share, respectively, or the majority vote of
outstanding shares of Series A, B and C preferred stock. In the event that less
than 20% of issued Series A, B and C preferred stock is outstanding, all
remaining outstanding shares shall be converted.
F-14
<PAGE> 94
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Liquidation Preference
The Series A, B and C preferred stockholders have preference in the event
of a liquidation or dissolution of the Company equal to $1.00, $4.00 and $4.20
per share, respectively, plus declared but unpaid dividends. If the assets of
the Company are insufficient to pay the full preferential amounts to the
preferred stockholders, the assets shall be distributed ratably among such
holders in proportion to their aggregate liquidation preference amounts.
Voting Rights and Dividends
The Series A, B and C preferred stockholders shall be entitled to vote on
all matters and are entitled to the number of votes equal to the number of
shares of common stock into which each share is convertible. The holders of the
Series A, B and C preferred stock are entitled to receive, when and as declared
by the Board of Directors, any dividend declared or paid on any shares of common
stock.
Right of First Refusal
The Series A, B and C preferred stockholders have the right of first
refusal to purchase a pro rata share of any new securities offered by the
Company, as defined. The right of first refusal terminates upon the closing of
an initial public offering pursuant to a registration statement under the
Securities Act of 1933.
(C) COMMON STOCK
At various times in 1995 and 1996, the Company issued an aggregate of
6,173,649 shares of restricted stock to founders, employees and consultants.
Restricted shares issued to founders and employees vest ratably over 48 months.
If the individuals leave the Company, the Company has the right to buy back the
unvested shares at prices ranging from $0.003 to $0.13 per share. During 1998,
the Company repurchased an aggregate of 1,370,448 shares for $52,364. At
December 31, 1999, 37,854 shares remain unvested.
(D) OPTIONS AND WARRANTS
In 1996, the Company issued warrants to purchase an aggregate of 448,350
shares of common stock to employees and consultants, with exercise prices
ranging from $0.13 to $1.33 per share. The fair value of the warrants issued to
consultants did not result in any material charges to operations for any period
presented. In June 1999, the Company issued warrants to purchase 582,933 shares
of common stock in connection with the issuance of the Notes (Note 6). The
warrants are exercisable immediately at a price of $ 0.22 per share through the
earlier of (1) an initial public offering meeting certain criteria or (2) June
11, 2004. The Company also issued warrants to purchase 13,842 shares of Series D
Preferred Stock to a bank for the extension of a bridge loan (Note 5). Upon the
closing of the proposed initial public offering, the warrants issued to both the
Noteholders and the bank will be automatically converted into common stock
pursuant to the cashless exercise provision in the related agreements.
In March of 1996, the Company adopted the Connected Corporation 1996 Equity
Incentive Plan (the Plan) under which it may grant incentive stock options
(ISOs), nonqualified stock options (NSOs), stock appreciation rights,
performance shares, restricted stock, and stock units to purchase up to
5,250,000 shares of common stock. Under the Plan, ISOs may not be granted at
less than fair market value on the date of the grant, and all options generally
vest
F-15
<PAGE> 95
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over a four-year period and are subject to immediate vesting based on certain
future events. As of December 31, 1999, options available for future grants
under the Plan are 1,850,241. Through March 27, 2000, the Company granted
options to purchase 1,850,241 shares of common stock with exercise prices per
share ranging from $0.32-$3.33 under the Plan.
In March 2000, the Company adopted, subject to shareholder approval, the
2000 Combination Stock Option Plan (the 2000 Plan) under which it may grant ISOs
to employees and NSOs to employees and consultants. A total of 6,000,000 shares
of common stock is currently reserved for issuance pursuant to the 2000 Plan,
subject to annual increases, as defined. In March 2000, options to purchase
2,906,859 shares of common stock at $3.33 per share were granted under the 2000
Plan, subject to shareholder approval.
In March 2000, the Company adopted, subject to shareholder approval, the
2000 Employee Stock Purchase Plan (2000 ESPP). A total of 500,000 shares of
common stock are reserved for issuance under the 2000 ESPP, subject to annual
increases, as defined. Eligible employees may purchase common stock at 85% of
the lesser of the average market price of the Company's common stock on the
first or last day of the applicable six-month payment period.
In March 2000, the Company adopted, subject to shareholder approval, the
2000 Nonemployee Director Option Plan (the 2000 Directors Plan) under which the
Company will grant options to purchase common stock to its nonemployee
directors. Under the terms of the 2000 Directors Plan, the Company will grant an
option to purchase 90,000 shares of common stock to all current nonemployee
directors when approved by the Company's shareholders; new directors will
receive an option to purchase 90,000 shares when first elected or appointed to
the Board. All nonemployee directors will receive an option to acquire an
additional 90,000 shares of common stock three years following the last grant.
All options will vest monthly; upon a change in control, all unvested options
will automatically vest. A total of 1,000,000 shares are reserved for issuance
pursuant to the 2000 Directors Plan. As of March 27, 2000, the Company granted
540,000 options to purchase common stock at an exercise price per share of
$3.33.
F-16
<PAGE> 96
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee warrant and stock option activity for the three years in the
period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE PER SHARE
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1996....... 903,750 $0.03 - $1.33 $0.19
Granted............................ 637,500 0.13 - 0.15 0.15
Canceled........................... (120,174) 0.03 - 0.13 0.08
Exercised.......................... (8,826) 0.13 0.13
--------- ------------- -----
Outstanding, December 31, 1997....... 1,412,250 0.03 - 1.33 0.18
Granted............................ 1,022,064 0.15 - 0.22 0.15
Canceled........................... (191,481) 0.03 - 0.15 0.13
Exercised.......................... (2,826) 0.13 0.13
--------- ------------- -----
Outstanding, December 31, 1998....... 2,240,007 0.03 - 1.33 0.17
Granted............................ 1,919,250 0.22 - 0.32 0.23
Canceled........................... (714,900) 0.03 - 0.22 0.16
Exercised.......................... (411,651) 0.13 - 0.15 0.14
--------- ------------- -----
Outstanding, December 31, 1999....... 3,032,706 $0.03 - $1.33 $0.22
========= ============= =====
Exercisable, December 31, 1999....... 741,202 $0.03 - $1.33 $0.22
========= ============= =====
Exercisable, December 31, 1998....... 1,046,102 $0.03 - $1.33 $0.20
========= ============= =====
Exercisable, December 31, 1997....... 520,828 $0.03 - $1.33 $0.26
========= ============= =====
</TABLE>
Information regarding warrants and stock options as of December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.03.................. 69,372 6.26 $0.03 66,559 $0.03
0.13 - $0.15.......... 1,050,834 7.73 0.15 567,528 0.14
0.22 - $0.32.......... 1,856,250 9.48 0.23 50,865 0.22
1.33.................. 56,250 6.46 1.33 56,250 1.33
--------- ----- ------- -----
3,032,706 $0.22 741,202 $0.22
========= ===== ======= =====
</TABLE>
In connection with certain stock option grants during the year ended
December 31,1999, the Company recorded deferred compensation of $2,138,761. In
connection with expected additional stock option grants in the first half of
2000, the Company will record additional deferred compensation of approximately,
$21,038,000. The deferred compensation represents the aggregate difference
between the option exercise price and the deemed fair value of the common stock
on the date of grant for accounting purposes. The deferred compensation will be
recognized as an expense over the vesting period of the underlying stock
options. The Company recorded compensation expense of $594,454 in the year ended
December 31, 1999,
F-17
<PAGE> 97
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to these options. The Company expects to record approximately
$10,380,000, $6,822,000, $3,615,000, $1,598,000, and 172,000 in compensation
expense in the years ended December 31, 2000, 2001, 2002, 2003, and 2004,
respectively.
The amortization of deferred compensation in the consolidated statement of
operations for the year ended December 31, 1999 by expense classification is as
follows:
<TABLE>
<S> <C>
Cost of sales............................................... $ 31,495
Sales and marketing......................................... 261,929
Research and development.................................... 174,686
General and administrative.................................. 126,344
--------
$594,454
========
</TABLE>
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options or warrants to be included in the
statement of operations or disclosed in the notes to financial statements. The
Company accounts for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and follows the disclosure-only alternative
available under SFAS No. 123. The Company has computed the pro forma disclosures
under SFAS No. 123 for options granted in 1997, 1998 and 1999 using the
Black-Scholes option-pricing model.
The weighted average assumptions used for 1997, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate................ 5.83 - 6.66% 4.46 - 5.72% 4.6 - 6.03%
Expected lives......................... 7 years 7 years 5 years
Expected volatility.................... -- -- --
Expected dividends..................... -- -- --
Weighted average remaining contractual
life of options outstanding.......... 9.02 years 9.06 years 8.82 years
</TABLE>
Had compensation cost for the Company's 1996 Equity Incentive Plan been
determined consistent with SFAS No. 123, the Company's net loss would have been
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss available to common
stockholders --
As reported........................ $(4,380,573) $(2,793,566) $(6,140,061)
=========== =========== ===========
Pro forma.......................... (4,393,973) (2,816,780) (6,241,340)
=========== =========== ===========
Basic and diluted net loss per
share --
As reported........................ $ (1.51) $ (0.77) $ (1.31)
Pro forma.......................... (1.51) (0.78) (1.33)
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
(A) LEASE COMMITMENTS
The Company leases its facilities and certain equipment under operating
leases that expire on various dates through October 2001. Rent expense charged
to operations in 1997, 1998 and 1999 was approximately $99,000, $144,000, and
$285,000 respectively.
F-18
<PAGE> 98
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the minimum future rent payments under the lease
agreements are as follows:
<TABLE>
<S> <C>
Years ending December 31,
2000...................................................... $ 915,000
2001...................................................... 543,000
----------
$1,458,000
==========
</TABLE>
(B) PATENT LITIGATION CONTINGENCY
The Company has received notice from Stac Software, Inc. (Stac) alleging
that the Company's primary product infringes one of Stac's patents. The Company
does not believe that such an infringement exists and, in the event of
litigation, intends to vigorously defend its position. The Company cannot yet
predict whether the outcome of negotiations or litigation (if any) with Stac
will have a material impact on its financial position or results from
operations; however, the outcome could involve substantial costs to license
Stac's technology or if such a license was not available, reengineer the
Company's product. In addition, the Company could be forced to pay significant
legal fees, damages, or amounts in settlement in connection with any such
litigation or negotiations.
Stac also alleges that certain of the Company's advertising and marketing
of a certain product feature are misleading. The Company has modified its
advertising and marketing, and has renamed a product feature, to clarify the
operation of this feature. Despite these clarifications, the Company may still
be subject to litigation on this matter; the results of such litigation could
include significant legal fees, damages or amounts in settlement.
In addition, the Company received a notice dated March 23, 2000 from John
P. Shannon alleging that the Company's primary product infringes two of his
patents. Based on the Company's preliminary investigation of Mr. Shannon's
allegation, the Company does not believe that they are infringing any claims of
his patents.
The Company cannot yet predict whether the outcome of negotiations or
litigation (if any) with Mr. Shannon will have a material impact on its
financial position or results from operations; however, the outcome could
involve substantial costs to license Mr. Shannon's technology or if such a
license was not available, to reengineer the Company's product. In addition, the
Company could be forced to pay significant legal fees, damages, or amounts in
settlement in connection with any such litigation or negotiations.
11. 401(K) PLAN
The Company maintains the Connected Corporation 401(k) Pension and Profit
Sharing Plan (the Plan) under Section 401(k) of the IRC covering all employees.
Employees of the Company may participate in the Plan after reaching the age of
21. To be eligible for profit sharing contributions made for the Plan year,
employees must earn at least 1,000 hours of service. The Company may make
discretionary matching contributions and profit sharing contributions, as
determined annually by the Board of Directors. Employee contributions vest
immediately, while Company matching contributions vest ratably over three years.
To date, there have been no discretionary contributions made to the Plan.
12. RELATED PARTY TRANSACTIONS
In 1997, the Company entered into a software development and license
agreement with a stockholder of the Company for its back-up software. During the
years ended December 31,
F-19
<PAGE> 99
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, 1998 and 1999, the Company recognized approximately $225,000, $695,000 and
$134,000, respectively, in revenues from this related party. The Company
believes the license fees payable under the agreement are reasonable and
comparable to those which would have been negotiated on an arm's-length basis
with an unaffiliated third party.
13. SEGMENT DISCLOSURE
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting financial information about
operating segments in annual and interim financial statements. Operating
segments are defined as units of a business for which financial information is
available that is evaluated by the primary decision-makers in determining the
manner in which resources are allocated and in assessing performance of the
business. The Company's chief operating decision-makers are its chief executive
officer and other members of senior management.
To date, the Company has viewed its operations and manages its business in
three primary segments: license, subscription and other revenues. The chief
operating decision-makers consider segment revenue as the primary measure of
segment performance. Revenues for these segments are reported as reported on the
accompanying consolidated statements of operations. The Company does not
allocate any expenses or any other source of income to its segments. Similarly,
property and equipment are not allocated to the segments for management or
segment reporting purposes. Substantially all of the Company's operations and
assets are in the United States.
14. VALUATION AND QUALIFYING ACCOUNTS
The following is a rollforward of the Company's allowance for doubtful
accounts:
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
YEARS ENDED DECEMBER 31, ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1997................................... $ -- $10,000 $ -- $10,000
1998................................... 10,000 -- -- 10,000
1999................................... 10,000 77,000 2,000 85,000
</TABLE>
15. SUBSEQUENT FINANCING
On March 28, 2000, the Company entered into a binding commitment with a
third party. Pursuant to the terms of the commitment, the Company will sell
74,101 shares of a newly designated class of convertible preferred stock (Series
E preferred stock) and a warrant to purchase 40,002 shares of common stock for
aggregate proceeds of $2,000,000. The Company's obligation to close the
transaction is subject to certain conditions, including a vote of the Company's
shareholders and the filing of an amended and restated certificate of
incorporation. The rights and privileges associated with the Series E preferred
stock are identical to those associated with the Series A, B and C convertible
preferred stock described in Note 9(b), except as follows: (1) the minimum
initial public offering price required to trigger the automatic conversion into
three shares of common stock is $8.00 (2) the liquidation preference is $26.99
per share plus accrued and unpaid dividends (3) dividends are payable only to
the extent that the Company's Board declares dividends on the common stock; and
(4) the series E holders do not have a right of first refusal.
F-20
<PAGE> 100
CONNECTED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This warrant may be exercised at any time during a one year period
beginning upon the close of the Company's initial public offering. The warrant
expires on the earlier of five years from the date of its grant or one year
after the closing of an initial public offering meeting certain criteria. The
warrant agreement also provides for an automatic cashless exercise immediately
prior to expiration. The exercise price will be equal to the issuance price of
the Company's initial public offering.
F-21
<PAGE> 101
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 5
Special Note Regarding Forward-Looking
Statements And Industry Data......... 17
Use Of Proceeds........................ 18
Dividend Policy........................ 18
Capitalization......................... 19
Dilution............................... 20
Selected Historical Consolidated
Financial Data....................... 21
Management's Discussion And Analysis Of
Financial Condition And Results Of
Operations........................... 23
Business............................... 32
Management............................. 48
Certain Transactions................... 59
Principal Stockholders................. 62
Description Of Capital Stock........... 65
Shares Eligible For Future Sale........ 71
Underwriting........................... 73
Legal Matters.......................... 76
Experts................................ 76
Where You Can Find More Information.... 76
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT
BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO OBLIGATED TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
LOGO
SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
WIT SOUNDVIEW
PROSPECTUS
, 2000
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
The costs of issuance and distribution will be borne by the Registrant as
follows:
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ $15,180
NASD Fee.................................................... $ 6,250
Nasdaq National Market Listing Fee.......................... $
Blue Sky Fees and Expenses.................................. $ 7,000
Transfer Agent and Registrar Fees........................... $ 3,500
Accounting Fees and Expenses................................ $
Legal Fees and Expenses..................................... $
Printing and Engraving...................................... $
Miscellaneous............................................... $
-------
Total............................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
corporation may specify in its certificate of incorporation that directors will
not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for any liability arising with respect to
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation further provides that we are authorized to
indemnify our directors, officers and employees and agents to the fullest extent
permitted by Delaware law. We believe the indemnification under our certificate
of incorporation covers negligence and gross negligence on the part of
indemnified parties.
Our bylaws provide that directors and officers shall be, and at the
discretion of our board of directors, non-officer employees and agents may be,
indemnified by us to the fullest extent authorized by Delaware law, as it now
exists or may in the future be amended, against all expenses and liabilities
reasonably incurred in connection with service for or on behalf of our company.
The bylaws also provide for the advancement of expenses to directors and
officers, and, at the discretion of our board of directors, non-officer
employees and agents. In addition, our bylaws provide that the right of
directors and officers to indemnification is a contract right and is not
exclusive of any other right now possessed or hereafter acquired under any
bylaw, agreement, vote of stockholders or otherwise. We also have directors' and
officers' insurance against certain liabilities.
In addition to and consistent with the indemnification provided for in our
certificate of incorporation and bylaws, we have entered into agreements to
indemnify our directors and
II-1
<PAGE> 103
officers. These agreements, among other things, require us to indemnify our
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by us or in our right arising out of
that person's services as our director or officer, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request. Under the indemnification agreements, a director or officer will not
receive indemnification if he is found to have received any improper personal
benefit or if he has not acted in good faith or in a manner he reasonably
believed to be in our best interests.
We believe that the indemnification agreements, together with the
limitation of liability and indemnification provisions of our certificate of
incorporation and bylaws and directors' and officers' insurance will assist us
in attracting and retaining qualified individuals to serve as our directors and
officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be provided to directors, officers or persons controlling our company as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities issued
by us since March 1, 1997 which were not registered under the Securities Act.
The registrant plans to effect a three-for-one split of the registrant's capital
stock prior to the effective date of this registration statement, subject to
stockholder approval. All references to numbers of shares and prices of capital
stock give effect to this stock split.
The issuances of securities pursuant to the exercise of stock options were
deemed to be exempt from registration under the Securities Act in reliance on
Rule 701 under the Securities Act as transactions pursuant to compensatory
benefit plans and contracts relating to compensation or as private placements
under Section 4(2) of the Securities Act. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments used in such transactions. All recipients
either received adequate information about us or had access, through employment
or other relationships, to such information.
All other securities issued in the following transactions were sold in
reliance upon the exemptions from registration set forth in Section 3(b) and
4(2) of the Securities Act relating to sales by an issuer not involving any
public offering.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
(1) On June 12, 1996, we entered into an agreement to sell 245,325 shares
of common stock to Ezra Goldman, for aggregate consideration of
$32,710. On June 26, 1997, Mr. Goldman paid for and we issued these
shares.
(2) On June 12, 1996, we entered into an agreement to sell 245,325 shares
of common stock to Ronald Lachman, for aggregate consideration of
$32,710. On June 26, 1997, Mr. Lachman paid for and we issued these
shares.
II-2
<PAGE> 104
(3) On June 12, 1996, we entered into an agreement to sell 420,000 shares
of common stock to Kinetech, Inc., for aggregate consideration of
$56,000. On June 26, 1997, Kinetech paid for and we issued these
shares.
(4) On May 28, 1997, we issued a total of 1,381,960 shares of series C
convertible preferred stock convertible into a total of 4,145,880
shares of common stock for aggregate consideration of $5,804,232 to
the following persons: Intel Corporation, Technologies for Information
& Entertainment III, L.P., H&Q Connected Investors, L.P., Solstice
Capital L.P., David Hirschman, Morris Ventures, East River Ventures,
L.P., United Acquisition Company, Michael T. Lash, and Robert Hartman.
(5) On November 21, 1997, we issued 5,040 shares of common stock to Robert
Hartman for aggregate consideration of $672 upon his option exercise.
(6) On November 21, 1997, we issued 3,456 shares of common stock to Thomas
C. Tormey for aggregate consideration of $460.80 upon his option
exercise.
(7) On November 21, 1997, we issued 330 shares of common stock to Sonja M.
Schluchter for aggregate consideration of $44 upon her option
exercise.
(8) On April 8, 1998, we issued 2,196 shares of common stock to Andrew
Broadstone for aggregate consideration of $292.80 pursuant to his
option exercise.
(9) On May 20, 1998, we issued 18,000 shares of common stock to Charles
Robbins for aggregate consideration of $2,400.
(10) On November 2, 1998, we issued 630 shares of common stock to Kathleen
J. Bruce for aggregate consideration of $84 upon her option exercise.
(11) On January 18, 1999, we issued 146,193 shares of common stock to
Matthew Westover for aggregate consideration of $19,762.65 upon his
option exercise.
(12) In January 1999 we agreed to issue 18,000 shares of common stock to
Charles Robbins for aggregate consideration of $3,900. In January
2000, Mr. Robbins paid for and was issued these shares.
(13) On April 28, 1999, we issued 6,912 shares of common stock to Michael
Carusi for aggregate consideration of $1,036.80 upon his option
exercise.
(14) On May 11, 1999, we issued 510 shares of common stock to Jennifer
Bassett-Glynn for aggregate consideration of $76.50 upon her option
exercise.
(15) On May 18, 1999, we issued 1,572 shares of common stock to Lawrence
Jones for aggregate consideration of $235.80 upon his option exercise.
(16) On June 11, 1999, we issued 1,440 shares of common stock to Arun
Mukherjee for aggregate consideration of $216 upon his option
exercise.
(17) On June 11, 1999, in connection with obtaining a credit facility we
issued a warrant to purchase shares of series C preferred stock to
Silicon Valley Bank at an exercise price of $4.20 per share if a
subsequent financing was not completed or series D preferred stock if
a subsequent financing was completed. Upon the closing of the series D
financing, the warrant became exercisable to purchase 13,842 shares of
series D preferred stock at an exercise price of $5.96 per share.
These shares of series D preferred stock are convertible into 41,526
shares of common stock.
(18) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 107,838 shares of common stock to
Technologies Information & Entertainment III, L.P. at an exercise
price of $0.22 per share. The principal
II-3
<PAGE> 105
and accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(19) On June 11, 1999 we issued an unsecured subordinated convertible note
and a warrant to purchase 97,152 shares of common stock to Middlefield
Ventures, Inc. at an exercise price of $0.22 per share. The principal
and accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(20) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 58,293 shares of common stock to Ronald D.
Lachman at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(21) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 48,576 shares of common stock to Solstice
Capital at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(22) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 68,007 shares of common stock to Softbank
America, Inc. at an exercise price of $0.22 per share. The principal
and accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(23) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 4,860 shares of common stock to Craig
Randall at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(24) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 4,860 shares of common stock to Norman
Meisner at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(25) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 9,717 shares of common stock to Carl Lazarus
at an exercise price of $0.22 per share. The principal and accrued
interest on the note converted into shares of series D preferred stock
upon the closing of the series D financing. See Items (36) and (41).
(26) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 4,860 shares of common stock to James Priest
at an exercise price of $0.22 per share. The principal and accrued
interest on the note converted into shares of series D preferred stock
upon the closing of the series D financing. See Items (36) and (41).
(27) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 9,717 shares of common stock to David Cane
at an exercise price of $0.22 per share. The principal and accrued
interest on the note converted into shares of series D preferred stock
upon the closing of the series D financing. See Items (36) and (41).
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<PAGE> 106
(28) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 4,860 shares of common stock to Charles
Robbins at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(29) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 13,602 shares of common stock to Charles
Kline at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(30) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 13,602 shares of common stock to William
Keating at an exercise price of $0.22 per share. The principal and
accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(31) On June 11, 1999, we issued an unsecured subordinated convertible note
and a warrant to purchase 19,431 shares of common stock to David
Arthur Norman and Mamie Ruth Norman as Trustees of the Norman Family
Revocable Trust at an exercise price of $0.22 per share. The principal
and accrued interest on the note converted into shares of series D
preferred stock upon the closing of the series D financing. See Items
(36) and (41).
(32) On July 20, 1999, we issued 6,945 shares of common stock to Bryan
Dolan for aggregate consideration of $1,041.75 upon his option
exercise.
(33) On August 26, 1999, we issued 40,917 shares of common stock to Michael
Lash for aggregate consideration of $5,814.35 upon his option
exercise.
(34) On August 31, 1999, we issued 7,512 shares of common stock to Joel
Arbeitman for aggregate consideration of $1,126.80 upon his option
exercise.
(35) On September 23, 1999, we issued 147,150 shares of common stock to
William M. Marohn for aggregate consideration of $20,479.10 upon his
option exercise.
(36) On November 3, 1999, we issued shares of series D convertible
preferred stock convertible into a total of 9,164,076 for aggregate
consideration of $23,582,222.24 to the following persons: Craig
Randall, Carl Lazarus, Norman Meisner, James Priest, David Cane,
Technologies for Information & Entertainment III, L.P., Softbank
America, Inc., Middlefield Ventures, Inc., William Keating, David
Arthur Norman and Mamie Ruth Norman, as Trustees of the Norman Family
Revocable Trust, Ronald D. Lachman, Charles Kline, Solstice Capital
L.P., H&Q Connected Investors L.P., Hambrecht & Quist Employee Venture
Fund, L.P., J3D Family Limited Partnership, Baker Communications Fund,
L.P., Fidelity Ventures Telecom and Technology II Limited Partnership,
Fidelity Investors II Limited Partnership, STT Ventures Limited,
Technologies for Information & Entertainment III, L.P., Charles
Robbins, TIE Mezzanine Fund, L.P., and David Hirschman.
(37) On November 30, 1999, we issued 22,500 shares of common stock to
Daniel Murray for aggregate consideration of $3,375 upon his option
exercise.
(38) On December 28, 1999, we issued 18,372 shares of common stock to
Rosemary Fedorchak for aggregate consideration of $612.40 upon her
option exercise.
(39) On December 29, 1999, we issued 30,000 shares of common stock to Wayne
Babich for aggregate consideration of $4,000 upon his option exercise.
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<PAGE> 107
(40) On January 21, 2000, we issued 7,062 shares of common stock to David
A. Roberts for aggregate consideration of $1,015.60 upon his option
exercise.
(41) Immediately prior to the closing of this offering, the warrant issued
to Silicon Valley Bank and the warrants issued June 11, 1999,
referenced above, will be automatically exercised for the number of
shares indicated above multiplied by the difference between the
exercise price and the offering price and divided by the exercise
price.
(42) Since inception and through March 27, 2000, we have issued options to
purchase aggregate of 9,216,414 shares of common stock with a weighted
average exercise price of $1.37. Since inception and through March 27,
2000, options to purchase 1,059,555 shares have been canceled without
exercise.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT REFERENCE
- ------- -------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement *
3.1 Fourth Amended and Restated Certificate of Incorporation of Filed herewith
the Registrant
3.2 Form of Fifth Amended and Restated Certificate of Filed herewith
Incorporation of the Registrant (to be effective upon the
closing of this offering)
3.3 Second Amended and Restated Bylaws of the Registrant Filed herewith
3.4 Form of Third Amended and Restated Bylaws of the Registrant Filed herewith
(to be effective upon the closing of this offering)
4.1 Form of Registrant's common stock certificate *
4.2 Third Amended and Restated Rights Agreement Filed herewith
4.3 Warrant dated June 12, 1996 issued to Softbank Holdings, Filed herewith
Inc.
4.4 Warrant dated June 12, 1996 issued to Carl Lazarus Filed herewith
4.5 Warrant dated June 12, 1996 issued to Sandpiper Software Filed herewith
Consulting, LLC
4.6 Form of Amended and Restated Warrant, together with a list Filed herewith
of holders
4.7 Restricted Stock Agreement between Registrant and Carl Filed herewith
Lazarus
5.1 Legal opinion of Brown, Rudnick, Freed & Gesmer *
10.1 Form of Indemnification Agreement entered into by Registrant Filed herewith
with each of its directors and executive officers
10.2 Form of Change of Control Agreement entered into by and Filed herewith
between the Registrant and each of its executive officers
10.3 Sublease Agreement by and between The Mathworks, Inc. and Filed herewith
the Registrant and related Lease Agreement by and between
LMF Cochituate Corp. and The Mathworks, Inc.
10.4 1996 Equity Incentive Plan Filed herewith
10.5 2000 Combination Stock Option Plan Filed herewith
10.6 2000 Employee Stock Purchase Plan Filed herewith
10.7 2000 Nonemployee Director Stock Option Plan Filed herewith
10.8 Offer letter from the Registrant to Norman B. Meisner Filed herewith
10.9 Offer letter between the Registrant and James M. Priest Filed herewith
21.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Brown, Rudnick, Freed & Gesmer (included in *
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, independent accountants Filed herewith
</TABLE>
II-6
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT REFERENCE
- ------- -------- ---------
<C> <S> <C>
23.3 Consent of Weingarten, Schurgin, Gagnebin & Hayes LLP Filed herewith
24.1 Powers of Attorney (included on the signature pages hereto) Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
- -------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the financial statements or the notes to
those statements.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14. Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE> 109
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Boston, The Commonwealth
of Massachusetts, on March 30, 2000.
CONNECTED CORPORATION
By: /s/ DAVID A. CANE
-----------------------------------
David A. Cane
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints David Cane, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution for him or in his
name, place and stead, in any and all capacities to sign any and all amendments
or post-effective amendments to this registration statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
and in connection with any registration of additional securities pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, to sign any
abbreviated registration statements and any and all amendments thereto, and to
file the same, with all exhibits thereto and other documents in granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID A. CANE Director, Chief Executive March 30, 2000
- --------------------------------------------------- Officer and President
David A. Cane (principal executive officer,
principal financial officer and
principal accounting officer)
/s/ FREDERICK BAMBER Director March 30, 2000
- ---------------------------------------------------
Frederick Bamber
/s/ LAWRENCE BETTINO Director March 27, 2000
- ---------------------------------------------------
Lawrence Bettino
/s/ HARRY A. GEORGE Director March 21, 2000
- ---------------------------------------------------
Harry A. George
</TABLE>
II-8
<PAGE> 110
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT KETTERSON Director March 28, 2000
- ---------------------------------------------------
Robert Ketterson
/s/ RONALD D. LACHMAN Director March 27, 2000
- ---------------------------------------------------
Ronald D. Lachman
/s/ ASHLEY LEEDS Director March 27, 2000
- ---------------------------------------------------
Ashley Leeds
</TABLE>
II-9
<PAGE> 111
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT REFERENCE
- ------- -------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement *
3.1 Fourth Amended and Restated Certificate of Incorporation of Filed herewith
the Registrant
3.2 Form of Fifth Amended and Restated Certificate of Filed herewith
Incorporation of the Registrant (to be effective upon the
closing of this offering)
3.3 Second Amended and Restated Bylaws of the Registrant Filed herewith
3.4 Form of Third Amended and Restated Bylaws of the Registrant Filed herewith
(to be effective upon the closing of this offering)
4.1 Form of Registrant's common stock certificate *
4.2 Third Amended and Restated Rights Agreement Filed herewith
4.3 Warrant dated June 12, 1996 issued to Softbank Holdings, Filed herewith
Inc.
4.4 Warrant dated June 12, 1996 issued to Carl Lazarus Filed herewith
4.5 Warrant dated June 12, 1996 issued to Sandpiper Software Filed herewith
Consulting, LLC
4.6 Form of Amended and Restated Warrant, together with a list Filed herewith
of holders
4.7 Restricted Stock Agreement between Registrant and Carl Filed herewith
Lazarus
5.1 Legal opinion of Brown, Rudnick, Freed & Gesmer *
10.1 Form of Indemnification Agreement entered into by Registrant Filed herewith
with each of its directors and executive officers
10.2 Form of Change of Control Agreement entered into by and Filed herewith
between the Registrant and each of its executive officers
10.3 Sublease Agreement by and between The Mathworks, Inc. and Filed herewith
the Registrant and related Lease Agreement by and between
LMF Cochituate Corp. and The Mathworks, Inc.
10.4 Amended and Restated 1996 Equity Incentive Plan Filed herewith
10.5 2000 Combination Stock Option Plan Filed herewith
10.6 2000 Employee Stock Purchase Plan Filed herewith
10.7 2000 Nonemployee Director Stock Option Plan Filed herewith
10.8 Offer letter from the Registrant to Norman B. Meisner Filed herewith
10.9 Offer letter between the Registrant and James M. Priest Filed herewith
21.1 Subsidiaries of the Registrant Filed herewith
23.1 Consent of Brown, Rudnick, Freed & Gesmer (included in *
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, independent accountants Filed herewith
23.3 Consent of Weingarten, Schurgin, Gagnebin & Hayes LLP Filed herewith
24.1 Powers of Attorney (included on the signature pages hereto) Filed herewith
27.1 Financial Data Schedule Filed herewith
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
FOURTH AMENDED
AND
RESTATED CERTIFICATE OF INCORPORATION
OF
CONNECTED CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the
"corporation") is Connected Corporation and the date of filing the original
certificate of incorporation of the corporation with the Secretary of State of
Delaware is October 31, 1995.
2. The amendment and restatement of the Certificate of
Incorporation herein certified has been duly adopted by the directors and the
stockholders in accordance with the provisions of Sections 141, 228, 242 and 245
of the General Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of the corporation, as
amended and restated herein, shall upon the effective date of this Fourth
Amended and Restated Certificate of Incorporation, read as follows:
<PAGE> 2
FOURTH AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF CONNECTED CORPORATION
FIRST: The name of this corporation is Connected Corporation.
SECOND: The address including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, Wilmington, County of New Castle and the name of the registered agent of
the Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be to provide networking computer services to
businesses and to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
FOURTH: A. CLASSES OF STOCK. This corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that this corporation is
authorized to issue is Twenty Five Million Three Hundred Eighty Seven Thousand
and Eighty Six (25,387,086) shares. Twelve Million (12,000,000) shares shall be
Common Stock, having a par value of $.001 per share, and Thirteen Million Three
Hundred Eighty Seven Thousand and Eighty Six (13,387,086) shares shall be
Preferred Stock, having a par value of $0.001 per share.
B. RIGHTS. PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
The Preferred Stock authorized by this Fourth Amended and Restated Certificate
of Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, which series shall consist of 1,050,000 shares (the
"Series A Preferred Stock"), the Series A-1 Preferred Stock, which series shall
consist of 1,050,000 shares (the "Series A1 Preferred Stock"), the Series B
Preferred Stock, which series shall consist of 1,042,750 shares (the "Series B
Preferred Stock"), the Series B-1 Preferred Stock, which series shall consist of
1,042,750 shares (the "Series B-1 Preferred Stock"), the Series C Preferred
Stock, which series shall consist of 1,532,258 shares (the "Series C Preferred
Stock"), the Series C-1 Preferred Stock, which series shall consist of 1,532,258
shares (the "Series C-1 Preferred Stock"), the Series D Preferred Stock, which
series shall consist of 3,068,535 shares (the "Series D Preferred Stock"), the
Series D-1 Preferred Stock, which series shall consist of 3,068,535 shares (the
"Series D-1 Preferred Stock") and the Common Stock are as set forth below in
this Article IV. The Series A, Series A-1, Series B, Series B-l, Series C, C-l,
D and D-1 Preferred Stock are sometimes hereinafter referred to collectively as
the "Preferred Stock."
-2-
<PAGE> 3
1. DIVIDEND PROVISIONS. The holders of shares of Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of this corporation) on the Common Stock of
this corporation, in a per share amount equal to ten percent (10%) of the per
share original purchase price for such shares of Preferred Stock in any given
year in which dividends are declared, payable when, as and if declared by the
Board of Directors. Subject to the prior rights of holders of all classes of
stock at the time outstanding having prior rights as to dividends, the holders
of the Common Stock shall be entitled to receive, when and as declared by the
Board of Directors, out of any assets of this corporation legally available
therefor, such dividends as may be declared from time to time by the Board of
Directors; provided, however, that dividends payable to the holders of the
Common Stock shall in no event be greater than the dividends payable on the
Preferred Stock. Dividends payable to the holders of the Series D Preferred
Stock shall be cumulative and shall be payable in preference to any dividends
payable on all other classes of stock. Dividends payable on the other series of
Preferred Stock or on the Common Stock shall not be cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, the holders of
the Series D and Series D-1 Preferred Stock shall be entitled to receive in
preference to the holders of all other classes and series of stock an amount per
share equal to the sum of (A) $7.72 for each outstanding share of Series D and
Series D-1 Preferred Stock (as adjusted for stock splits, stock dividends and
recapitalizations) and (B) an amount equal to all accrued and unpaid dividends
on such shares, after payment of which the holders of Series A and Series A-1
Preferred Stock shall be entitled to receive an amount per share equal to the
sum of (A) $1.00 for each outstanding share of Series A and Series A-1 Preferred
Stock (as adjusted for stock splits, stock dividends and recapitalizations) and
(B) an amount equal to declared but unpaid dividends on such share; the holders
of Series B and Series B-1 Preferred Stock shall be entitled to receive an
amount per share equal to the sum of (A) $4.00 for each outstanding share of
Series B and Series B-1 Preferred Stock (as adjusted for stock splits, stock
dividends and recapitalizations) and {'B) an amount equal to declared but unpaid
dividends on such share; and the holders of Series C and Series C-1 Preferred
Stock shall be entitled to receive an amount per share equal to the sum of (A)
$4.20 for each outstanding share of Series C and Series C-1 Preferred Stock (as
adjusted for stock splits, stock dividends and recapitalizations) and (B) an
amount equal to declared but unpaid dividends on such share. If upon the
occurrence of such event, the assets sad funds thus distributed among the
holders of the Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the entire assets
and funds of this corporation legally available for distribution shall be
distributed first to the holders of the Series D and Series D-1 Preferred Stock
as described above and, thereafter, if such funds are not exhausted,
-3-
<PAGE> 4
ratably among the other holders of Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to.
(b) After the distributions described in subsection (a)
above have been paid, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming full conversion of such Preferred Stock).
(c) (i) For purposes of this Section 2, a
liquidation, dissolution or winding up of this corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of this corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of this
corporation) unless this corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will immediately after such
acquisition or sale by virtue of securities issued as consideration for this
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity; or (B) a sale of all or
substantially all of the assets of this corporation.
(ii) In any of such events, if the consideration
received by this corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to lock-up
letter or other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities
exchange or through the Nasdaq National Market, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing
bid or sale prices (whichever is applicable) over the thirty-day period ending
three (3) days prior to the closing; and
(3) If there is no active
public market, the value shall be the fair market value thereof, as mutually
determined by this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of Preferred Stock.
(B) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be to make
an appropriate discount from the market value determined as above in (A)(1), (2)
-4-
<PAGE> 5
and (3) to reflect the approximate fair market value thereof, as mutually
determined by this corporation and the holders of at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.
(iii) This corporation shall give each holder of
record of Preferred Stock written notice of such impending transaction not later
than twenty (20) days prior to the stockholders meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions
of this Section 2, and this corporation shall thereafter give such holders
prompt notice of any material changes, The transaction shall in no event take
place sooner than twenty (20) days after this corporation has given the first
notice provided for herein or sooner than ten (10) days after this corporation
has given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice fights or similar notice
rights and that represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
3. CONVERSION. The holders of the Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) SERIES A AND SERIES A-1 PREFERRED STOCK.
Subject to subsection (d), each share of Series A and Series A-1 Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1.00 (the "Original Issue
Price" for each of the Series A and Series A-1 Preferred Stock) by the
Conversion Price at the time in effect for such series. The initial Conversion
Price per share for shares of Series A Preferred Stock shall be the Original
Issue Price for such series and the initial Conversion Price per share for the
Series A-1 Preferred Stock shall be the Conversion Price per share for the
Series A Preferred Stock in effect immediately prior to the issuance of such
share of Series A-1 Preferred Stock; provided, however, that the Conversion
Price for the Series A and Series A-1 Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
(ii) SERIES B AND SERIES B-1 PREFERRED STOCK.
Subject to Subsection (d), each share of Series B and Series B-1 Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $4.00 (the "Original Issue
Price" for each of the Series B and Series B-1 Preferred Stock) by the
Conversion Price at the time in effect for such series. The initial
-5-
<PAGE> 6
Conversion Price per share for shares of Series B Preferred Stock shall be the
Offing Issue Price for such series and the initial Conversion Price per share
for the Series B-1 Preferred Stock shall be the Conversion Price per share for
the Series B Preferred Stock in effect immediately prior to the issuance of such
share of Series B-1 Preferred Stock; provided, however, that the Conversion
Price for the Series B and Series B-1 Preferred Stock shall be subject to
adjustment as set forth in subsection 3(d).
(iii) SERIES C AND SERIES C-1 PREFERRED STOCK.
Subject to subsection (d), each share of Series C and C-1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of this corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $4.20 (the "Original Issue Price" for
each of the Series C and Series C-1 Preferred Stock) by the Conversion Price at
the time in effect for such series. The initial Conversion Price per share for
shares of Series C Preferred Stock shall be the Original Issue Price for such
series and the initial Conversion Price per share for the Series C-1 Preferred
Stock shall be the Conversion Price per share for the Series C Preferred Stock
in effect immediately prior to the issuance of such share of Series C-1
Preferred Stock, provided, however, that the Conversion Price for the series C
an d Series C-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 3(d).
(iv) SERIES D AND D-1 PREFERRED STOCK. Subject to
subsection (d), each share of Series D and Series D-1 Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $7.72 (the "Original Issue Price" for
each of the Series D and Series D-1 Preferred Stock) by the Conversion Price at
the time in effect for such series. The initial Conversion Price per share for
shares of Series D Preferred Stock shall be the Original Issue Price for such
series and the initial Conversion Price per share for the Series D-1 Preferred
Stock shall be the Conversion Price per share for the Series D Preferred Stock
in effect immediately prior to the issuance of such share of Series D-1
Preferred Stock; provided, however, that the Conversion Price for the Series D
and Series D-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 3(d).
(b) AUTOMATIC CONVERSION.
(i) SERIES A AND SERIES A-1 PREFERRED STOCK.
Each share of Series A and Series A-1 Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such series immediately upon the earlier of (i) this corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Act"), the public offering price of which was not less than $3.00
per share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $10,000,000 in the aggregate, or (ii) the date upon which
this
-6-
<PAGE> 7
corporation obtains the consent of the holders of at least a majority of the
then outstanding shares of Preferred Stock (voting on an as-converted basis), or
(iii) in the event that less than 20% of the Preferred Stock outstanding on the
Series A Purchase Date (as defined in Section 3(d)(i)(A) below) remains
outstanding.
(ii) SERIES B AND SERIES B-1 PREFERRED STOCK.
Each share of Series B and Series B-1 Preferred Stock shall automatically be
converted into shams of Common Stock at the Conversion Price at the time in
effect for such Series immediately upon the earlier of (i) this corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Act, the public offering price of
which was not less than $8.00 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations) and $10,000,000 in the aggregate,
or (ii) the date upon which this corporation obtains the consent of the holders
of at least a majority of the then outstanding shares of Preferred Stock (voting
on an as-converted basis), or (iii) in the event that less than 20% of the
Series B Preferred Stock outstanding on the Series B Purchase Date (as defined
in Section 3(d)(i)(B) below) remains outstanding.
(iii) SERIES C AND SERIES C-1 PREFERRED STOCK.
Each share of Series C and Series C-1 Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such Series immediately upon the earlier of (i) this corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Act, the public offering price of
which was not less than $8.00 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations) and $10,000,000 in the aggregate,
or (ii) the date upon which this corporation obtains the consent of the holders
of at least a majority of the then outstanding shares of Preferred Stock (voting
on an as-converted basis), or (iii) in the event that less than 20% of the
Series C Preferred Stock outstanding on the Series C Purchase Date (as defined
in Section 3(d)(i)(C) below) remains outstanding.
(iv) SERIES D AND D-1 PREFERRED STOCK. Each share
of Series D and D-1 Preferred Stock shall automatically be converted into shares
of Common Stock at the Conversion Price at the time in effect for such Series
immediately upon {he earlier of (i) this corporation's sale of its Common Stock
in a firm commitment underwritten public offering pursuant to a registration
statement under the Act, the public offering price of which was not less than
$17.37 (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $25,000,000 in the aggregate, (ii) the date upon which
this corporation obtains the consent of the holders of greater than 51% of the
then outstanding shares of Series D and D-1 Preferred Stock (voting on an
as-converted basis), or (iii) in the event that less than 20% of the Series D
Preferred Stock outstanding on the Series D Purchase Date (as defined in Section
3(d)(i)(D) below) remains outstanding.
(c) MECHANICS OF CONVERSION. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he or she shall surrender the certificate or certificates therefor, duly
endorsed, at office of this
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<PAGE> 8
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to this corporation at such office, of the election to convert
the same, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, and, if less than all of the shares
of Preferred Stock represented by such certificate or certificates surrendered
to the corporation are to be converted, a certificate for the number of
unconverted shares of Preferred Stock. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversions in connection
with an underwritten offering of securities registered pursuant to the Act, the
conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock upon conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the
Series A-l, Series B-l, Series C-1 and Series D-1 Preferred Stock shall be
subject to adjustment from time to time as set forth in subsections 3(d)(iii)
and 3(d)(iv) only, and, subject to the provisions of subsection 3(1), the
Conversion Price of the Series A, Series B, Series C and Series D Preferred
Stock shall be subject to adjustment from time to time as follows:
(i) (A) If this corporation shall issue or declare, after
the date upon which any shares of Series A Preferred Stock are first issued (the
"Series A Purchase Date"), any Additional Stock (as defined below in subsection
3(d)(ii)) without consideration or for a consideration per share less than the
Conversion Price for the Series A Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, the Series A Preferred Stock Conversion
Price in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to the stock
issuance plus the number of shares of Common Stock that the aggregate
consideration received by this corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of such Additional Stock. For purposes of determining "the
number of shares of Common Stock outstanding immediately prior to such issuance"
in the foregoing sentence, only shares of Common Stock actually outstanding
shall be counted, notwithstanding any other provision of this Section 3.
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<PAGE> 9
(B) If this corporation shall issue or declare, after
the date upon which any shares of Series B Preferred Stock are first issued (the
"Series B Purchase Date"), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Series B Preferred Stock Conversion Price in effect immediately prior
to each such issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the stock issuance plus the number
of shares of Common Stock that the aggregate consideration received by this
corporation for such issuance would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of common Stock outstanding
immediately prior to such issuance plus the number of shares of such Additional
Stock. For purposes of determining "the number of shares of Common Stock
outstanding immediately prior to such issuance" in the foregoing sentence, only
shares of Common Stock actually outstanding shall be counted, notwithstanding
any other provision of this Section 3.
(C) If this corporation shall issue or declare, after
the date upon which any shares of Series C Preferred Stock are first issued (the
"Series C Purchase Date"), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for the Series C
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Series C Preferred Stock Conversion Price in effect immediately prior
to each such issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the stock issuance plus the number
of shares of Common Stock that the aggregate consideration received by this
corporation for such issuance would purchase at such Conversion Price; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of such Additional
Stock. For purples of determining "the number of shares of Common Stock
outstanding immediately prior to such issuance" in the foregoing sentence,
only shares of Common Stock actually outstanding shall be counted,
notwithstanding any provision of this Section 3.
(D) If this corporation shall issue or declare, after
the date upon which any shares of Series D Preferred Stock are first issued (the
"Series D Purchase Date"), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for the Series D
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Series D Preferred Stock Conversion Price in effect immediately prior
to each such issuance shall forthwith (except as otherwise provided in this
clause (i)) be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the stock issuance plus the number
of shares of Common Stock that the aggregate consideration received by this
corporation for
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<PAGE> 10
such issuance would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issuance plus the number of shares of such Additional Stock. For
purposes of determining "the number of shares of Common Stock outstanding
immediately prior to such issuance" in the foregoing sentence, only shares of
Common Stock actually outstanding shall be counted, notwithstanding any
provision of this Section 3.
(E) No adjustment of the Conversion Price for the
Series A. Series B, Series C or Series D Preferred Stock shall be made in an
amount less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (H)(3) and (H)(4), no adjustment of such
Conversion Price pursuant to this subsection 3(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(F) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(G) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as reasonably determined by
the Board of Directors irrespective of any accounting treatment.
(H) In the case of the issuance. (whether before, on
or after the Series A, Series B, Series C or Series D Purchase Date,
respectively) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock, or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares
of Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments,) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 3(d)(i)(F) and (d)(i)(G)), if
any, received by this corporation upon the issuance of such options or rights
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<PAGE> 11
plus the minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common Stock
covered thereby.
(2) The aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 3(d)(i)(F) and (d)(i)(G)).
(3) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A, Series B, Series C, or Series D Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such options or rights or
the conversion or exchange of such securities.
(4) Upon the expiration of any such options
or rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A, Series B, Series C and Series
D Preferred Stock, to the extent any way affected by or computed using such
options, rights or securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares of
Common Stock (and convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to subsections
3(d)(i)(H)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
3(d)(i)(H)(3) or (4).
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<PAGE> 12
(ii) "Additional Stock" shall mean with respect
to the Series A, Series B, Series C or Series D Preferred Stock any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(i)(H)) by this corporation after the Series A, Series B, Series C or Series
D Purchase Date, respectively, other than:
(A) Common Stock issued pursuant to a
transaction described in subsection 3(d)(iii) hereof; or
(B) Up to 1,750,000 shares of Common Stock
(adjusted for stock splits, stock dividends or recapitalizations) issuable or
issued to employees, consultants and directors of this corporation pursuant to a
stock option plan or stock purchase plan approved by the Board of Directors of
this corporation at any time.
(iii) In the event that this corporation should at
any time or from time to time after the Purchase Date of a series of Preferred
Stock fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Prices of such Series of Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date of a series of Preferred Stock
is decreased by a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion Prices for the
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 3(d)(iii),
then, in each such case for the purpose of this subsection 3(e), the holders of
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of
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<PAGE> 13
Common Stock of this corporation into which their shares of Preferred Stock,
are convertible as of the record date fixed for the determination of the holders
of Common Stock of this corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for in
Section 2 or elsewhere in this Section 3), provision shall be made so that the
holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3 with respect to the rights of
the holders of the Preferred Stock after the recapitalization to the end that
the provisions of this Section 3 (including adjustment of the Conversion Prices
then in effect and the number of shares purchasable upon conversion of the
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable,
(g) NO IMPAIRMENT. This corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.
(i) No fractional shares shall be issued upon
the conversion of any share or shares of the Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shams of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Prices of Preferred Stock pursuant to this
Section 3, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment
and
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<PAGE> 14
readjustment, (B) the Conversion Price for each series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property that at the time would be received upon the conversion of
a share of such Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by
this corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Preferred Stock, at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and, if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite shareholder approval of any necessary amendment to this Certificate
of Incorporation.
(k) NOTICES. Any notice required by the provisions of
this Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of this
corporation.
(l) SPECIAL MANDATORY CONVERSION; DILUTIVE ISSUES:
(i) At anytime following the Series A Purchase
Date, if: (a) a holder of shares of Series A Preferred Stock is entitled to
exercise the right of first offer (the "Right of First Offer") set forth in
Section 2.1 of the Third Amended and Restated Rights Agreement dated October 29,
1999, by and among this corporation and certain investors, as amended from time
to time (the "Rights Agreement"), with respect to an equity financing of this
corporation (the "Equity Financing"), at a price per share that is less than
the Conversion Price then in effect for the Series A Preferred Stock; and (b)
the holders of a majority of the Series A Preferred Stock entitled to
participate in the Equity Financing acquire their pro rata shares (as defined in
Section 2.1 of the Rights
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<PAGE> 15
Agreement) offered in such Equity Financing; and (c) such holder (a
"Non-Participating Holder") does not by exercise of such holder's Right of First
Offer acquire his, her or its pro rata share offered in such Equity Financing
and the holders of a majority of shares of Series A Preferred Stock do exercise
their respective Right of First Offer to acquire his, her or its pro rata share
offered in such Equity Financing (a "Mandatory Offering"), then all of such
Non-Participating Holder's shares of Series A Preferred Stock shall
automatically and without further action on the part of such holder be converted
effective upon, subject to, and concurrently with, the consummation of the
Mandatory Offering (the "Mandatory Offering Date") into an equivalent number of
shares of Series A-l Preferred Stock. Upon conversion pursuant to this
subsection 3(1)(i), the shares of Series A Preferred Stock so converted shall be
canceled and not subject to reissuance.
(ii) The holder of any shares of Series A
Preferred Stock converted pursuant to this subsection 3(1) shall deliver to this
corporation alluring regular business hours at the office of any transfer agent
of this corporation for the Series A Preferred Stock, or at such other place as
may be designated by this corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to this corporation.
As promptly as practicable thereafter, this corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of Series A-1 Preferred Stock to be
issued and such holder shall be deemed to have become a shareholder of record of
Series A-I Preferred Stock, on the Mandatory Offering Date, unless the transfer
books of this corporation have closed on that date, in which event he, she or it
shall be deemed to have become a shareholder of record of Series A-1 Preferred
Stock, on the next succeeding date on which the transfer books are open.
(iii) In the event that any Series A-1 Preferred
Stock shares are issued, concurrently with such issuance, this corporation shall
use its best efforts to take all such action as may be required, including
amending its Certificate of Incorporation, (a) to cancel all authorized shares
of Series A-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon any subsequent conversion pursuant to this
subsection 3(1) of any Series A Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series A-1 Preferred Stock so
canceled and designated Series A-2 Preferred Stock, with the designation,
powers, preferences and rights and the qualifications, limitations and
restrictions identical to those then applicable to the Series A-1 Preferred
Stock, except that the Conversion price for such shares of Series A-2 Preferred
Stock shall be the Series A Conversion Price in effect immediately prior to the
issuance of such shares of Series A-2 Preferred Stock and (e) to amend the
provisions of this sub section 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series A-2 Preferred
Stock rather than Series A-1 Preferred Stock, as the case may be. This
corporation shall take the same actions with respect, to the Series A-2
Preferred Stock, and each subsequently authorized series of Preferred Stock upon
the issuance of shares of the last such series to be authorized. The right to
receive any dividend declared but unpaid at the time of conversion on any shares
of Preferred Stock converted pursuant to
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<PAGE> 16
the provisions of this subsection 3(1) shall accrue to the benefit of the new
shares of Preferred Stock issued upon conversion thereof.
(iv) At any time following the Series B Purchase
Date, if: (a) a holder of shares of Series B Preferred Stock is entitled to
exercise the right of first offer (the "Right of First Offer") set forth in
Section 2.1 of the Rights Agreement, with respect to an Equity Financing at a
price per share that is less than the Conversion Price then in effect for the
Series B Preferred Stock; and (b) the holders of a majority of the Series B
Preferred Stock entitled to participate in the Equity Financing acquire their
pro rata shares (as defined in Section 2.1 of the Rights Agreement) offered in
such Equity Financing; and (c) such holder (a "Non-Participating Holder") does
not by exercise of such holder's Right of First Offer acquire his, her or its
pro rata share offered in such Equity Financing and the holders of a majority of
shares of Series B Preferred Stock do exercise their respective Right of First
Offer to acquire his, her or its pro rata share offered in such Equity Financing
(a "Mandatory Offering"), then all of such Non-Participating Holder's shares of
Series B Preferred Stock shall automatically and without further action on the
part of such holder be converted effective upon, subject to, and concurrently
with, the consummation of the Mandatory Offering on the Mandatory Offering Date
into an equivalent number of shares of Series B-1 Preferred Stock. Upon
conversion pursuant to this subsection 3(1)(iv), the shares of Series B
Preferred Stock so converted shall be canceled and not subject to reissuance.
(v) The holder of any shares of Series B
Preferred Stock converted pursuant to this subsection 3(1) shall deliver to this
corporation during regular business hours at the office of any transfer agent of
this corporation for the Series B Preferred Stock, or at such other place as may
be designated by this corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to this corporation.
As promptly as practicable thereafter, this corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of Series B-1 Preferred Stock to be
issued and such holder shall be deemed to have become a shareholder of record of
Series B-1 Preferred Stock, on the Mandatory Offering Date, unless the transfer
books of this corporation have closed on that date, in which event he, she or it
shall be deemed to, have become a shareholder of record of Series B-1 Preferred
Stock, on the next succeeding date on which the transfer books are open.
(vi) In the event that any Series B-1 Preferred
Stock shares are issued, concurrently with such issuance, this corporation shall
use its best efforts to take all such action as may be required, including
amending its Certificate of Incorporation, (a) to cancel all authorized shares
of Series B-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon any subsequent conversion pursuant to this
subsection 3(1) of any Series B Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series B-1 Preferred Stock so
canceled and designated Series B-2 Preferred Stock, with the designation,
powers, preferences and fights and the qualifications, limitations and
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<PAGE> 17
restrictions identical to those then applicable to the Series B-1 Preferred
Stock, except that the Conversion Price for such shares of Series B-2 Preferred
Stock shall be the Series B Conversion Price in effect immediately prior to the
issuance of such shares of Series B-2 Preferred Stock and (e) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series B-2 Preferred
Stock rather than Series B-1 Preferred Stock. This corporation shall take the
same actions with respect to the Series B-2 Preferred Stock, and each
subsequently authorized series of Preferred Stock upon the issuance of shares of
the last such series to be authorized. The right to receive any dividend
declared but unpaid at the time of conversion on any shares of Preferred Stock
converted pursuant to the provisions of this subsection 3(1) shall accrue to the
benefit of the new shares of Preferred Stock issued upon conversion thereof.
(vii) At any time following the Series C Purchase
Date, if: (a) a holder of shares of Series C Preferred Stock is entitled to
exercise the right of first offer (the "Right of First Offer") set forth in
Section 2.1 of the Rights Agreement, with respect to an Equity Financing at a
price per share that is less than the Conversion Price then in effect for the
Series C Preferred Stock; and (b) the holders of a majority of the Series C
Preferred Stock entitled to participate in the Equity Financing acquire their
pro rata shares (as defined in Section 2.1 of the Right s Amendment) offered in
such Equity Financing; and (c) such holder (a "Non-Participating Holder") does
not by exercise of such holder's Right of First Offer acquire his, her or its
pro rata share offered in such Equity Financing and the holders of a majority of
shares of Series C Preferred Stock do exercise their respective Right of First
offer to acquire his, her or its pro rata share offered in such Equity Financing
(a "Mandatory Offering"), then all of such Non-Participating Holder's shares of
Series C Preferred Stock shall automatically and without further action on the
part of such holder be converted effective upon, subject to, and concurrently
with, the consummation of the Mandatory Offering on the Mandatory Offering Date
into an equivalent number of shares of Series C-1 Preferred Stock. Upon
conversion pursuant to this subsection 3(1)(vii), the shares of Series C
Preferred Stock so converted shall be canceled and not subject to reissuance.
(viii) The holder of any shares of Series C
Preferred Stock converted pursuant to this subsection 3(1) shall deliver to this
corporation during regular business hours at the office of any transfer agent of
this corporation for the Series C Preferred Stock, or at such other place as may
be designated by this corporation, the certificate or certificates for the
shares so converted, duly endorsed or assigned in blank or to this corporation.
As promptly as practicable thereafter, this corporation shall issue and deliver
to such holder, at the place designated by such holder, a certificate or
certificates for the number of full shares of Series C-1 Preferred Stock to be
issued and such holder shall be deemed to have become a shareholder of record of
Series C-1 Preferred Stock, on the Mandatory Offering Date, unless the transfer
books of this corporation have closed on that date, in which event he, she or
it shall be deemed to have become a shareholder of record of Series C-1
Preferred Stock, on the next succeeding date on which the transfer books are
open.
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<PAGE> 18
(ix) In the event that any Series C-1 Preferred
Stock shares are issued, concurrently with such issuance, this corporation shall
use its best efforts to take all such action as may be required, including
amending its Certificate of Incorporation, (a) to cancel all authorized shares
of Series C-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon any subsequent conversion pursuant to this
subsection 3(1) of any Series C Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series C-1 Preferred Stock so
canceled and designated Series C-2 Preferred Stock, with the designation,
powers, preferences and rights and the qualifications, limitations and
restrictions identical to those then applicable to the Series C-1 Preferred
Stock, except that the Conversion Price for such shares of Series C-2 Preferred
Stock shall be the Series C Conversion Price in effect immediately prior to the
issuance of such shares of Series C-2 Preferred Stock and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series C-2 Preferred
Stock rather than Series C-l Preferred Stock. This corporation shall take the
same actions with respect to the Series C-2 Preferred Stock, and each
subsequently authorized series of Preferred Stock upon the issuance of shares of
the last such series to be authorized. The right to receive any dividend
declared but unpaid at the time of conversion on any shares of Preferred Stock
converted pursuant to the provisions of this subsection 3(1) shall accrue to the
benefit of the new shares of Preferred Stock issued upon conversion thereof.
(x) At any time following the Series D Purchase
Date, if: (a) a holder of shares of Series D Preferred Stock is entitled to
exercise the right of first offer (the "Right of First Offer") set forth in
Section 2.1 of the Rights Agreement, with respect to an Equity Financing at a
price per sham that is less than the Conversion Price then in effect for the
Series D Preferred Stock; and (b) the holders of a majority of the Series D
Preferred Stock entitled to participate in the Equity Financing acquire their
pro rata shares (as defined in Section 2.1 of the Rights Agreement) offered in
such Equity Financing; and (c) such holder (a "Non-Participating Holder") does
not by exercise of such holder's Right of First Offer acquire his, her or its
pro rata share offered in such Equity Financing and the holders of a majority of
shares of Series D Preferred Stock do exercise their respective Right of First
Offer to acquire his, her or its pro rata share offered in such Equity Financing
(a "Mandatory Offering"), then all of such Non-Participating Holder's shares of
Series D Preferred Stock shall automatically and without further action on the
part of such holder be convened effective upon, subject to, and concurrently
with, the consummation of the Mandatory Offering on the Mandatory Offering Date
it, to an equivalent number of shares of Series D-1 Preferred Stock. Upon
conversion pursuant to this subsection 3(1)(x), the shares of Series D Preferred
Stock so converted shall be canceled and not subject to reissuance.
(xi) The holder of. any shares of Series D
Preferred Stock converted pursuant to this subsection 3(1) shall deliver to this
corporation during regular business hours at the office of any transfer agent of
this corporation for the Series D Preferred Stock, or at such other place as may
be designated by this corporation, the
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certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to this corporation. As promptly as practicable thereafter,
this corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
Series D-1 Preferred Stock to be issued and such holder shall be deemed to have
become a shareholder of record of Series D-1 Preferred Stock, on the Mandatory
Offering Date, unless the transfer books of this corporation have closed on
that date, in which event he, she or it shall be deemed to have become a
shareholder of record of Series D-1 Preferred Stock, on the next succeeding date
on which the transfer books are open.
(xii) In the event that any Series D-1 Preferred
Stock shares are issued, concurrently with such issuance, this corporation shall
use its best efforts to take all such action as may be required, including
amending its Certificate of Incorporation, (a) to cancel all authorized, shares
of Series D-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon any subsequent conversion pursuant to this
subsection 3(1) of any Series D Preferred Stock a new series of Preferred Stock
equal in number to the number of shares of Series D-1 Preferred Stock so
canceled and designated Series D-2 Preferred Stock, with the designation,
powers, preferences and rights and the qualifications, limitations and
restrictions identical to those then applicable to the Series D-1 Preferred
Stock, except that the Conversion Price for such shares of Series D-2 Preferred
Stock shall be the Series D Conversion Price in effect immediately prior to the
issuance of such shares of Series D-2 Preferred Stock and (c) to amend the
provisions of this subsection 3(1) to provide that any subsequent conversion
pursuant to this subsection 3(1) will be into shares of Series D-2 Preferred
Stock rather than Series D-1 Preferred Stock. This corporation shall take the
same actions with respect to the Series D-2 Preferred Stock, and each
subsequently authorized series of Preferred Stock upon the issuance of shares of
the last such series to be authorized. The right to receive any dividend
declared but unpaid at the time of conversion on any shares of Preferred Stock
converted pursuant to the provisions of this subsection 3(1) shall accrue to the
benefit of the new shares of Preferred Stock issued upon conversion thereof.
4. VOTING RIGHTS.
(a) GENERAL. The holder of each share of Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
share of Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder
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<PAGE> 20
could be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
(b) VOTING FOR ELECTION OF DIRECTORS. The board of
directors of the Company (the "Board") shall consist of seven (7) members.
Notwithstanding any other provision of this Certificate of Incorporation, so
long as no fewer than 1,000,000 shares of Series A, Series B and Series C
Preferred Stock (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations) remain outstanding, the
holders of the Series A, Series B and Series C Preferred Stock then outstanding
shall be entitled, voting separately as one class, to elect two (2) directors of
this corporation at each election of directors. Notwithstanding any other
provision of this Certificate of Incorporation, and notwithstanding the addition
of subsequent investors or the election of a new CEO, the holders of the Series
D Preferred Stock shall be entitled, voting separately as a class, to elect
three (3) directors of this corporation at each election of directors (the
"Series D Directors"). For so long as Baker and Fidelity own, in the aggregate,
a majority of the outstanding Series D Preferred Stock, one (1) of the Series D
Directors shall be designated by Fidelity and two (2) of the Series D Directors
shall be designated by Baker. Notwithstanding any other provision of this
Certificate of Incorporation, the holders of the Common Stock then outstanding
shall be entitled to elect one (1) director of this corporation at each
election of directors. Notwithstanding any other provision of this Certificate
of incorporation, the remaining director of this corporation shall be the Chief
Executive Officer of the Company, subject to approval of both of (i) the holders
of Preferred Stock voting as a separate class, and (ii) the holders of Common
Stock voting as a separate class. In the case of any vacancy in the office of a
director elected by the holders of a particular class or series of stock, the
vacancy may be filled only by the vote of the holders of such class or series of
stock. Any director who shall have been elected by the holders of particular
class or series of stock may be removed without cause by, and only by, the
applicable vote of the holders of shares of such class or series of stock.
5. REDEMPTION.
(a) REDEMPTION ON DEMAND. In the event that holders of at least a
majority of the then outstanding Series D Preferred Stock so request, in
writing, at any time on or after October 29, 2006, this corporation shall, on
the date sixty (60) days after such notice is given (the "Redemption Date"), to
the extent it may lawfully do so, redeem up to 100% of the number shares of
Series D Preferred Stock then held by such holders, by paying the Redemption
Price thereof.
(b) REDEMPTION PRICE. The price per share to be paid to redeem the
Series D Preferred Stock shall be an amount equal to the greater of (i) the sum
of $7.72 per share (adjusted to reflect subsequent stock dividends, stock splits
or recapitalizations) plus all accrued and unpaid dividends calculated at a
dividend rate of 10% (whether or not declared) or (ii) the fair market value per
share as determined by an independent appraiser
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<PAGE> 21
mutually acceptable to this corporation and the holders of a majority of the
shares of Series D Preferred Stock then outstanding; provided, that if this
corporation and such holders are unable to agree on a single appraiser, this
corporation, on the one hand, and the holders of a majority of the shares of
Series D Preferred Stock then outstanding, on the other hand, shall each select
a single independent appraiser reasonably qualified to conduct business
valuations of such nature, and such appraisers shall agree on the Redemption
Price or shall select a third appraiser who shall determine the Redemption
Price.
(c) PARTIAL REDEMPTION. In the event of any redemption of only a
part of the then outstanding Series D Preferred Stock, the corporation shall
effect such redemption pro rata among the holders of Series D Preferred Stock
requesting redemption according to the aggregate number of outstanding shares of
Series D Preferred Stock requested to be redeemed by each such holder.
(d) REDEMPTION PROCEDURE. At least 30 days prior to the Redemption
Date, written notice (the "Redemption Notice") shall be mailed, postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which Notice is given) of the Series D Preferred Stock, at
the address last shown on the records of the corporation for such holder or
given by the holder to the corporation for the purpose of notice or if no such
address appears or is given, at the place where the principal executive office
of the corporation is located, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed, the Redemption Price,
the place at which payment may be obtained and calling upon such holder to
surrender to the corporation, in the manner and at the place designated, its
certificate or certificates representing the shares to be redeemed. Except as
provided in subsection (e) below, on or after the Redemption Date, each holder
of Preferred Stock to be redeemed shall surrender to the corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon, subject to the
provisions of subsection (c) above, the aggregate Redemption Price of such
shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(e) EFFECT OF REDEMPTION. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of such redeemed shares as holders of Series D Preferred
Stock (except the right to receive their respective Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the corporation legally available for redemption on
any Redemption Date are insufficient to redeem the total number of shares
requested to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares pro rata as
described in subsection (c)
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above. The shares not redeemed shall remain outstanding and be entitled to all
the rights and preferences provided herein. At any time thereafter when
additional funds of the corporation are legally available for the redemption of
shares not redeemed, such funds will immediately be set aside for the redemption
of the balance of the shares which the corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed; provided that the
holders of such Series D Preferred Stock shall receive at least 10 days notice
of such redemption.
6. PROTECTIVE PROVISIONS. So long as any shares of any series of
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of each class of
Preferred Stock voting as a separate class:
(a) alter or change the rights, preferences or privileges
of the shares of such series of Preferred Stock so as to affect adversely such
shares in a manner different than any other series;
(b) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of such series of Preferred
Stock;
(c) reclassify any outstanding equity security into an
equity security having a preference over, or being on a parity with, such
series of Preferred Stock with respect to voting, dividends, redemption or upon
liquidation;
(d) amend the corporation's Certificate of Incorporation
or bylaws in any manner that materially adversely affects such series of
Preferred Stock;
(e) make any material change in the principal business of
the corporation;
(f) except as provided in Section 5 hereof, repurchase
any equity security, except that the corporation may without such consent
repurchase Common Stock from current or former directors, employees and/or
consultants with a repurchase price equal to the initial cost of such Common
Stock; or
(g) declare or pay any dividend with respect to the
Common Stock.
7. STATUS OF CONVERTED. In the event any shares of Preferred
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be canceled and shall not be subject to reissuance by this corporation.
8. REPURCHASE OF SHARES. Each holder of Preferred Stock shall be
deemed to have consented to distributions made by the corporation in connection
with the
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repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services.
C. COMMON STOCK
1. DIVIDEND RIGHTS. Subject to the prior rights of
holders of all classes of stock having prior rights as to dividends, the holders
of Common Stock shall be entitled to receive, when and as declared by the Board
of Directors, out of any assets of this corporation legally available therefor,
such dividends as may be declared from time to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon liquidation, dissolution or
winding up of this corporation the assets of the corporation shall be
distributed as provided in Section 2 of Division B of this Article FOURTH.
3. VOTING RIGHTS.
(a) GENERAL. The holder of each share shall of
Common Stock shall have the right to one vote for such share, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
this corporation, and shall be entitled to vote upon such matters and in
such manner as may be provided by law.
(b) VOTING FOR ELECTION OF DIRECTORS. The
holders of Common Stock shall be entitled to elect directors in accordance with
Section 4(b) of Division B of this Article.
FIFTH: The Corporation shall have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the
case may be, to be conducted in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the Stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or
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class of editors and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
1. The business of the corporation shall be conducted by the
officers of the corporation under the supervision of the Board Directors.
2. The number of directors which shall constitute the whole Board
of Directors shall be fixed by, or in the manner provided in, the By-Laws. No
election of Directors need be by written ballot.
3. Subject to Article Fourth, Section 6, the Board of Directors
of the corporation may adopt, amend or repeal the By-Laws of the corporation at
any time after the original adoption of the By-Laws according to Section 109 of
the General Corporation Law of the State of Delaware; provided, however, that
any amendment to provide for the classification of directors of the corporation
for staggered terms pursuant to the provisions of subsection (d) of Section 141
of the General Corporation Law of the State of Delaware shall be set forth in
an amendment to this Certificate of Incorporation, in an initial by-law, or in a
by-law adopted by the stockholders of the corporation entitled to vote.
EIGHTH: The corporation may, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all person's whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to (which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be Director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
NINTH: Notwithstanding any provision of law, the corporation may, by
contract, grant to some or all of the security holders of the Corporation
pre-emptive rights to acquire stock of the Corporation, but no stockholder shall
have any pre-emptive rights except as specifically so granted.
TENTH: No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided
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<PAGE> 25
by applicable law (i) for breach of the Director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this paragraph (b) of this Article TENTH shall apply
to or have any effect on the liability or alleged liability of any director of
the corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 26
IN WITNESS WHEREOF, the undersigned has executed this certificate on
November 2, 1999.
/s/ David A. Cane
----------------------------------
David A. Cane, President
<PAGE> 1
Exhibit 3.2
FIFTH AMENDED
AND
RESTATED CERTIFICATE OF INCORPORATION
OF
CONNECTED CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Connected Corporation and the date the Corporation's original Certificate of
Incorporation was filed with the Secretary of State of Delaware was October 31,
1995.
2. The amendment and restatement of the Certificate of Incorporation
herein certified has been duly adopted by the directors and the stockholders in
accordance with the provisions of Sections 141, 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall upon the effective date of this Fifth Amended and
Restated Certificate of Incorporation, read as follows:
<PAGE> 2
FIFTH AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION OF
CONNECTED CORPORATION
The undersigned, a natural person, for the purposes of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and generally known as the
"General Corporation Law of the State of Delaware"), hereby certifies that:
FIRST: The name of the Corporation is Connected Corporation.
SECOND: The address including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, Wilmington, County of New Castle and the name of the registered agent of
the Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be to provide internet and networking computer
services to businesses and individuals and to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The designations and powers, preferences and rights, and the
qualifications, limitations or restrictions of the classes of capital stock of
the Corporation shall be as follows:
Capital Stock
1. Authority to Issue. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and
"Undesignated Preferred Stock." The total number of shares that the Corporation
is authorized to issue is One Hundred Twenty Million (105,000,000) shares. One
Hundred Million (100,000,000) shares shall be Common Stock, $.001 par value per
share, and Twenty Million (5,000,000) shares shall be Undesignated Preferred
Stock, $.001 par value per share.
2. Additional Issuances. Except as otherwise restricted by this
Certificate, the Board of Directors may, at any time and from time to time, if
all of the shares of capital stock which the Corporation is authorized by this
Certificate to issue have not been issued, subscribed for, or otherwise
committed to be issued, issue or take subscriptions for additional shares of its
capital stock up to the amount authorized in this Certificate to such person or
persons and for such lawful consideration as it may deem appropriate, and
generally in its absolute discretion to determine the terms and the manner of
disposition of such authorized but unissued capital stock.
3. Fully Paid and Non-Assessable. Any and all such shares issued for
which the full consideration has been paid or delivered shall be deemed fully
paid shares of capital stock,
<PAGE> 3
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon.
4. Authorized Number of Undesignated Preferred Stock. The number of
authorized shares of the class of Undesignated Preferred Stock may from time to
time be increased or decreased (but not below the number of shares outstanding)
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote, without a vote of the holders of the
Undesignated Preferred Stock (except as otherwise provided in any certificate of
designation of any series of Undesignated Preferred Stock).
Common Stock
Subject to all the rights, powers and preferences of the Undesignated
Preferred Stock and except as provided by law or in this Article the Fourth (or
in any certificate of designation of any series of Undesignated Preferred
Stock):
a) the holders of Common Stock shall have the right to one vote
per share, and shall be entitled to notice of any stockholders
meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote upon such matters and in such manner
as may be provided by law, and shall have the exclusive right
to vote for the election of Directors; and
b) subject to the prior rights of holders of all classes of stock
having prior rights as to dividends, the holders of Common
Stock shall be entitled to receive, when and as declared by
the Board of Directors, out of any assets or funds of the
Corporation legally available therefor, such dividends as may
be declared from time to time by the Board of Directors; and
c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of
the Common Stock.
Undesignated Preferred Stock
1. Authority To Issue. The total number of shares of Undesignated
Preferred Stock which the Corporation shall have authority to issue is Five
Million (5,000,000) shares. Subject to any limitations prescribed by law, the
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
2. Powers, Preferences, Rights, Qualifications, Limitations And
Restriction Of Each Series Of Undesignated Preferred Stock. The Board of
Directors or any authorized committee
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<PAGE> 4
thereof shall have the right to determine or fix one or more of the following
with respect to each series of Undesignated Preferred Stock to the fullest
extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if
so, from which date or dates, the payment date or dates for dividends,
and the participating and other rights, if any, with respect to
dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price or prices at
which such shares may be redeemed or purchased through the application
of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and
any other terms and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall be
issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or a series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock;
(j) Whether, and the extent to which, any of the rights, powers,
preferences and terms of any such class or series may be made dependent
upon facts ascertainable outside of the Certificate of Incorporation or
outside the resolution or resolutions providing for the issuance of
such class or series by the Board of Directors, provided that the
manner in which such facts shall operate is clearly set forth in the
resolution or resolutions providing for the issuance of such class or
series adopted by the Board of Directors; and
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<PAGE> 5
(k) Such other powers, preferences, rights, qualifications, limitations
and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
FIFTH: The Corporation shall have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be conducted in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
1. Stockholder Action. Notwithstanding any other provision of law, any
action required or permitted to be taken by the stockholders of the Corporation
at any annual or special meeting of stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders and may not
be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings of Stockholders. Except as otherwise required by
statute and subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock, special meetings of the stockholders of the
Corporation may be called only by the President of the Corporation or by the
Board of Directors acting pursuant to a resolution approved by the affirmative
vote of a majority of the directors then in office. Only those matters set forth
in the notice of the special meeting may be considered or acted upon at a
special meeting of stockholders of the Corporation.
3. Business of Corporation. The business of the corporation shall be
conducted by the officers of the corporation under the supervision of the Board
Directors.
EIGHTH:
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Board of Directors
1. Election Of Directors. Election of directors need not be by written
ballot unless the By-Laws of the Corporation shall so provide. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws.
2. Terms Of Directors. The directors, other than those who may be
elected by the holders of any series of Undesignated Preferred Stock, shall be
classified, with respect to the term for which they severally hold office, into
three classes, as nearly equal in number as possible. The initial Class I
Directors of the Corporation shall be David A. Cane, Lawrence Bettino and
Robert Ketterson; the initial Class II Directors of the Corporation shall be
Frederick Bamber and Ashley Leeds; and the initial Class III Directors of the
Corporation shall be Harry A. George and Ronald D. Lachman. The initial Class I
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2001, the initial Class II Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 2002, and the
initial Class III Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 2003. At each annual meeting of
stockholders, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election. Notwithstanding the foregoing, the
directors elected to each class shall hold office until their successors are
duly elected and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
this Article EIGHTH of this Certificate, the holders of any one or more series
of Undesignated Preferred Stock shall have the right, voting separately as a
series or together with holders of other such series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificate of designation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article Eighth, Section 2.
3. Vacancies. Subject to the rights, if any, of the holders of any
series of Undesignated Preferred Stock to elect directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if such remaining directors constitute less than a quorum of the Board of
Directors. Any director appointed in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. Subject to the rights, if any, of the
holders of any series of Undesignated Preferred Stock to elect directors, when
the number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned so as to maintain all classes as equal in number
as possible; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, shall exercise the powers of the full Board of Directors
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<PAGE> 7
until the vacancy is filled. If any newly created directorship may, consistently
with the provision that the three classes of directors shall be as nearly equal
in number as possible, be allocated to one of two or more classes, the Board of
Directors shall allocate it to that of the available classes whose term of
office is due to expire at the earliest date following such allocation.
4. Removal. Subject to the rights, if any, of any series of
Undesignated Preferred Stock to elect directors and to remove any director whom
the holders of any such stock have the right to elect, any director (including
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of 75% or more of the shares then entitled to vote at an election of
directors. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any director be removed from office, written notice of
such proposed removal shall be sent to the director whose removal will be
considered at the meeting.
NINTH: The corporation may, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which a person indemnified may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
TENTH: No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article TENTH shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
Director occurring prior to such amendment.
ELEVENTH:
(a) Any direct or indirect purchase or other acquisition in one or more
transactions by the Corporation or any Subsidiary of any of the outstanding
Voting Stock of any class from any one or more individuals or entities known by
the Corporation to be a Related Person, who has beneficially owned such security
or right for less than two years prior to the date of such purchase, at a price
in excess of the Fair Market Value shall, except as hereinafter provided,
require the affirmative vote of the holders of not less than 75% of the
outstanding shares of Voting Stock, voting as a single class, excluding from the
number of outstanding shares any votes cast with respect to shares of Voting
Stock beneficially owned by such Related Person. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or
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<PAGE> 8
that a lesser percentage may be specified by law or any agreement with any
national securities exchange, or otherwise, but no such affirmative vote shall
be required with respect to any purchase or other acquisition of securities made
as part of (i) a tender or exchange offer by the Corporation to purchase
securities of the same class made on the same terms to all holders of such
securities and complying with the applicable requirements of the Exchange Act
and the rules and regulations thereunder, or any successor rule or regulation or
(ii) pursuant to an open-market purchase program conducted in accordance with
the requirements of Rule 10b-18 promulgated by the Securities and Exchange
Commission pursuant to the Exchange Act or any successor rule or regulation.
(b) A majority of the Continuing Directors shall have the power and
duty to determine, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this Article ELEVENTH
including, without limitation, (i) whether a person is a Related Person, (ii)
the number of shares of Voting Stock beneficially owned by any person and (iii)
whether a price is in excess of Fair Market Value.
(c) Nothing contained in this Article ELEVENTH shall be construed to
relieve any Related Person from any fiduciary obligation imposed by law.
TWELFTH: Except as otherwise provided in this Certificate of
Incorporation, the Bylaws and any designation of terms pursuant to Section 151
of the General Corporation Law of the State of Delaware; any vote required by
stockholders pursuant to said General Corporation Law, other than the election
of directors (which shall not be affected by this provision), shall be effective
if recommended by a majority of the Continuing Directors and the vote of a
majority of each class of stock outstanding and entitled to vote thereon; and if
not recommended by a majority of the Continuing Directors, then by the vote of
75% of each class of stock outstanding and entitled to vote thereon.
THIRTEENTH: Notwithstanding any provision of law, the Corporation may,
by contract, grant to some or all of the security holders of the Corporation
pre-emptive rights to acquire stock of the Corporation, but no stockholder shall
have any pre-emptive rights except as specifically so granted.
FOURTEENTH: The Corporation reserves the right to amend or repeal this
Certificate in the manner now or hereafter prescribed by statute and this
Certificate, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Certificate shall be
made unless the same is first approved by a majority of the Continuing Directors
and, except as otherwise provided by law, thereafter approved by vote of a
majority of each class of stock outstanding and entitled to vote thereon; and if
not recommended by a majority of the Continuing Directors, then by vote of 75%
of each class of stock outstanding and entitled to vote thereon; provided,
however, that notwithstanding the foregoing, the affirmative vote of not less
than 75% of the outstanding shares entitled to vote on such amendment or repeal,
and the affirmative vote of not less than 75% of the outstanding shares of each
class of stock entitled to vote thereon, shall be required to amend or repeal
any provision of Articles
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<PAGE> 9
SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH, TWELFTH, THIRTEENTH, FOURTEENTH,
FIFTEENTH or SIXTEENTH of this Certificate.
FIFTEENTH: Except as otherwise provided by law, the By-Laws of the
Corporation may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the Directors then in office. The By-laws of
the Corporation may be amended or repealed at any annual meeting of
stockholders, or special meeting of stockholders called for such purpose as
provided in the By-laws, by the affirmative vote of at least 75% of the
outstanding shares of capital stock entitled to vote on such amendment or
repeal, voting together as a single class; provided, however, that if a majority
of the Continuing Directors recommends that stockholders approve such amendment
or repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of a majority of the outstanding shares of capital
stock entitled to vote on such amendment or repeal, voting together as a single
class.
SIXTEENTH:
Definitions
The following definitions shall apply for the purpose of this
Certificate:
(a) "Affiliate" shall have the meaning given such term in Rule 12b-2
under the Exchange Act.
(b) "Associated" shall have the meaning given such term in Rule 12b-2
under the Exchange Act.
(c) "Continuing Director" shall mean any member of the Board of
Directors who is not an Affiliate of any Related Person or who was a member of
the Board of Directors prior to the time that any such Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with any Related Person and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors.
Notwithstanding the above, a majority of the then existing Continuing Directors
can deem a new director to be a Continuing Director, even though such person is
Affiliated with a Related Person.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, from time to time.
(e) "Fair Market Value" shall mean: (i) in the case of capital stock,
the highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the principal United States
securities exchange registered under the Exchange Act on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-day
period preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system then in use or, if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by the Board of Directors in good
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<PAGE> 10
faith; and (ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by the Board
of Directors in good faith.
(f) "Person" shall mean any individual, firm, corporation or other
entity.
(g) "Related Person" shall mean any Person (other than the Corporation,
any Subsidiary or any individual who is a stockholder of the Corporation on the
effective date of this Fifth Amended and Restated Certificate of Incorporation)
which, together with its Affiliates and Associates and with any other Person
(other than the Corporation, any Subsidiary or any individual who is a
stockholder of the Corporation on the effective date of this Fifth Amended and
Restated Certificate of Incorporation) with which it or they have entered into,
after the effective date of this Fifth Amended and Restated Certificate of
Incorporation, any agreement, arrangement or understanding with respect to
acquiring, holding or disposing of Voting Stock, acquires beneficial ownership
(as defined in Rule 13d-3 of the Exchange Act, except that such term shall
include any Voting Stock which such person has the right to acquire, whether or
not such right may be exercised within 60 days), directly or indirectly of more
than 5% of the voting power of the outstanding Voting Stock after the effective
date of this Fifth Amended and Restated Certificate of Incorporation.
(h) "Subsidiary" shall mean any corporation in which a majority of the
capital stock entitled to vote generally in the election of directors is owned,
directly or indirectly, by the Corporation.
(i) "Voting Stock" shall mean all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this certificate on
March __, 2000.
-------------------------------------
David A. Cane, President
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<PAGE> 1
Exhibit 3.3
SECOND AMENDED
AND RESTATED
BY-LAWS
of
CONNECTED CORPORATION
A Delaware Corporation
Adopted: October 31, 1995
As Amended and Restated: November 20, 1995
As further amended and restated: October 29, 1999
<PAGE> 2
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. - STOCKHOLDERS ................................................... 1
SECTION 1.1. ANNUAL MEETING ................................................ 1
SECTION 1.2. SPECIAL MEETINGS .............................................. 1
SECTION 1.3. NOTICE OF MEETING ............................................. 1
SECTION 1.4. QUORUM ........................................................ 2
SECTION 1.5. VOTING AND PROXIES ............................................ 2
SECTION 1.6. ACTION AT MEETING ............................................. 2
SECTION 1.7. ACTION WITHOUT MEETING ........................................ 2
SECTION 1.8. VOTING OF SHARES OF CERTAIN HOLDERS ........................... 2
SECTION 1.9. STOCKHOLDER LISTS ............................................. 3
ARTICLE II.- BOARD OF DIRECTORS ............................................. 3
SECTION 2.1. POWERS ........................................................ 3
SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS ........................... 4
SECTION 2.3. NOMINATION OF DIRECTORS ....................................... 4
SECTION 2.4. ELECTION OF DIRECTORS ......................................... 4
SECTION 2.5. VACANCIES; REDUCTION OF THE BOARD ............................. 4
SECTION 2.6. ENLARGEMENT OF THE BOARD ...................................... 4
SECTION 2.7. TENURE AND RESIGNATION ........................................ 5
SECTION 2.8. REMOVAL ....................................................... 5
SECTION 2.9. MEETINGS ...................................................... 5
SECTION 2.10. NOTICE OF MEETING ............................................. 5
SECTION 2.11. AGENDA ........................................................ 5
SECTION 2.12. QUORUM ........... ............................................ 6
SECTION 2.13. ACTION AT MEETING ............................................. 6
SECTION 2.14. ACTION WITHOUT MEETING......................................... 6
SECTION 2.15. COMMITTEES .................................................... 6
ARTICLE III. - OFFICERS ..................................................... 6
SECTION 3.1. ENUMERATION ................................................... 6
SECTION 3.2. ELECTION ...................................................... 6
SECTION 3.3. QUALIFICATION ................................................. 7
SECTION 3.4. TENURE ........................................................ 7
SECTION 3.5. REMOVAL .................................................. 7
SECTION 3.6. RESIGNATION ................................................... 7
SECTION 3.7. VACANCIES ..................................................... 7
SECTION 3.8. PRESIDENT ...... .............................................. 7
SECTION 3.9. VICE PRESIDENT(S) ............................................. 7
SECTION 3.10. TREASURER AND ASSISTANT TREASURERS ............................ 7
SECTION 3.11. SECRETARY AND ASSISTANT SECRETARIES ........................... 8
SECTION 3.12. OTHER POWERS AND DUTIES ....................................... 8
ARTICLE IV. - CAPITAL STOCK ................................................. 8
SECTION 4.1. STOCK CERTIFICATES ............................................ 8
SECTION 4.2. TRANSFER OF SHARES ............................................ 9
SECTION 4.3. RECORD HOLDERS ................................................ 9
SECTION 4.4. RECORD DATE ................................................... 9
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION ........ 9
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.6. LOSS OF CERTIFICATES .......................................... 10
SECTION 4.7. RESTRICTIONS ON TRANSFER ............ ......................... 10
SECTION 4.8. MULTIPLE CLASSES OF STOCK ..................................... 10
ARTICLE V. - DIVIDENDS ..................................................... 11
SECTION 5.1. DECLARATION OF DIVIDENDS ...................................... 11
SECTION 5.2. RESERVES ...................................................... 11
ARTICLE VI. - POWERS OF OFFICERS TO CONTRACT WITH THE CORPORATION ........... 11
ARTICLE VII - INDEMNIFICATION ............................................... 12
SECTION 7.1. DEFINITIONS ................................................... 12
SECTION 7.2. RIGHT TO INDEMNIFICATION IN GENERAL ........................... 13
SECTION 7.3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION ................................................... 14
SECTION 7.4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION ............. 14
SECTION 7.5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.. 14
SECTION 7 6 INDEMNIFICATION FOR EXPENSES OF A WITNESS ..................... 15
SECTION 7.7. ADVANCEMENT OF EXPENSES ....................................... 15
SECTION 7.8. NOTIFICATION AND DEFENSE OF CLAIM ............................. 15
SECTION 7.9. PROCEDURES .................................................... 17
SECTION 7.10. ACTION BY THE CORPORATION ..................................... 17
SECTION 7.11. NON-EXCLUSIVITY ............................................... 17
SECTION 7.12. INSURANCE ..................................................... 17
SECTION 7.13. NO DUPLICATIVE PAYMENT ........................................ 18
SECTION 7.14. EXPENSES OF ADJUDICATION. ..................................... 18
SECTION 7.15. SEVERABILITY .................................................. 18
ARTICLE VIII. - MISCELLANEOUS PROVISIONS .................................... 18
SECTION 8.1. CERTIFICATE OF INCORPORATION .................................. 18
SECTION 8.2. FISCAL YEAR.................................................... 18
SECTION 8.3. CORPORATE SEAL ................................................ 18
SECTION 8.4. EXECUTION OF INSTRUMENTS ...................................... 18
SECTION 8.5. VOTING OF SECURITIES .......................................... 18
SECTION 8.6. EVIDENCE OF AUTHORITY ......................................... 19
SECTION 8.7. CORPORATE RECORDS ............................................. 19
SECTION 8.8. CHARiTABLE CONTRIBUTIONS ...................................... 19
ARTICLE IX - AMENDMENTS ..................................................... 19
SECTION 9.1. AMENDMENT BY STOCKHOLDERS ..................................... 19
SECTION 9.2. AMENDMENT BY BOARD OF DIRECTORS ............................... 20
</TABLE>
<PAGE> 4
BY-LAWS
OF
CONNECTED CORPORATION
ARTICLE I.
STOCKHOLDERS.
SECTION 1.1. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation shall be held on such date as shall be fixed by the Board of
Directors, at such time and place within or without the State of Delaware as may
be designated in the notice of meeting. If the day fixed for the annual meeting
shall fall on a legal holiday, the meeting shall be held in the next succeeding
day not a legal holiday. If the annual meeting is omitted on the day herein
provided, a special meeting may be held in place thereof, and any business
transacted at such special meeting in lieu of annual meeting shall have the same
effect as if transacted or held at the annual meeting.
SECTION 1.2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by (i) the president, (ii) the board of directors (iii) the
holders of at least 25% of the outstanding shares of Series D Preferred Stock,
or (iv) the holders of at least 10% of the outstanding shares of any class of
the capital stock of the Corporation. Special meetings of the stockholders shall
be held at such time, date and place within or outside of the State of Delaware
as may be designated in the notice of such meeting.
SECTION 1.3. NOTICE OF MEETING. A written notice stating the place, date,
and hour of each meeting of the stockholders, and, in the case of a special
meeting, the purposes for which the meeting is called, shall be given to each
stockholder entitled to vote at such meeting, and to each stockholder who,
under the Certificate of Incorporation or these By-laws, is entitled to such
notice, by delivering such notice to such person or leaving it at their
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to such stockholder at his address as it appears upon the books of
the corporation, at least ten (10) days and not more than sixty (60) before the
meeting. Such notice shall be given by the secretary, an assistant secretary, or
any other officer or person designated either by the secretary or by the person
or persons calling the meeting.
The requirement of notice to any stockholder may be waived (i) by a
written waiver of notice, executed before or after the meeting by the
stockholder or his attorney thereunto duly authorized, and filed with the
records of the meeting, (ii) if communication with such stockholder is unlawful,
(iii) by attendance at the meeting without protesting prior thereto or at its
commencement the lack of notice, or (iv) as otherwise excepted by law. A waiver
of notice of any regular or special meeting of the stockholders need not
specify the purposes of the meeting.
<PAGE> 5
If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.4. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote at a meeting shall constitute a quorum.
Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present.
SECTION 1.5. VOTING AND PROXIES. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the books
of the corporation, unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote
at any adjournment of such meeting. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy
the corporation receives a specific written notice to the contrary from any one
of them.
SECTION 1.6. ACTION AT MEETING. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than election to an office shall decide such question, except where a larger
vote is required by law, the Certificate of Incorporation or these by-laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
SECTION 1.7. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the stockholders may be taken without a meeting
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of the minimum
number of votes necessary to authorize or take such action at a meeting at which
shares entitled to vote thereon were present and voted and copies are delivered
to the corporation in the manner prescribed by law.
SECTION 1.8. VOTING OF SHARES OF CERTAIN HOLDERS. Shares of stock of the
corporation standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent, or proxy as the by-laws of such corporation
may prescribe, or, in the absence of such provision, as the board of directors
of such corporation may determine.
Shares of stock of the corporation standing in the name of a deceased
person, a minor ward or an incompetent person, may be voted by his
administrator, executor, court-appointed
<PAGE> 6
guardian or conservator without a transfer of such shares into the name of such
administrator, executor, court appointed guardian or conservator. Shares of
capital stock of the corporation standing in the name of a trustee or fiduciary
may be voted by such trustee or fiduciary.
Shares of stock of the corporation standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer thereof into his name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the corporation he
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or its proxy shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by the corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares.
SECTION 1.9. STOCKHOLDER LISTS. The secretary (or the corporation's
transfer agent or other person authorized by these By-laws or by law) shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE II.
BOARD OF DIRECTORS
SECTION 2.1. POWERS. Except as reserved to the stockholders by law, by the
Certificate of Incorporation or by these By-laws, the business of the
corporation shall be managed under the direction of the board of directors, who
shall have and may exercise all of the powers of the corporation. In particular,
and without limiting the foregoing, the board of directors shall have the power
to issue or reserve for issuance from time to time the whole or any part of the
capital stock of the corporation which may be authorized from time to time to
such person, for such consideration and upon such terms and conditions as they
shall determine, including the granting of options, warrants or conversion or
other rights to stock.
<PAGE> 7
SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS. The board of directors
shall consist of 7 directors. No director need be a stockholder.
SECTION 2.3. NOMINATION OF DIRECTORS.
(a) Nominations for the election of directors may be in made by the board
of directors or by any stockholder entitled to vote for the election of
directors. Nominations by stockholders shall be made by notice in writing,
delivered or mailed by first class United States mail, postage prepaid, to the
secretary of the corporation not less than 14 days nor more than 60 days prior
to any meeting of the stockholders called for the election of directors;
provided, however, that if less than 21 written days notice of the meeting is
given to stockholders, such notice of nomination by a stockholder shall be
delivered or mailed, in the manner prescribed above, to the secretary of the
corporation not later than the close of the fifth day following the day on which
notice of the meeting was mailed to stockholders.
(b) Each notice under subsection (a) shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominee,
and (iii) the number of shares of stock of the corporation which are
beneficially owned by each such nominee.
(c) The chairman of the meeting of stockholders shall determine whether or
not a nomination was made in accordance with the procedures of this Section 2.3,
and if he shall determine that it was not, he shall so declare to the meeting
and the defective nomination shall be disregarded.
SECTION 2.4. ELECTION OF DIRECTORS. The initial board of directors shall be
designated in the certificate of incorporation, or if not so designated, elected
by the incorporator at the first meeting thereof. Thereafter, directors shall be
elected by the stockholders at their annual meeting or at any special meeting
the notice of which specifies the election of directors as an item of business
for such meeting. Such election shall be in accordance with the certificate of
incorporation.
SECTION 2.5. VACANCIES; REDUCTION OF THE BOARD. Any vacancy in the board
of directors, however occurring, including a vacancy resulting from the
enlargement of the board of directors, may be filled by the stockholders or by
the directors then in office or by a sole remaining director. In lieu of filling
any such vacancy the stockholders or board of directors may reduce the number of
directors, but not to a number less than two (2). When one or more directors
shall resign from the board of directors, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective.
SECTION 2.6. ENLARGEMENT OF THE BOARD. The board of directors may be
enlarged by the stockholders at any meeting.
<PAGE> 8
SECTION 2.7. TENURE AND RESIGNATION. Except as otherwise provided by law,
by the Certificate of Incorporation or by these By-laws, directors shall hold
office until the next annual meeting of stockholders and thereafter until their
successors are chosen and qualified. Any director may resign by delivering or
mailing postage prepaid a written resignation to the corporation at its
principal office or to the president, secretary or assistant secretary, if any.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
SECTION 2.8. REMOVAL. A director, whether elected by the stockholders or
directors, may be removed from office with or without cause at any annual or
special meeting of stockholders by vote of a majority of the stockholders
entitled to vote in the election of such directors, or for cause by a vote of a
majority of the directors then in office; provided, however, that a director may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
SECTION 2.9. MEETINGS. Regular meetings of the board of directors may be held
without call or notice at such times and such places within or without the State
of Delaware as the board may, from time to time, determine, provided that notice
of the first regular meeting following any such determination shall be given to
directors absent from such determination. A regular meeting of the board of
directors shall be held without notice immediately after, and at the same place
as, the annual meeting of the stockholders or the special meeting of the
stockholders held in place of such annual meeting, unless a quorum of the
directors is not then present. Special meetings of the board of directors may be
held at any time and at any place designated in the call of the meeting when
called by the president, treasurer, or one or more directors. Members of the
board of directors or any committee elected thereby may participate in a meeting
of such board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at the meeting.
SECTION 2.10. NOTICE OF MEETING. It shall be sufficient notice to a
director to send notice by mail at least seventy-two (72) hours before the
meeting addressed to such person at his usual or last known business or
residence address or to give notice to such person in person or by telephone at
least forty-eight (48) hours before the meeting. Notice shall be given by the
secretary, or in his absence or unavailability, may be given by an assistant
secretary, if any, or by the officer or directors calling the meeting. The
requirement of notice to any director may be waived by a written waiver of
notice, executed by such person before or after the meeting or meetings, and
filed with the records of the meeting, or by attendance at the meeting without
protesting prior thereto or at its commencement the lack of notice. A notice or
waiver of notice of a directors' meeting need not specify the purposes of, the
meeting.
SECTION 2.11. AGENDA. Any lawful business maybe transacted at a meeting of
the board of directors, notwithstanding the fact that the nature of the business
may not have been specified in the notice or waiver of notice of the meeting.
<PAGE> 9
SECTION 2.12. QUORUM. At any meeting of the board of directors, a majority
of the directors then in office shall constitute a quorum for the transaction of
business. Any meeting may be adjourned by a majority of the votes cast upon the
question, whether or not a quorum is present, and the meeting may be held as
adjourned without further notice.
SECTION 2.13. ACTION AT MEETING. Any motion adopted by vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors, except where a different vote is
required by-law, by the Certificate of Incorporation or by these By-laws. The
assent in writing of any director to any vote or action of the directors taken
at any meeting, whether or not a quorum was present and whether or not the
director had or waived notice of the meeting, shall have the same effect as if
the director so assenting was present at such meeting and voted in favor of such
vote or action.
SECTION 2,14. ACTION WITHOUT MEETING. Any action by the directors may be
taken without a meeting if all of the directors consent to the action in writing
and the consents are filed with the records of the directors' meetings. Such
consent shall be treated for all purposes as a vote of the directors at a
meeting.
SECTION 2.15. COMMITTEES. The board of directors may, by the affirmative
vote of a majority of the directors then in office, appoint an executive
committee or other committees consisting of one or more directors and may by
vote delegate to any such committee some or all of their powers except those
which by law, the Certificate of Incorporation or these By-laws they may not
delegate. In the absence or disqualification of a member of a committee, the
members of the committee present and not disqualified, whether or not they
constitute a quorum, may by unanimous vote appoint another member of the board
of directors to act at the meeting in place of the absence or disqualified
member. Unless the board of directors shall otherwise provide, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the board of directors or such rules, its meetings shall be called,
notice given or waived, its business conducted or its action taken as nearly as
may be in the same manner as is provided in these By-laws with respect to
meetings or for the conduct of business Or the taking of actions by the board of
directors. The board of directors shall have power at any time to fill vacancies
in, change the membership of, or discharge any such committee at any time. The
board of directors shall have power to rescind any action of any committee, but
no such rescission shall have retroactive effect.
ARTICLE III.
OFFICERS
SECTION 3.1. ENUMERATION. The officers shall consist of a president, a
treasurer, a secretary and such other officers and agents (including one or more
vice-presidents, assistant treasurers and assistant secretaries), as the board
of directors may, in their discretion, determine.
SECTION 3.2. ELECTION. The president, treasurer and secretary shall be
elected annually by the directors at their first meeting following the annual
meeting of the stockholders of any spe-
<PAGE> 10
cial meeting held in lieu of the annual meeting. Other officers may be chosen by
the directors at such meeting or at any other meeting.
SECTION 3.3. QUALIFICATION. An officer may, but need not, be a director or
stockholder. Any two or more offices may be held by the same person. Any officer
may be required by the directors to give bond for the faithful performance of
his duties to the corporation in such amount and with such sureties as the
directors may determine. The premiums for such bonds may be paid by the
corporation.
SECTION 3.4. TENURE. Except as otherwise provided by the Certificate of
Incorporation or these By-laws, the term of office of each officer shall be for
one year or until his successor is elected and qualified or until his earlier
resignation or removal.
SECTION 3.5. REMOVAL. Any officer may be removed from office, with or
without cause, by the affirmative vote of a majority of the directors then in
office; provided, however, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the board of directors prior to
action thereon.
SECTION 3.6. RESIGNATION. Any officer may resign by delivering or mailing
postage prepaid a written resignation to the corporation at its principal office
or to the president, secretary, or assistant secretary, if any, and such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some event.
SECTION 3.7. VACANCIES. A vacancy in any office arising from any cause may
be filled for the unexpired portion of the term by the board of directors.
SECTION 3.8. PRESIDENT. The president shall be the chief executive officer
of the corporation. Except as otherwise voted by the board of directors, the
president shall preside at all meetings of the stockholders and of the board of
directors at which present. The president shall have such duties and powers as
are commonly incident to the office and such duties and powers as the board of
directors shall from time to time designate.
SECTION 3.9. VICE-PRESIDENT(S). The vice-president(s), if any, shall have
such powers and perform such duties as the board of directors may from time to
time determine.
SECTION 3.10. TREASURER AND ASSISTANT TREASURERS. The treasurer, subject to
the direction and under the supervision and control of the board of directors,
shall have general charge of the financial affairs of the corporation. The
treasurer shall have custody of all funds, securities and valuable papers of the
corporation, except as the board of directors may otherwise provide. The
treasurer shall keep or cause to be kept full and accurate records of account
which shall be the property of the corporation, and which shall be always open
to the inspection of each elected officer and director of the corporation. The
treasurer shall deposit or cause to be deposited all funds of the corporation in
such depository or depositories as may be authorized by the board of directors.
The treasurer shall have the power to endorse for deposit or collection all
notes, checks, drafts, and other negotiable instruments payable to the
corporation. The treasurer shall
<PAGE> 11
perform such other duties as are incidental to the office, and such other duties
as may be assigned by the board of directors.
Assistant treasurers, if any, shall have such powers and perform such
duties as the board of directors may from time to time determine.
SECTION 3.11. SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
record, or cause to be recorded, all proceedings of the meetings of the
stockholders and directors (including committees thereof) in the book of records
of this corporation. The record books shall be open at reasonable times to the
inspection of any stockholder, director, or officer. The secretary shall notify
the stockholders and directors, when required by law or by these By-laws, of
their respective meetings, and shall perform such other duties as the directors
and stockholders may from time to time prescribe. The secretary shall have the
custody and charge of the corporate seal, and shall affix the seal of the
corporation to all instruments requiring such seal, and shall certify under the
corporate seal the proceedings of the directors and of the stockholder, when
required. In the absence of the secretary at any such meeting, a temporary
secretary shall be chosen who shall record the proceedings of the meeting in the
aforesaid books.
Assistant secretaries, if any, shall have such powers and perform such
duties as the board of directors may from time to time designate.
SECTION 3.12. OTHER POWERS AND DUTIES. Subject to these By-laws and to
such limitations as the board of directors may from time to time prescribe, the
officers of the corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the board of directors.
ARTICLE IV.
CAPITAL STOCK
SECTION 4.1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate representing the number of shares of the capital stock of the
corporation owned by such person in such form as shall, in conformity to law, be
prescribed from time to time by the board of directors. Each certificate shall
be signed by the president or vice-president and treasurer or assistant
treasurer or such other officers designated by the board of directors from time
to time as permitted by law, shall bear the seal of the corporation, and shall
express on its face its number, date of issue, class, the number of shares for
which, and the name of the person to whom, it is issued. The corporate seal and
any or all of the signatures of corporation officers may be facsimile if the
stock certificate is manually counter-signed by an authorized person on behalf
of a transfer agent or registrar other than the corporation or its employee.
If an officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed on, a certificate shall have ceased to be
such before the certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer, transfer agent or registrar at the
time of its issue.
<PAGE> 12
SECTION 4.2. TRANSFER OF SHARES. Title to a certificate of stock and to
the shares represented thereby shall be transferred only on the books of the
corporation by delivery to the corporation or its transfer agent of the
certificate properly endorsed, or by delivery of the certificate accompanied by
a written assignment of the same, or a properly executed written power of
attorney to sell, assign or transfer the same or the shares represented thereby.
Upon surrender of a certificate for the shares being transferred, a new
certificate or certificates shall be issued according to the interests of the
parties.
SECTION 4.3. RECORD HOLDERS. Except as otherwise may be required by law,
by the Certificate of Incorporation or by these By-laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
SECTION 4.4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty days prior to any
other action. In such case only stockholders of record on such record date shall
be so entitled notwithstanding any transfer of stock on the books of the
corporation after the record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior actio n by the board of
directors is necessary, shall be the day on which the first written consent is
expressed; and (iii) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION. The
board of directors may appoint a transfer agent and a registrar of the
certificates of stock of the corporation. Any transfer agent so appointed shall
maintain, among other records, a stockholders' ledger, setting forth the names
and addresses of the holders of all issued shares of stock of the corporation,
the number of shares held by each, the certificate numbers representing such
shares, and the date of issue of the certificates representing such shares. Any
registrar so appointed shall maintain, among other records, a share register,
setting forth the total number of
<PAGE> 13
shares of each class of shares which the corporation is authorized to issue and
the total number of shares actually issued. The stockholders' ledger and the
share register are hereby identified as the stock transfer books of the
corporation; but as between the stockholders' ledger and the share register, the
names and addresses of stockholders, as they appear on the stockholders' ledger
maintained by the transfer agent shall be the official list of stockholders of
record of the corporation. The name and address of each stockholder of record,
as they appear upon the stockholders' ledger, shall be conclusive evidence of
who are the stockholders entitled to receive notice of the meetings of
stockholders, to vote at such meetings, to examine a complete list of the
stockholders entitled to vote at meetings, and to own, enjoy and exercise any
other property or rights deriving from such shares against the corporation.
Stockholders, but not the corporation, its directors, officers, agents or
attorneys, shall be responsible for notifying the transfer agent, in writing,
of any changes in their names or addresses from time to time, and failure to do
so will relieve the corporation, its other stockholders, directors, officers,
agents and attorneys, and its transfer agent and registrar, of liability for
failure to direct notices or other documents, or pay over or transfer dividends
or other property or rights, to a name or address other than the name and
address appearing in the stockholders' ledger maintained by the transfer agent.
SECTION 4.6. LOSS OF CERTIFICATES. In case of the loss, destruction or
mutilation of a certificate of stock, a replacement certificate may be issued in
place thereof upon such terms as the board of directors may prescribe,
including, in the discretion of the board of directors, a requirement of bond
and indemnity to the corporation.
SECTION 4.7. RESTRICTIONS ON TRANSFER. Every certificate for shares of
stock which are subject to any restriction on transfer, whether pursuant to the
Certificate of Incorporation, the By-laws or any agreement to which the
corporation is a party, shall have the fact of the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement that the corporation will
furnish a copy to the holder of such certificate upon written request and
without charge.
SECTION 4.8. MULTIPLE CLASSES OF STOCK. The amount and classes of the
capital stock and the par value, if any, of the shares, shall be as fixed in the
Certificate of Incorporation. At all times when there are two or more classes of
stock, the several classes of stock shall conform to the description and the
terms and have the respective preferences, voting powers, restrictions and
qualifications set forth in the Certificate of Incorporation and these By-laws.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the preferences, voting powers, qualifications and special and
relative rights of the shares of each class and series authorized to be issued,
or (ii) a statement of the existence of such preferences, powers, qualifications
and fights, and a statement that the corporation will furnish a copy thereof to
the holder of such certificate upon written request and without charge.
<PAGE> 14
ARTICLE V.
DIVIDENDS
SECTION 5.1. DECLARATION OF DIVIDENDS. Except as otherwise required by law
or by the Certificate of Incorporation, the board of directors may, in its
discretion, declare what, if any, dividends shall be paid from the surplus or
from the net profits of the corporation for the current or preceding fiscal
year, or as otherwise permitted by law. Dividends may be paid in cash, in
property, in shares of the corporation's stock, or in any combination thereof.
Dividends shall be payable upon such dates as the board of directors may
designate.
SECTION 5.2. RESERVES. Before the payment of any dividend and before
making any distribution of profits, the board of directors, from time to time
and in its absolute discretion, shall have power to set aside out of the surplus
or net profits of the corporation such sum or sums as the board of directors
deems proper and sufficient as a reserve fund to meet contingencies or for such
other purpose as the board of directors shall deem to be in the best interests
of the corporation, and the board of directors may modify or abolish any such
reserve.
ARTICLE VI.
POWERS OF OFFICERS TO CONTRACT
WITH THE CORPORATION
Any and all of the directors and officers of the corporation,
notwithstanding their official relations to it, may enter into and perform any
contract or agreement of any nature between the corporation and themselves, or
any and all of the individuals from time to time constituting the board of
directors of the corporation, or any firm or corporation in which any such
director may be interested, directly or indirectly, whether such individual,
firm or corporation thus contracting with the corporation shall thereby derive
personal or corporate profits or benefits or otherwise; provided, that (i) the
material facts of such interest are disclosed or are known to the board of
directors or committee thereof which authorizes such contract or agreement; (ii)
if the material facts as to such person's relationship or interest are disclosed
or are known to the stockholders entitled to vote thereon, and the contract is
specifically approved in good faith by a vote of the stockholders; or (iii) the
contract or agreement is fair as to the corporation as of the time it is
authorized, approved or ratified by the board of directors, a committee thereof,
or the stockholders. Any director of the corporation who is interested in any
transaction as aforesaid may nevertheless be counted in determining the
existence of a quorum at any meeting of the board of directors which shall
authorize or ratify any such transaction. This Article shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.
<PAGE> 15
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1. DEFINITIONS. For purposes of this Article VII the following
terms shall have the meanings indicated:
"Corporate Status" describes the status of a person who is or was a
director, Officer, employee, agent, trustee or fiduciary of the corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the express
written request of the corporation.
"Court" means the Court of Chancery of the State of Delaware, the court in
which the Proceeding in respect of which indemnification is sought by a Covered
Person shall have been brought or is pending, or another court having subject
matter jurisdiction and personal jurisdiction over the parties.
"Covered Person" means a person who is a present or former director or
Officer of the corporation and shall include such person's legal
representatives, heirs, executors and administrators.
"Disinterested" describes any individual, whether or not that individual
is a director, Officer, employee or agent of the corporation, who is not and
was not and is not threatened to be made a party to the Proceeding in respect of
which indemnification, advancement of Expenses or other action is sought by a
Covered Person.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean a Covered Person having acted in good faith and in
a manner such Covered Person reasonably believed to be in or not opposed to the
best interests of the corporation or, in the case of an employee benefit plan,
the best interests of the participants or beneficiaries of said plan, as the
case may be, and, with respect to any Proceeding which is criminal in nature,
having had no reasonable cause to believe such Covered Person's conduct was
unlawful.
"Improper Personal Benefit" shall include, but not be limited to, the
personal gain in fact by reason of a person's Corporate Status of a financial
profit, monies or other advantage not also accruing to the benefit of the
corporation or to the stockholders generally and which is unrelated to his usual
compensation including, but not limited to, (i) in exchange for the exercise of
influence over the corporation's affairs, (ii) as a result of the diversion of
corporate opportunity, or
<PAGE> 16
(iii) pursuant to the use or communication of confidential or inside information
for the purpose of generating a profit from trading in the corporation's
securities. Notwithstanding the foregoing, "Improper Personal Benefit" shall not
include any benefit, directly or indirectly, related to actions taken in order
to evaluate, discourage, resist, prevent or negotiate any transaction with or
proposal from any person or entity seeking control of, or a controlling interest
in, the corporation.
"Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of corporation law and may include law firms or members
thereof that are regularly retained by the corporation but not by any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the corporation or Covered Person in an action to determine the Covered
Person's rights under this Article.
"Officer" means the president, vice presidents, treasurer, assistant
treasurer(s), secretary, assistant secretary and such other executive officers
as are appointed by the board of directors of the corporation and explicitly
entitled to indemnification hereunder.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one initiated by the Covered Person, but including one initiated by a Covered
Person for the purpose of enforcing such Covered Person's rights under this
Article to the extent provided in Section 7.14 of this Article. "Proceeding"
shall not include any counterclaim brought by any Covered Person other than one
arising out of the same transaction or occurrence that is the subject matter of
the underlying claim.
SECTION 7.2. RIGHT TO INDEMNIFICATION IN GENERAL.
(a) COVERED PERSONS. The corporation shall indemnify, and shall advance
Expenses, to each Covered Person who is, was or is threatened to be made a party
or otherwise involved in any Proceeding, as provided in this Article and to the
fullest extent permitted by applicable law in effect on the date hereof and to
such greater extent as applicable law may hereafter from time to time permit.
The indemnification provisions in this Article shall be deemed to be a
contract between the corporation and each Covered Person who serves in any
Corporate Status at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any Proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a contract right may not be modified retroactively
without the consent of such Covered Person.
<PAGE> 17
(b) EMPLOYEES AND AGENTS. The Corporation shall, to the extent authorized
from time to time by the board of directors, grant indemnification and the
advancement of Expenses to any employee or agent of the corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of Expenses of Covered Persons.
SECTION 7.3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Each Covered Person shall be entitled to the rights of
indemnification provided in this Section 7.3 if, by reason of such Covered
Person's Corporate Status, such Covered Person is, was or is threatened to be
made, a party to or is otherwise involved in any Proceeding, other than a
Proceeding by or in the right of the corporation. Each Covered Person shall be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlements, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection with such Proceeding or any claim, issue
or matter therein, if such Covered Person acted in Good Faith and such Covered
Person has not been adjudged during the course of such proceeding to have
derived an Improper Personal Benefit from the transaction or occurrence forming
the basis of such Proceeding.
SECTION 7.4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Each
Covered Person shall be entitled to the rights of indemnification provided in
this Section 7.4 if, by reason of such Covered Person's Corporate Status, such
Covered Person is, or is threatened to be made, a party to or is otherwise
involved in any Proceeding brought by or in the right of the corporation to
procure a judgment in its favor. Such Covered Person shall be indemnified
against Expenses, judgments, penalties, and amounts paid in settlement,
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection with such Proceeding if such Covered Person acted
in Good Faith and such Covered Person has not been adjudged during the course of
such proceeding to have derived an Improper Personal Benefit from the
transaction or occurrence forming the basis of such Proceeding. Notwithstanding
the foregoing, no such indemnification shall be made in respect of any claim,
issue or matter in such Proceeding as to which such Covered Person shall have
been adjudged to be liable to the corporation if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the corporation in such event if
and only to the extent that the Court which is considering the matter shall so
determine.
SECTION 7.5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any provision of this Article to the contrary, to
the extent that a Covered Person is, by reason of such Covered Person's
Corporate Status, a party to or is otherwise involved in and is successful, on
the merits or otherwise, in any Proceeding, such Covered Person shall be
indemnified to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually and
reasonably incurred by such Covered Person or on such Covered Person's behalf in
connection therewith. If such Covered Person is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the corporation
shall indemnify such Covered Person to the maximum extent permitted by law,
against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by
<PAGE> 18
such Covered Person or on such Covered Person's behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section 7.5
and without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
SECTION 7.6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any provision of this Article to the contrary, to the extent that a Covered
Person is, by reason of such Covered Person's Corporate Status, a witness in any
Proceeding, such Covered Person shall be indemnified against all Expenses
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection therewith.
SECTION 7.7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision of
this Article to the contrary, the corporation shall advance all reasonable
Expenses which, by reason of Covered Person's Corporate Status, were incurred by
or on behalf of such Covered Person in connection with any Proceeding, within
thirty (30) days after the receipt by the corporation of a statement or
statements from such Covered Person requesting such advance or advances, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by the Covered Person
and shall include or be preceded or accompanied by an undertaking by or on
behalf of the Covered Person to repay any Expenses if such Covered Person shall
be adjudged to be not entitled to be indemnified against such Expenses. Any
advance and undertaking to repay pursuant to this Section 7.7 may be unsecured
interest-free, as the corporation sees fit. Advancement of Expenses pursuant to
this Section 7.7 shall not require approval of the board of directors or the
stockholders of the corporation, or of any other person or body. The secretary
of the corporation shall promptly advise the Board in writing of the request for
advancement of Expenses, of the amount and other details of the request and of
the undertaking to make repayment provided pursuant to this Section 7.7.
SECTION 7.8. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
a Covered Person of notice of the commencement of any Proceeding, such Covered
Person shall, if a claim is to be made against the corporation under this
Article, notify the corporation of the commencement of the Proceeding. The
failure to notify the corporation will not relieve the corporation from any
liability which it may have to such Covered Person otherwise than under this
Article. With respect to any such Proceedings to which such Covered Person
notifies the corporation:
(a) The corporation will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below in this subparagraph (b), the
corporation (jointly with any other indemnifying party similarly notified) will
be entitled to assume the defense with counsel reasonably satisfactory to the
Covered Person. After notice from the corporation to the Covered Person of its
election to assume the defense of a suit, the corporation will not be liable to
the Covered Person under this Article for any legal or other expenses
subsequently incurred by the Covered Person in connection with the defense of
the Proceeding other than reasonable costs of investigation or as otherwise
provided below in this subparagraph (b).
<PAGE> 19
The Covered Person shall have the right to employ his own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the corporation of its assumption of the defense shall be at the expense of the
Covered Person except as provided in this paragraph. The fees and expenses of
counsel shall be at the expense of the corporation if (i) the employment of
counsel by the Covered Person has been authorized by the corporation, (ii) the
Covered Person shall have concluded reasonably that there may be a conflict of
interest between the corporation and the Covered Person in the conduct of the
defense of such action and such conclusion is confirmed in writing by the
corporation's outside counsel regularly employed by it in connection with
corporate matters, or (iii) the corporation shall not in fact have employed
counsel to assume the defense of such Proceeding. The corporation shall be
entitled to participate in, but shall not be entitled to assume the defense of
any Proceeding brought by or in the right of the corporation or as to which the
Covered Person shall have made the conclusion provided for in (ii) above and
such conclusion shall have been so confirmed by the corporation's said outside
counsel.
(c) Notwithstanding any provision of this Article to the contrary, the
corporation shall not be obligated to indemnify the Covered Person under this
Article for any amounts paid in settlement of any Proceeding effected without
its written consent. The corporation shall not settle any Proceeding or claim in
any manner which would impose any penalty, limitation or disqualification of the
Covered Person for any purpose without such Covered Person's written consent.
Neither the corporation nor the Covered Person will unreasonably withhold their
con-sent to any proposed settlement.
(d) If it is determined that the Covered Person is entitled to
indemnification other than as afforded under subparagraph (b) above, payment to
the Covered Person of the additional amounts for which he is to be indemnified
shall be made within ten (10) days after such determination.
SECTION 7.9. PROCEDURES.
(a) METHOD OF DETERMINATION. A determination (as provided for by this
Article or if required by applicable law in the specific case) with respect to a
Covered Person's entitlement to indemnification shall be made either (a) by the
board of directors by a majority vote of a quorum consisting of Disinterested
directors, or (b) in the event that a quorum of the board of directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the board of directors, a copy of which shall be
delivered to the Covered Person seeking indemnification, or (c) by the vote of
the holders of a majority of the corporation's capital stock outstanding at the
time entitled to vote thereon.
(b) INITIATING REQUEST. A Covered Person who seeks indemnification under
this Article shall submit a Request for Indemnification, including such
documentation and information as is reasonably available to such Covered Person
and is reasonably necessary to determine whether and to what extent such Covered
Person is entitled to indemnification.
<PAGE> 20
(c) PRESUMPTIONS. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall not presume that the Covered Person is or is not entitled to
indemnification under this Article.
(d) BURDEN OF PROOF. Each Covered Person shall bear the burden of going
forward and demonstrating sufficient facts to support his claim for entitlement
to indemnification under this Article. That burden shall be deemed satisfied by
the submission of an initial Request for Indemnification pursuant to Section
7.9(b) above.
(e) EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Article) of itself
adversely affect the right of a Covered Person to indemnification or create a
presumption that a Covered Person did not act in Good Faith.
(f) ACTIONS OF OTHERS. The knowledge, actions, or failure to act, of any
director, officer, employee, agent, trustee or fiduciary of the enterprise whose
daily activities the Covered Person was actually responsible for may be imputed
to a Covered Person for purposes of determining the right to indemnification
under this Article.
SECTION 7.10. ACTION BY THE CORPORATION. Any action, payment, advance
determination other than a determination made pursuant to Section 7.9(a) above,
authorization, requirement, grant of indemnification or other action taken by
the corporation pursuant to this Article shall be effected exclusively through
any Disinterested person so authorized by the board of directors of the
corporation, including the president or any vice president of the corporation.
SECTION 7.11. NON-EXCLUSIVITY. The rights of indemnification and to
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which a Covered Person may at any time be
entitled under applicable law, the Certificate of Incorporation, these By-Laws,
any agreement, a vote of stockholders or a resolution of the board of directors,
or otherwise. No amendment, alteration, rescission or replacement of this
Article or any provision hereof shall be effective as to an Covered Person with
respect to any action taken or omitted by such Covered Person in such Covered
Person's Corporate Status or with respect to any state of facts then or
previously existing or any Proceeding previously or thereafter brought or
threatened based in whole or to the extent based in part upon any such state of
facts existing prior to such amendment, alteration, rescission or replacement.
SECTION 7.12. INSURANCE. The corporation may maintain, at its expense, an
insurance policy or policies to protect itself and any Covered Person, officer,
employee or agent of the corporation or another enterprise against liability
arising out of this Article or otherwise, whether or not the corporation would
have the power to indemnify any such person against such liability under the
Delaware General Corporation Law.
SECTION 7.13. NO DUPLICATIVE PAYMENT. The corporation shall not be liable
under this Article to make any payment of mounts otherwise indemnifiable
hereunder if and the extent
<PAGE> 21
that a Covered Person has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
SECTION 7.14. EXPENSES OF ADJUDICATION. In the event that any Covered
Person seeks a judicial adjudication, or an award in arbitration, to enforce
such Covered Person's rights under, or to recover damages for breach of, this
Article, the Covered Person shall be entitled to recover from the corporation,
and shall be indemnified by the corporation against, any and all expenses (of
the types described in the definition of Expenses in Section 7.1 of this
Article) actually and reasonably incurred by such Covered Person in seeking such
adjudication or arbitration, but only if such Covered Person prevails therein.
If it shall be determined in such adjudication or arbitration that the Covered
Person is entitled to receive part but not all of the indemnification of
expenses sought, the expenses incurred by such Covered Person in connection with
such adjudication or arbitration shall be appropriately pro rated.
SECTION 7.15. SEVERABILITY. If any provision or provisions of this Article
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions
of this Article (including without limitation, each portion of any Section of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
SECTION 8.1. CERTIFICATE OF INCORPORATION. All references in these By-laws
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the corporation, as amended and in effect from time to time.
SECTION 8.2. FISCAL YEAR. Except as from time to time otherwise provided
by the board of directors, the fiscal year of the corporation shall end on
December 31st of each year.
SECTION 8.3. CORPORATE SEAL. The board of directors shall have the power to
adopt and alter the seal of the corporation.
SECTION 8.4. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes, and other obligations authorized to be executed by an
officer of the corporation on its be
<PAGE> 22
half shall be signed by the president or the treasurer except as the board of
directors may generally or in particular cases otherwise determine.
SECTION 8.5. VOTING OF SECURITIES. Unless the board of directors otherwise
provides, the president or the treasurer may waive notice of and act on behalf
of this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
SECTION 8.6. EVIDENCE OF AUTHORITY. A certificate by the secretary or any
assistant secretary as to any action taken by the stockholders, directors or any
officer or representative of the corporation shall, as to all persons who rely
thereon in good faith, be conclusive evidence of such action. The exercise of
any power which by law, by the Certificate of Incorporation, or by these
By-laws, or under any vote of the stockholders or the board of directors, may be
exercised by an officer of the corporation only in the event of absence of
another officer or any other contingency shall bind the corporation in favor of
anyone relying thereon in good faith, whether or not such absence or contingency
existed.
SECTION 8.7. CORPORATE RECORDS. The original, or attested copies, of the
Certificate of Incorporation, By-laws, records of all meetings of the
incorporators and stockholders, and the stock transfer books (which shall
contain the names of all stockholders and the record address and the amount of
stock held by each) shall be kept in Delaware at the principal office of the
corporation, or at an office of the corporation, or at an office of its transfer
agent or of the secretary or of the assistant secretary, if any. Said copies
and records need not all be kept in the same office. They shall be available at
all reasonable times to inspection of any stockholder for any purpose but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or for using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
SECTION 8.8. CHARITABLE CONTRIBUTIONS. The board of directors from time to
time may authorize contributions to be made by the corporation in such amounts
as it may determine to be reasonable to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the net earning of which inures to the private
benefit of any stockholder or individual.
ARTICLE IX.
AMENDMENTS
SECTION 9.1. AMENDMENT BY STOCKHOLDERS. Prior to the issuance of stock,
these By-laws may be amended, altered or repealed by the incorporator. After
stock has been issued, these By-laws may be amended altered or repealed by the
stockholders at any annual or special meeting by vote or a majority of all
shares outstanding and entitled to vote, except that where the effect of the
amendment would be to reduce any voting requirement otherwise required by
<PAGE> 23
law, the Certificate of Incorporation or these By-laws, such amendment shall
require the vote that would have been required by such other provision. Notice
and a copy of any proposal to amend these By-laws must be included in the notice
of meeting of stockholders at which action is taken upon such amendment.
SECTION 9.2. AMENDMENT BY BOARD OF DIRECTORS. These By-laws may be amended
or altered by the board of directors at a meeting duly called for the purpose by
majority vote of the directors then in office, except that directors shall not
amend the By-laws in a manner which:
(a) changes the stockholder voting requirements for any action;
(b) alters or abolishes any preferential right or right of redemption
applicable to a class or series of stock with shares already outstanding;
(c) alters the provisions of Article IX hereof;
(d) permits the board of directors to take any action which under law, the
Certificate of Incorporation, or these By-laws is required to be taken by the
stockholders; or
(e) enlarges or otherwise changes the size of the Board of Directors.
Any amendment of these By-laws by the board of directors may be altered or
repealed by the stockholders at any annual or special meeting of stockholders.
<PAGE> 1
Exhibit 3.4
THIRD AMENDED
AND RESTATED
BYLAWS
of
CONNECTED CORPORATION
A Delaware Corporation
Adopted: October 31, 1995
As Amended and Restated: November 20, 1995
As further amended and restated: October 29, 1999
As further amended and restated: March __, 2000
<PAGE> 2
BYLAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. - STOCKHOLDERS ........................................................... 1
SECTION 1.1. ANNUAL MEETING ......................................................... 1
SECTION 1.2. SPECIAL MEETINGS ....................................................... 1
SECTION 1.3. NOTICE OF MEETING; ADJOURNMENTS ........................................ 1
SECTION 1.4. QUORUM ................................................................. 2
SECTION 1.5. VOTING AND PROXIES ..................................................... 2
SECTION 1.6. ACTION AT MEETING ...................................................... 3
SECTION 1.7. ACTION WITHOUT MEETING ................................................. 3
SECTION 1.8. PRESIDING OFFICER ...................................................... 3
SECTION 1.9. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS .......................... 3
SECTION 1.10. VOTING OF SHARES OF CERTAIN HOLDERS ................................... 3
SECTION 1.11. STOCKHOLDER LISTS ..................................................... 4
SECTION 1.12. MEETING PROPOSALS AND NOMINATIONS OF DIRECTORS ........................ 4
ARTICLE II. - BOARD OF DIRECTORS .................................................... 6
SECTION 2.1. POWERS ................................................................. 6
SECTION 2.2. NUMBER OF DIRECTORS; QUALIFICATIONS .................................... 7
SECTION 2.3. NOMINATION OF DIRECTORS ............................................... 7
SECTION 2.4. ELECTION OF DIRECTORS .................................................. 7
SECTION 2.5. VACANCIES; REDUCTION OF THE BOARD ...................................... 7
SECTION 2.6. CHANGE IN SIZE OF THE BOARD ............................................ 7
SECTION 2.7. TENURE AND RESIGNATION ................................................ 7
SECTION 2.8. REMOVAL ................................................................ 7
SECTION 2.9. MEETINGS ............................................................... 7
SECTION 2.10. NOTICE OF MEETING ..................................................... 8
SECTION 2.11. AGENDA ................................................................ 8
SECTION 2.12. QUORUM ................................................................ 8
SECTION 2.13. ACTION AT MEETING ..................................................... 8
SECTION 2.14. ACTION WITHOUT MEETING ................................................ 8
SECTION 2.15. COMMITTEES ............................................................ 9
ARTICLE III. - OFFICERS ............................................................. 9
SECTION 3.1. ENUMERATION ............................................................ 9
SECTION 3.2. ELECTION ............................................................... 9
SECTION 3.3. QUALIFICATION .......................................................... 9
SECTION 3.4. TENURE ................................................................. 9
SECTION 3.5. REMOVAL ................................................................ 10
SECTION 3.6. RESIGNATION ............................................................ 10
SECTION 3.7. VACANCIES .............................................................. 10
SECTION 3.8. CHAIRMAN OF THE BOARD .................................................. 10
SECTION 3.9. PRESIDENT .............................................................. 10
SECTION 3.10. VICE-PRESIDENT(S) ..................................................... 10
SECTION 3.11. TREASURER AND ASSISTANT TREASURERS, CHIEF FINANCIAL OFFICER ........... 10
SECTION 3.12. SECRETARY AND ASSISTANT SECRETARIES ................................... 11
SECTION 3.13. OTHER POWERS AND DUTIES ............................................... 11
ARTICLE IV. - CAPITAL STOCK ......................................................... 11
SECTION 4.1. STOCK CERTIFICATES ..................................................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.2. TRANSFER OF SHARES ..................................................... 12
SECTION 4.3. RECORD HOLDERS ......................................................... 12
SECTION 4.4. RECORD DATE ............................................................ 12
SECTION 4.5. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION ................. 12
SECTION 4.6. LOSS OF CERTIFICATES ................................................... 13
SECTION 4.7. RESTRICTIONS ON TRANSFER ............................................... 13
SECTION 4.8. MULTIPLE CLASSES OF STOCK .............................................. 13
ARTICLE V. - DIVIDENDS .............................................................. 14
SECTION 5.1. DECLARATION OF DIVIDENDS ............................................... 14
SECTION 5.2. RESERVES ............................................................... 14
ARTICLE VI. - POWERS OF OFFICERS TO CONTRACT WITH THE CORPORATION ................... 14
ARTICLE VII - INDEMNIFICATION ....................................................... 15
SECTION 7.1. DEFINITIONS ............................................................ 15
SECTION 7.2. RIGHT TO INDEMNIFICATION IN GENERAL .................................... 16
SECTION 7.3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION 17
SECTION 7.4. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION ...................... 17
SECTION 7.5. INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL .......... 17
SECTION 7.6. INDEMNIFICATION FOR EXPENSES OF A WITNESS .............................. 18
SECTION 7.7. ADVANCEMENT OF EXPENSES ................................................ 18
SECTION 7.8. NOTIFICATION AND DEFENSE OF CLAIM ...................................... 18
SECTION 7.9. PROCEDURES ............................................................. 19
SECTION 7.10. ACTION BY THE CORPORATION ............................................. 20
SECTION 7.11. NON-EXCLUSIVITY ....................................................... 20
SECTION 7.12. INSURANCE ............................................................. 21
SECTION 7.13. NO DUPLICATIVE PAYMENT ................................................ 21
SECTION 7.14. EXPENSES OF ADJUDICATION .............................................. 21
SECTION 7.15. SEVERABILITY .......................................................... 21
ARTICLE VIII. - MISCELLANEOUS PROVISIONS ............................................ 21
SECTION 8.1. CERTIFICATE OF INCORPORATION ........................................... 22
SECTION 8.2. FISCAL YEAR ............................................................ 22
SECTION 8.3. CORPORATE SEAL ......................................................... 22
SECTION 8.4. EXECUTION OF INSTRUMENTS ............................................... 22
SECTION 8.5. VOTING OF SECURITIES ................................................... 22
SECTION 8.6. EVIDENCE OF AUTHORITY .................................................. 22
SECTION 8.7. CORPORATE RECORDS ...................................................... 22
SECTION 8.8. CHARITABLE CONTRIBUTIONS ............................................... 22
ARTICLE IX. - AMENDMENTS ............................................................ 23
SECTION 9.1. AMENDMENT BY DIRECTORS.................................................. 23
SECTION 9.2. AMENDMENT BY STOCKHOLDERS............................................... 23
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
CONNECTED CORPORATION
ARTICLE I.
Stockholders
Section 1.1. Annual Meeting. The annual meeting of the stockholders of
the corporation shall be held on such date as shall be fixed by the Board of
Directors, at such time and place within or without the State of Delaware as may
be designated in the notice of meeting. If the day fixed for the annual meeting
shall fall on a legal holiday, the meeting shall be held on the next succeeding
day not a legal holiday. If the annual meeting is omitted on the day herein
provided, a special meeting may be held in place thereof, and any business
transacted at such special meeting in lieu of annual meeting shall have the same
effect as if transacted or held at the annual meeting.
Section 1.2. Special Meetings. Subject to the rights, if any, of the
holders of any shares of Preferred Stock as set forth in the Certificate of
Incorporation or Certificate of Designations filed with the Secretary of State
of the State of Delaware relating to a series of Preferred Stock, special
meetings of the stockholders may be called at any time only by the president or
the Board of Directors. Special meetings of the stockholders shall be held at
such time, date and place within or outside of the State of Delaware as may be
designated in the notice of such meeting. Only those matters set forth in the
notice of the special meeting may be considered or acted upon at a special
meeting of stockholders of the corporation.
Section 1.3. Notice of Meeting; Adjournments. A written notice stating
the place, date, and hour of each meeting of the stockholders, and, in the case
of a special meeting, the purposes for which the meeting is called, shall be
given to each stockholder entitled to vote at such meeting, and to each
stockholder who, under the Certificate of Incorporation or these By-Laws, is
entitled to such notice, by delivering such notice to such person or leaving it
at their residence or usual place of business, or by mailing it, postage
prepaid, and addressed to such stockholder at his or her address as it appears
upon the books of the corporation, at least ten (10) days and not more than
sixty (60) before the meeting. Such notice shall be given by the secretary, an
assistant secretary, or any other officer or person designated either by the
secretary or by the person or persons calling the meeting.
The requirement of notice to any stockholder may be waived (i) by a
written waiver of notice, executed before or after the meeting by the
stockholder or his or her attorney thereunto duly authorized, and filed with the
records of the meeting, (ii) if communication with such stockholder is unlawful,
(iii) by attendance at the meeting without protesting prior thereto or at its
commencement the lack of notice, or (iv) as otherwise excepted by law. A waiver
of notice
1
<PAGE> 5
of any regular or special meeting of the stockholders need not specify the
purposes of the meeting.
The Board of Directors may postpone and reschedule any previously
scheduled annual meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 1.3
of Article I of these Bylaws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under this Section 1.3 of Article I of these By-Laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate of Incorporation or these By-Laws, is entitled to
such notice.
Section 1.4. Quorum. The holders of a majority in interest of all stock
issued, outstanding and entitled to vote at a meeting shall constitute a quorum.
Any meeting may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present.
Section 1.5. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the corporation, unless otherwise provided by law or by the Certificate
of Incorporation. Stockholders may vote either in person or by written proxy,
but no proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. Proxies shall be filed with the
secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise and the burden of proving invalidity shall rest on the challenger.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them.
Section 1.6. Action at Meeting. When a quorum is present at any meeting,
a plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the
2
<PAGE> 6
votes properly cast upon any question other than election to an office shall
decide such question, except where a larger vote is required by law, the
Certificate of Incorporation or these By-Laws. No ballot shall be required for
any election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
Section 1.7. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the stockholders must be taken at a meeting duly
called and held in accordance with law and in accordance with the Certificate of
Incorporation and these Bylaws. The stockholders cannot act by written consent.
Section 1.8. Presiding Officer. The chairman of the board, if one is
elected, or if not elected or in his or her absence, the president, shall
preside at all annual meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Section 1.3 of this Article I. The order of business
and all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
Section 1.9. Voting Procedures and Inspectors of Elections. The
corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
Section 1.10. Voting of Shares of Certain Holders. Shares of stock of
the corporation standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of such
corporation may prescribe, or, in the absence of such provision, as the Board of
Directors of such corporation may determine.
Shares of capital stock of the corporation standing in the name of a
deceased person, a minor ward or an incompetent person, may be voted by his or
her administrator, executor, court-appointed guardian or conservator without a
transfer of such shares into the name of such administrator, executor, court
appointed guardian or conservator. Shares of capital stock of the
3
<PAGE> 7
corporation standing in the name of a trustee or fiduciary may be voted by such
trustee or fiduciary.
Shares of capital stock of the corporation standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his or her name if authority so to do be contained in an appropriate order of
the court by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer by the pledgor on the books of the corporation he
or she expressly empowered the pledgee to vote thereon, in which case only the
pledgee or its proxy shall be entitled to vote the shares so transferred.
Shares of its own capital stock belonging to this corporation shall not
be voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares at any given time, but shares
of its own capital stock held by the corporation in a fiduciary capacity may be
voted and shall be counted in determining the total number of outstanding
shares.
Section 1.11. Stockholder Lists. The secretary (or the corporation's
transfer agent or other person authorized by these By-Laws or by law) shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 1.12. Meeting Proposals and Nominations of Directors
(a) Nominations of persons for election to the Board of Directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting or special meeting in lieu of annual meeting
(i) by or at the direction of the Board of Directors or (ii) by any stockholder
of the corporation who was a stockholder of record at the time of giving of
notice provided for in this Section 1.12, who is entitled to vote at the
meeting, who is present at the meeting and who complies with the notice
procedures set forth in this Section 1.12. In addition to the other requirements
set forth in this Section 1.12, for any proposal of business to be considered at
an annual meeting or special meeting in lieu of annual meeting such proposal
must be a proper subject for action by stockholders of the corporation under
Delaware law.
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(b) For nominations or other business to be properly brought before an
annual meeting or special meeting in lieu of annual meeting by a stockholder
pursuant to clause (ii) of paragraph (a) of this Section 1.12, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to the
secretary at the principal executive offices of the corporation not later than
the close of business on the 75th day nor earlier than the close of business on
the 105th day prior to the first anniversary of the preceding year's annual
meeting or special meeting in lieu of annual meeting provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
before or delayed by more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the 105th day prior to such meeting and not later than the close of
business on the later of the 75th day prior to such meeting or the 10th day
following the day on which public announcement of the date of such meeting is
first made. Notwithstanding anything to the contrary provided herein, for the
first annual meeting or special meeting in lieu of annual meeting following the
initial public offering of common stock of the corporation, a stockholder's
notice shall be timely if delivered to the secretary at the principal executive
offices of the corporation not later than the close of business on the later of
the 75th day prior to the scheduled date of such annual meeting or the 10th day
following the day on which public announcement of the date of such annual
meeting is first made or sent by the corporation. Such stockholder's notice
shall set forth (i) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made, and the name and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the corporation's capital stock beneficially owned by such other
stockholders; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (A)
the name and address of such stockholder as they appear on the corporation's
books, and of such beneficial owner, and (B) the class and number of shares of
capital stock of the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
(c) Notwithstanding anything in the second sentence of paragraph (b) of
this Section 1.12 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the corporation is increased and there
is no public announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation at least 85
days prior to the first anniversary of the preceding year's annual meeting or
special meeting in lieu of annual meeting, a stockholder's notice required by
this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the secretary at the principal executive
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offices of the corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
corporation.
(d) Only such persons who are nominated by stockholders in accordance
with the provisions of this Section 1.12 or by the Board of Directors in
accordance with the provisions of Section 2.3 shall be eligible for election and
to serve as directors and only such business shall be conducted at an annual
meeting or special meeting in lieu of annual meeting as shall have been brought
before the meeting in accordance with the provision of this Section 1.12. The
Board of Directors or a designated committee thereof shall have the power to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the provisions of this Section 1.12. If
neither the Board of Directors nor such designated committee makes a
determination as to whether any stockholder proposal or nomination was made in
accordance with the provisions of this Section 1.12, the presiding officer of
the meeting shall have the power and duty to determine whether the stockholder
proposal or nomination was made in accordance with the provisions of this
Section 1.12. If the Board of Directors or a designated committee thereof or the
presiding officer, as applicable, determines that any stockholder proposal or
nomination was not made in accordance with the provisions of this Section 1.12,
such proposal or nomination shall be disregarded and shall not be presented for
action at the meeting.
(e) For purposes of this Section 1.12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(f) Notwithstanding the foregoing provisions of this Section 1.12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.12. Nothing in this Section 1.12 shall be deemed to
affect any rights of (i) stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) the holders of any series of preferred stock to elect directors under
specific circumstances.
ARTICLE II.
Board of Directors
Section 2.1. Powers. Except as reserved to the stockholders by law, by
the Certificate of Incorporation or by these By-Laws, the business of the
corporation shall be managed under the direction of the Board of Directors, who
shall have and may exercise all of the powers of the corporation. In particular,
and without limiting the foregoing, the Board of Directors shall have the power
to issue or reserve for issuance from time to time the whole or any part of the
capital stock of the corporation which may be authorized from time to time to
such person, for such consideration and upon such terms and conditions as they
shall determine, including the granting of options, warrants or conversion or
other rights to stock.
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Section 2.2. Number of Directors; Qualifications. The Board of Directors
shall consist of 7 directors. No director need be a stockholder.
Section 2.3. Nomination of Directors. Nominations for the election of
directors at an annual meeting of the stockholders, or special meeting in lieu
of the annual meeting, may be made by the Board of Directors or a committee
appointed by the Board of Directors, or by any stockholder entitled to vote in
the election of directors at the meeting in accordance with Section 1.12 of
these By-laws.
Section 2.4. Election of Directors. The initial Board of Directors shall
be designated in the Certificate of Incorporation, or if not so designated,
elected by the incorporator at the first meeting thereof. Thereafter, directors
shall be elected by the stockholders at their annual meeting or at any special
meeting the notice of which specifies the election of directors as an item of
business for such meeting. Such election shall be in accordance with the
Certificate of Incorporation and these By-Laws.
Section 2.5. Vacancies; Reduction of the Board. In the case of any
vacancy in the Board of Directors from death, resignation, disqualification or
other cause, including a vacancy resulting from enlargement of the Board of
Directors, the election of a director to fill such vacancy shall be by vote of a
majority of the directors then in office, whether or not constituting a quorum.
The director thus elected shall hold office until his or her successor is
elected and qualified. In lieu of filling any such vacancy the Board of
Directors may reduce the number of directors, but not to a number less than two
(2). When one or more directors shall resign from the Board of Directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective.
Section 2.6. Change in Size of the Board. The number of directors
constituting the Board of Directors may be changed by vote of a majority of the
directors then in office or by the stockholders by vote of seventy-five percent
(75%) of the shares of voting stock outstanding and entitled to vote at a
meeting duly called for the purpose voting together as a single class.
Section 2.7. Tenure and Resignation. Except as otherwise provided by
law, by the Certificate of Incorporation or by these By-Laws, directors shall
hold office until the next annual meeting of stockholders and thereafter until
their successors are chosen and qualified. Any director may resign by delivering
or mailing postage prepaid a written resignation to the corporation at its
principal office or to the president, secretary or assistant secretary, if any.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 2.8. Removal. A director may be removed from office only
according to the terms of the Certificate of Incorporation.
Section 2.9. Meetings. Regular meetings of the Board of Directors may be
held without call or notice at such times and such places within or without the
State of Delaware as the Board
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of Directors may, from time to time, determine, provided that notice of the
first regular meeting following any such determination shall be given to
directors absent from such determination. A regular meeting of the Board of
Directors shall be held without notice immediately after, and at the same place
as, the annual meeting of the stockholders or the special meeting of the
stockholders held in place of such annual meeting, unless a quorum of the
directors is not then present. Special meetings of the Board of Directors may be
held at any time and at any place designated in the call of the meeting when
called by the chairman of the board, president, or a majority of the directors.
Members of the Board of Directors or any committee elected thereby may
participate in a meeting of such Board of Directors or committee by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
Section 2.10. Notice of Meeting. It shall be sufficient notice to a
director to send notice by mail at least seventy-two (72) hours before the
meeting addressed to such person at his or her usual or last known business or
residence address or to give notice to such person in person or by telephone at
least twenty-four (24) hours before the meeting. Notice shall be given by the
secretary, or in his or her absence or unavailability, may be given by an
assistant secretary, if any, or by the officer or directors calling the meeting.
The requirement of notice to any director may be waived by a written waiver of
notice, executed by such person before or after the meeting or meetings, and
filed with the records of the meeting, or by attendance at the meeting without
protesting prior thereto or at its commencement the lack of notice. A notice or
waiver of notice of a directors' meeting need not specify the purposes of the
meeting.
Section 2.11. Agenda. Any lawful business may be transacted at a meeting
of the Board of Directors, notwithstanding the fact that the nature of the
business may not have been specified in the notice or waiver of notice of the
meeting.
Section 2.12. Quorum. At any meeting of the Board of Directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business. Any meeting may be adjourned by a majority of the votes
cast upon the question, whether or not a quorum is present, and the meeting may
be held as adjourned without further notice.
Section 2.13. Action at Meeting. Any motion adopted by vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, except where a different vote is
required by law, by the Certificate of Incorporation or by these By-Laws. The
assent in writing of any director to any vote or action of the directors taken
at any meeting, whether or not a quorum was present and whether or not the
director had or waived notice of the meeting, shall have the same effect as if
the director so assenting was present at such meeting and voted in favor of such
vote or action.
Section 2.14. Action Without Meeting. Any action by the directors may be
taken without a meeting if all of the directors consent to the action in writing
and the consents are filed with the records of the directors' meetings. Such
consent shall be treated for all purposes as a vote of the directors at a
meeting.
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Section 2.15. Committees. The Board of Directors may, by the affirmative
vote of a majority of the directors then in office, appoint committees
consisting of one or more directors and may by vote delegate to any such
committee some or all of their powers except those which by law, the Certificate
of Incorporation or these By-Laws they may not delegate. Such committees may
include, for example and without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee, and an Audit Committee. In the
absence or disqualification of a member of a committee, the members of the
committee present and not disqualified, whether or not they constitute a quorum,
may by unanimous vote appoint another member of the Board of Directors to act at
the meeting in place of the absence or disqualified member. Unless the Board of
Directors shall otherwise provide, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or such rules, its meetings shall be called, notice given or waived, its
business conducted or its action taken as nearly as may be in the same manner as
is provided in these By-Laws with respect to meetings or for the conduct of
business or the taking of actions by the Board of Directors. The Board of
Directors shall have power at any time to fill vacancies in, change the
membership of, or discharge any such committee at any time. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III.
Officers
Section 3.1. Enumeration. The officers shall consist of a president, a
treasurer, a secretary and such other officers and agents (including a chairman
of the board, one or more vice-presidents, assistant treasurers and assistant
secretaries), as the Board of Directors may, in their discretion, determine.
Section 3.2. Election. The president, treasurer and secretary shall be
elected annually by the directors at their first meeting following the annual
meeting of the stockholders or any special meeting held in lieu of the annual
meeting. Other officers may be chosen by the directors at such meeting or at any
other meeting.
Section 3.3. Qualification. An officer may, but need not, be a director
or stockholder. Any two or more offices may be held by the same person. Any
officer may be required by the directors to give bond for the faithful
performance of his or her duties to the corporation in such amount and with such
sureties as the directors may determine. The premiums for such bonds may be paid
by the corporation.
Section 3.4. Tenure. Except as otherwise provided by the Certificate of
Incorporation or these By-Laws, the term of office of each officer shall be for
one year or until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
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Section 3.5. Removal. Any officer may be removed from office, with or
without cause, by the affirmative vote of a majority of the directors then in
office; provided, however, that an officer may be removed for cause only after
reasonable notice and opportunity to be heard by the Board of Directors prior to
action thereon.
Section 3.6. Resignation. Any officer may resign by delivering or
mailing postage prepaid a written resignation to the corporation at its
principal office or to the president, secretary, or assistant secretary, if any,
and such resignation shall be effective upon receipt unless it is specified to
be effective at some other time or upon the happening of some event.
Section 3.7. Vacancies. A vacancy in any office arising from any cause
may be filled for the unexpired portion of the term by the Board of Directors.
Section 3.8. Chairman of the Board. The Board of Directors may appoint a
chairman of the board. If the Board of Directors appoints a chairman of the
board, he or she shall preside at all meetings of the stockholders and of the
Board of Directors and shall perform such other duties and possess such other
powers as are assigned to him or her by the Board of Directors. The Board of
Directors may also designate the chairman of the board as chief executive
officer.
Section 3.9. President. The president shall be the chief executive
officer of the corporation unless a chairman of the board is designated by the
Board of Directors as the chief executive officer. Unless a chairman of the
board is appointed or except as otherwise voted by the Board of Directors, the
president shall preside at all meetings of the stockholders and of the Board of
Directors at which present. The president shall have such duties and powers as
are commonly incident to the office and such duties and powers as the Board of
Directors shall from time to time designate.
Section 3.10. Vice-President(s). The vice-president(s), if any, shall
have such powers and perform such duties as the Board of Directors may from time
to time determine.
Section 3.11. Treasurer and Assistant Treasurers, Chief Financial
Officer. The treasurer, or if the Board of Directors so determines, the chief
financial officer, subject to the direction and under the supervision and
control of the Board of Directors, shall have general charge of the financial
affairs of the corporation. The treasurer shall have custody of all funds,
securities and valuable papers of the corporation, except as the Board of
Directors may otherwise provide. The treasurer shall keep or cause to be kept
full and accurate records of account which shall be the property of the
corporation, and which shall be always open to the inspection of each elected
officer and director of the corporation. The treasurer shall deposit or cause to
be deposited all funds of the corporation in such depository or depositories as
may be authorized by the Board of Directors. The treasurer shall have the power
to endorse for deposit or collection all notes, checks, drafts, and other
negotiable instruments payable to the corporation. The treasurer shall perform
such other duties as are incidental to the office, and such other duties as may
be assigned by the Board of Directors. All of the duties of the treasurer may be
performed by the chief financial officer, in the discretion of the Board of
Directors.
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Assistant treasurers, if any, shall have such powers and perform such
duties as the Board of Directors may from time to time determine.
Section 3.12. Secretary and Assistant Secretaries. The secretary or an
assistant secretary shall record, or cause to be recorded, all proceedings of
the meetings of the stockholders and directors (including committees thereof) in
the book of records of this corporation. The secretary or an assistant secretary
shall notify the stockholders and directors, when required by law or by these
By-Laws, of their respective meetings, and shall perform such other duties as
the Board of Directors may from time to time prescribe. The secretary or an
assistant secretary shall have the custody and charge of the corporate seal, and
shall affix the seal of the corporation to all instruments requiring such seal,
and shall certify under the corporate seal the proceedings of the directors and
of the stockholders, when required. In the absence of the secretary or an
assistant secretary at any such meeting, a temporary secretary shall be chosen
who shall record the proceedings of the meeting in the aforesaid books.
Assistant secretaries, if any, shall have such powers and perform such
duties as the Board of Directors may from time to time designate.
Section 3.13. Other Powers and Duties. Subject to these By-Laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors.
ARTICLE IV.
Capital Stock
Section 4.1. Stock Certificates. Each stockholder shall be entitled to a
certificate representing the number of shares of the capital stock of the
corporation owned by such person in such form as shall, in conformity to law, be
prescribed from time to time by the Board of Directors. Each certificate shall
be signed by the president or vice-president and treasurer or assistant
treasurer or such other officers designated by the Board of Directors from time
to time as permitted by law, shall bear the seal of the corporation, and shall
express on its face its number, date of issue, class, the number of shares for
which, and the name of the person to whom, it is issued. The corporate seal and
any or all of the signatures of corporation officers may be facsimile if the
stock certificate is manually counter-signed by an authorized person on behalf
of a transfer agent or registrar other than the corporation or its employee.
If an officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed on, a certificate shall have ceased to be
such before the certificate is issued, it may be issued by the corporation with
the same effect as if he or she were such officer, transfer agent or registrar
at the time of its issue.
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Section 4.2. Transfer of Shares. Title to a certificate of stock and to
the shares represented thereby shall be transferred only on the books of the
corporation by delivery to the corporation or its transfer agent of the
certificate properly endorsed, or by delivery of the certificate accompanied by
a written assignment of the same, or a properly executed written power of
attorney to sell, assign or transfer the same or the shares represented thereby.
Upon surrender of a certificate for the shares being transferred, a new
certificate or certificates shall be issued according to the interests of the
parties.
Section 4.3. Record Holders. Except as otherwise may be required by law,
by the Certificate of Incorporation or by these By-Laws, the corporation shall
be entitled to treat the record hold of capital stock as shown on its books as
the owner of such capital stock for all purposes, including the payment of
dividends and the right to vote with respect thereto, regardless of any
transfer, pledge or other disposition of such capital stock, until the shares
have been transferred on the books of the corporation in accordance with the
requirements of these By-Laws.
It shall be the duty of each stockholder to notify the corporation of
his or her post office address.
Section 4.4. Record Date. In order that the corporation may determine
the stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of capital
stock or for the purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than 60 days prior to
any other action. In such case only stockholders of record on such record date
shall be so entitled notwithstanding any transfer of capital stock on the books
of the corporation after the record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; and (ii) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 4.5. Transfer Agent and Registrar for Shares of Corporation. The
Board of Directors may appoint a transfer agent and a registrar of the
certificates of capital stock of the corporation. Any transfer agent so
appointed shall maintain, among other records, a stockholders' ledger, setting
forth the names and addresses of the holders of all issued shares of capital
stock of the corporation, the number of shares held by each, the certificate
numbers representing such shares, and the date of issue of the certificates
representing such shares. Any registrar so appointed shall maintain, among other
records, a share register, setting forth the total number of shares of each
class of shares which the corporation is authorized to issue and the total
number of shares actually issued. The stockholders' ledger and the share
register are
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hereby identified as the stock transfer books of the corporation; but as between
the stockholders' ledger and the share register, the names and addresses of
stockholders, as they appear on the stockholders' ledger maintained by the
transfer agent shall be the official list of stockholders of record of the
corporation. The name and address of each stockholder of record, as they appear
upon the stockholders' ledger, shall be conclusive evidence of who are the
stockholders entitled to receive notice of the meetings of stockholders, to vote
at such meetings, to examine a complete list of the stockholders entitled to
vote at meetings, and to own, enjoy and exercise any other property or rights
deriving from such shares against the corporation. Stockholders, but not the
corporation, its directors, officers, agents or attorneys, shall be responsible
for notifying the transfer agent, in writing, of any changes in their names or
addresses from time to time, and failure to do so will relieve the corporation,
its other stockholders, directors, officers, agents and attorneys, and its
transfer agent and registrar, of liability for failure to direct notices or
other documents, or pay over or transfer dividends or other property or rights,
to a name or address other than the name and address appearing in the
stockholders' ledger maintained by the transfer agent.
Section 4.6. Loss of Certificates. In case of the loss, destruction or
mutilation of a certificate of stock, a replacement certificate may be issued in
place thereof upon such terms as the Board of Directors may prescribe,
including, in the discretion of the Board of Directors, a requirement of bond
and indemnity to the corporation.
Section 4.7. Restrictions on Transfer. Every certificate for shares of
capital stock which are subject to any restriction on transfer, whether pursuant
to the Certificate of Incorporation, these By-Laws or any agreement to which the
corporation is a party, shall have the fact of the restriction noted
conspicuously on the certificate and shall also set forth on the face or back
either the full text of the restriction or a statement that the corporation will
furnish a copy to the holder of such certificate upon written request and
without charge.
Section 4.8. Multiple Classes of Stock. The amount and classes of the
capital stock and the par value, if any, of the shares, shall be as fixed in the
Certificate of Incorporation. At all times when there are two or more classes of
capital stock, the several classes of capital stock shall conform to the
description and the terms and have the respective preferences, voting powers,
restrictions and qualifications set forth in the Certificate of Incorporation
and these By-Laws. Every certificate issued when the corporation is authorized
to issue more than one class or series of capital stock shall set forth on its
face or back either (i) the full text of the preferences, voting powers,
qualifications and special and relative rights of the shares of each class and
series authorized to be issued, or (ii) a statement of the existence of such
preferences, powers, qualifications and rights, and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
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ARTICLE V.
Dividends
Section 5.1. Declaration of Dividends. Except as otherwise required by
law or by the Certificate of Incorporation, the Board of Directors may, in its
discretion, declare what, if any, dividends shall be paid from the surplus or
from the net profits of the corporation for the current or preceding fiscal
year, or as otherwise permitted by law. Dividends may be paid in cash, in
property, in shares of the corporation's stock, or in any combination thereof.
Dividends shall be payable upon such dates as the Board of Directors may
designate.
Section 5.2. Reserves. Before the payment of any dividend and before
making any distribution of profits, the Board of Directors, from time to time
and in its absolute discretion, shall have power to set aside out of the surplus
or net profits of the corporation such sum or sums as the Board of Directors
deems proper and sufficient as a reserve fund to meet contingencies or for such
other purpose as the Board of Directors shall deem to be in the best interests
of the corporation, and the Board of Directors may modify or abolish any such
reserve.
ARTICLE VI.
Powers of Officers to Contract
With the Corporation
Any and all of the directors and officers of the corporation,
notwithstanding their official relations to it, may enter into and perform any
contract or agreement of any nature between the corporation and themselves, or
any and all of the individuals from time to time constituting the Board of
Directors of the corporation, or any firm or corporation in which any such
director may be interested, directly or indirectly, whether such individual,
firm or corporation thus contracting with the corporation shall thereby derive
personal or corporate profits or benefits or otherwise; provided, that (i) the
material facts of such interest are disclosed or are known to the Board of
Directors or committee thereof which authorizes such contract or agreement; (ii)
if the material facts as to such person's relationship or interest are disclosed
or are known to the stockholders entitled to vote thereon, and the contract is
specifically approved in good faith by a vote of the stockholders; or (iii) the
contract or agreement is fair as to the corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof,
or the stockholders. Any director of the corporation who is interested in any
transaction as aforesaid may nevertheless be counted in determining the
existence of a quorum at any meeting of the Board of Directors which shall
authorize or ratify any such transaction. This Article shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.
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ARTICLE VII
Indemnification
Section 7.1. Definitions. For purposes of this Article VII the following
terms shall have the meanings indicated:
"Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent, trustee or fiduciary of the corporation or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request or
on behalf of the corporation.
"Court" means the Court of Chancery of the State of Delaware, the court
in which the Proceeding in respect of which indemnification is sought by a
Covered Person shall have been brought or is pending, or another court having
subject matter jurisdiction and personal jurisdiction over the parties.
"Covered Person" means a person who is a present or former director or
officer of the corporation and shall include such person's legal
representatives, heirs, executors and administrators.
"Disinterested" describes any individual, whether or not that individual
is a director, officer, employee or agent of the corporation, who is not and was
not and is not threatened to be made a party to the Proceeding in respect of
which indemnification, advancement of Expenses or other action is sought by a
Covered Person.
"Expenses" shall include, without limitation, all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
"Good Faith" shall mean a Covered Person having acted in good faith and
in a manner such Covered Person reasonably believed to be in or not opposed to
the best interests of the corporation or, in the case of an employee benefit
plan, the best interests of the participants or beneficiaries of said plan, as
the case may be, and, with respect to any Proceeding which is criminal in
nature, having had no reasonable cause to believe such Covered Person's conduct
was unlawful.
"Improper Personal Benefit" shall include, but not be limited to, the
personal gain in fact by reason of a person's Corporate Status of a financial
profit, monies or other advantage not also accruing to the benefit of the
corporation or to the stockholders generally and which is unrelated to his or
her usual compensation including, but not limited to, such profit, monies or
other advantage gained (i) in exchange for the exercise of influence over the
corporation's affairs, (ii)
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as a result of the diversion of corporate opportunity, or (iii) pursuant to the
use or communication of confidential or inside information for the purpose of
generating a profit from trading in the corporation's securities.
Notwithstanding the foregoing, "Improper Personal Benefit" shall not include any
benefit, directly or indirectly, related to actions taken in order to evaluate,
discourage, resist, prevent or negotiate any transaction with or proposal from
any person or entity seeking control of, or a controlling interest in, the
corporation.
"Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and may include law firms or
members thereof that are regularly retained by the corporation but not by any
other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the standards of professional conduct then
prevailing and applicable to such counsel, would have a conflict of interest in
representing either the corporation or Covered Person in an action to determine
the Covered Person's rights under this Article.
"Officer" means the chairman of the board, the president, vice
presidents, treasurer, assistant treasurer(s), chief financial officer,
secretary, assistant secretary and such other executive officers as are
appointed by the Board of Directors of the corporation and explicitly entitled
to indemnification hereunder.
"Proceeding" includes any actual, threatened or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation (including
any internal corporate investigation), administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, other than
one initiated by the Covered Person, but including one initiated by a Covered
Person for the purpose of enforcing such Covered Person's rights under this
Article to the extent provided in Section 7.14 of this Article. "Proceeding"
shall not include any counterclaim brought by any Covered Person other than one
arising out of the same transaction or occurrence that is the subject matter of
the underlying claim.
Section 7.2. Right to Indemnification in General.
(a) Covered Persons. The corporation shall indemnify, and shall advance
Expenses, to each Covered Person who is a party to, was or is threatened to be
made a party to, or is otherwise involved in any Proceeding, as provided in this
Article and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may hereafter from time
to time permit.
The indemnification provisions in this Article shall be deemed to be a
contract between the corporation and each Covered Person who serves in any
Corporate Status at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect, and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any Proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of
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facts. Such a contract right may not be modified retroactively without the
consent of such Covered Person.
(b) Employees and Agents. The corporation may, to the extent authorized
from time to time by the Board of Directors, grant indemnification and the
advancement of Expenses, judgments, penalties, fines and amounts paid in
settlements actually and reasonably incurred by such person or on such person's
behalf in connection with a Proceeding or any claim, issue or matter therein to
any employee or agent of the corporation or to any officer or director of any
other corporation or other enterprise who serves or has served as such at the
request of the corporation to the fullest extent of the provisions of this
Article with respect to the indemnification and advancement of Expenses of, and
judgments, penalties, fines and amounts paid in settlements by Covered Persons.
Section 7.3. Proceedings Other Than Proceedings by or in the Right of
the Corporation. Each Covered Person shall be entitled to the rights of
indemnification provided in this Section 7.3 if, by reason of such Covered
Person's Corporate Status, such Covered Person is a party to, was or is
threatened to be made a party to, or is otherwise involved in any Proceeding,
other than a Proceeding by or in the right of the corporation. Each Covered
Person shall be indemnified against Expenses, judgments, penalties, fines and
amounts paid in settlements, actually and reasonably incurred by such Covered
Person or on such Covered Person's behalf in connection with such Proceeding or
any claim, issue or matter therein, if such Covered Person acted in Good Faith
and such Covered Person has not been adjudged during the course of such
proceeding to have derived an Improper Personal Benefit from the transaction or
occurrence forming the basis of such Proceeding.
Section 7.4. Proceedings by or in the Right of the Corporation. Each
Covered Person shall be entitled to the rights of indemnification provided in
this Section 7.4 if, by reason of such Covered Person's Corporate Status, such
Covered Person is a party to, or is threatened to be made a party to, or is
otherwise involved in any Proceeding brought by or in the right of the
corporation to procure a judgment in its favor. Such Covered Person shall be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection with such Proceeding if such Covered
Person acted in Good Faith and such Covered Person has not been adjudged during
the course of such proceeding to have derived an Improper Personal Benefit from
the transaction or occurrence forming the basis of such Proceeding.
Notwithstanding the foregoing, no such indemnification shall be made in respect
of any claim, issue or matter in such Proceeding as to which such Covered Person
shall have been adjudged to be liable to the corporation if applicable law
prohibits such indemnification; provided, however, that, if applicable law so
permits, indemnification shall nevertheless be made by the corporation in such
event if and only to the extent that the Court which is considering the matter
shall so determine.
Section 7.5. Indemnification of a Party Who is Wholly or Partly
Successful. Notwithstanding any provision of this Article to the contrary, to
the extent that a Covered Person is, by reason of such Covered Person's
Corporate Status, a party to or is otherwise
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involved in and is successful, on the merits or otherwise, in any Proceeding,
such Covered Person shall be indemnified to the maximum extent permitted by law,
against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by such Covered Person or on such
Covered Person's behalf in connection therewith. If such Covered Person is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the corporation shall indemnify such Covered Person to the maximum
extent permitted by law, against all Expenses, judgments, penalties, fines, and
amounts paid in settlement, actually and reasonably incurred by such Covered
Person or on such Covered Person's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 7.5 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 7.6. Indemnification for Expenses of a Witness. Notwithstanding
any provision of this Article to the contrary, to the extent that a Covered
Person is, by reason of such Covered Person's Corporate Status, a witness in any
Proceeding, such Covered Person shall be indemnified against all Expenses
actually and reasonably incurred by such Covered Person or on such Covered
Person's behalf in connection therewith.
Section 7.7. Advancement of Expenses. Notwithstanding any provision of
this Article to the contrary, the corporation shall advance all reasonable
Expenses which, by reason of a Covered Person's Corporate Status, were incurred
by or on behalf of such Covered Person in connection with any Proceeding, within
thirty (30) days after the receipt by the corporation of a statement or
statements from such Covered Person requesting such advance or advances, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by the Covered Person
and shall include or be preceded or accompanied by an undertaking by or on
behalf of the Covered Person to repay any Expenses if such Covered Person shall
be adjudged to be not entitled to be indemnified against such Expenses. Any
advance and undertaking to repay pursuant to this Section 7.7 may be unsecured
interest-free, as the corporation sees fit. Advancement of Expenses pursuant to
this Section 7.7 shall not require approval of the Board of Directors or the
stockholders of the corporation, or of any other person or body. The secretary
of the corporation shall promptly advise the Board in writing of the request for
advancement of Expenses, of the amount and other details of the request and of
the undertaking to make repayment provided pursuant to this Section 7.7.
Section 7.8. Notification and Defense of Claim. Promptly after receipt
by a Covered Person of notice of the commencement of any Proceeding, such
Covered Person shall, if a claim is to be made against the corporation under
this Article, notify the corporation of the commencement of the Proceeding. The
failure to notify the corporation will not relieve the corporation from any
liability which it may have to such Covered Person otherwise than under this
Article. With respect to any such Proceedings to which such Covered Person
notifies the corporation:
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(a) The corporation will be entitled to participate in the defense at
its own expense.
(b) Except as otherwise provided below in this subparagraph (b), the
corporation (jointly with any other indemnifying party similarly notified) will
be entitled to assume the defense with counsel reasonably satisfactory to the
Covered Person. After notice from the corporation to the Covered Person of its
election to assume the defense of a suit, the corporation will not be liable to
the Covered Person under this Article for any legal or other expenses
subsequently incurred by the Covered Person in connection with the defense of
the Proceeding other than reasonable costs of investigation or as otherwise
provided below in this subparagraph (b). The Covered Person shall have the right
to employ his or her own counsel in such Proceeding but the fees and expenses of
such counsel incurred after notice from the corporation of its assumption of the
defense shall be at the expense of the Covered Person except as provided in this
paragraph. The fees and expenses of counsel shall be at the expense of the
corporation if (i) the employment of counsel by the Covered Person has been
authorized by the corporation, (ii) the Covered Person shall have concluded
reasonably that there may be a conflict of interest between the corporation and
the Covered Person in the conduct of the defense of such action and such
conclusion is confirmed in writing by the corporation's outside counsel
regularly employed by it in connection with corporate matters, or (iii) the
corporation shall not in fact have employed counsel to assume the defense of
such Proceeding. The corporation shall be entitled to participate in, but shall
not be entitled to assume the defense of any Proceeding brought by or in the
right of the corporation or as to which the Covered Person shall have made the
conclusion provided for in (ii) above and such conclusion shall have been so
confirmed by the corporation's said outside counsel.
(c) Notwithstanding any provision of this Article to the contrary, the
corporation shall not be obligated to indemnify the Covered Person under this
Article for any amounts paid in settlement of any Proceeding effected without
its written consent. The corporation shall not settle any Proceeding or claim in
any manner which would impose any penalty, limitation or disqualification of the
Covered Person for any purpose without such Covered Person's written consent.
Neither the corporation nor the Covered Person will unreasonably withhold their
consent to any proposed settlement.
(d) If it is determined that the Covered Person is entitled to
indemnification other than as afforded under subparagraph (b) above, payment to
the Covered Person of the additional amounts for which he or she is to be
indemnified shall be made within ten (10) days after such determination.
Section 7.9. Procedures.
(a) Method of Determination. A determination (as provided for by this
Article or if required by applicable law in the specific case) with respect to a
Covered Person's entitlement to indemnification shall be made within 60 days
after the corporation is given written request therefor by or on behalf of the
Covered Person in accordance with paragraph (b) of this Section 7.9 (i) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
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directors, or (ii) in the event that a quorum of the Board of Directors
consisting of Disinterested directors is not obtainable or, even if obtainable,
such quorum of Disinterested directors so directs, by Independent Counsel in a
written determination to the Board of Directors, a copy of which shall be
delivered to the Covered Person seeking indemnification, or (iii) by a special
litigation committee of the Board of Directors appointed by the Board of
Directors, or (iv) by the vote of the holders of a majority of the corporation's
capital stock outstanding at the time entitled to vote thereon.
(b) Initiating Request. A Covered Person who seeks indemnification under
this Article shall submit a request for Indemnification, including such
documentation and information as is reasonably available to such Covered Person
and is reasonably necessary to determine whether and to what extent such Covered
Person is entitled to indemnification.
(c) Presumptions. In making a determination with respect to entitlement
to indemnification hereunder, the person or persons or entity making such
determination shall not presume that the Covered Person is or is not entitled to
indemnification under this Article.
(d) Burden of Proof. Each Covered Person shall bear the burden of going
forward and demonstrating sufficient facts to support his or her claim for
entitlement to indemnification under this Article. That burden shall be deemed
satisfied by the submission of an initial request for Indemnification pursuant
to Section 7.9(b) above.
(e) Effect of Other Proceedings. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Article) of itself
adversely affect the right of a Covered Person to indemnification or create a
presumption that a Covered Person did not act in Good Faith.
(f) Actions of Others. The knowledge, actions, or failure to act, of any
director, officer, employee, agent, trustee or fiduciary of the enterprise for
whose daily activities the Covered Person was actually responsible may be
imputed to a Covered Person for purposes of determining the right to
indemnification under this Article.
Section 7.10. Action by the Corporation. Any action, payment, advance
determination other than a determination made pursuant to Section 7.9(a) above,
authorization, requirement, grant of indemnification or other action taken by
the corporation pursuant to this Article shall be effected exclusively through
any Disinterested person so authorized by the Board of Directors of the
corporation, including the president or any vice president of the corporation.
Section 7.11. Non-Exclusivity. The rights of indemnification and to
receive advancement of Expenses as provided by this Article shall not be deemed
exclusive of any other rights to which a Covered Person may at any time be
entitled under applicable law, the Certificate of Incorporation, these Bylaws,
any agreement, a vote of stockholders or a resolution of the Board of Directors,
or otherwise. No amendment, alteration, rescission or replacement of this
Article or any provision hereof shall be effective as to any Covered Person with
respect to any action taken or omitted by such Covered Person in such Covered
Person's Corporate Status
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or with respect to any state of facts then or previously existing or any
Proceeding previously or thereafter brought or threatened based in whole or to
the extent based in part upon any such state of facts existing prior to such
amendment, alteration, rescission or replacement.
Section 7.12. Insurance. The corporation may maintain, at its expense,
an insurance policy or policies to protect itself and any Covered Person,
officer, employee or agent of the corporation or another enterprise against
liability arising out of this Article or otherwise, whether or not the
corporation would have the power to indemnify any such person against such
liability under the Delaware General Corporation Law.
Section 7.13. No Duplicative Payment. The corporation shall not be
liable under this Article to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that a Covered Person has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
Section 7.14. Expenses of Adjudication. In the event that any Covered
Person seeks a judicial adjudication, or an award in arbitration, to enforce
such Covered Person's rights under, or to recover damages for breach of, this
Article, the Covered Person shall be entitled to recover from the corporation,
and shall be indemnified by the corporation against, any and all expenses (of
the types described in the definition of Expenses in Section 7.1 of this
Article) actually and reasonably incurred by such Covered Person in seeking such
adjudication or arbitration, but only if such Covered Person prevails therein.
If it shall be determined in such adjudication or arbitration that the Covered
Person is entitled to receive part but not all of the indemnification of
expenses sought, the expenses incurred by such Covered Person in connection with
such adjudication or arbitration shall be appropriately prorated.
Section 7.15. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, each portion of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Article
(including, without limitation, each portion of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
ARTICLE VIII.
Miscellaneous Provisions
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Section 8.1. Certificate of Incorporation. All references in these
By-Laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as amended and in effect from
time to time.
Section 8.2. Fiscal Year. Except as from time to time otherwise provided
by the Board of Directors, the fiscal year of the corporation shall end on
December 31st of each year.
Section 8.3. Corporate Seal. The Board of Directors shall have the power
to adopt and alter the seal of the corporation.
Section 8.4. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes, and other obligations authorized to be executed by an
officer of the corporation on its behalf shall be signed by the president or the
treasurer except as the Board of Directors may generally or in particular cases
otherwise determine.
Section 8.5. Voting of Securities. Unless the Board of Directors
otherwise provides, the president or the treasurer may waive notice of and act
on behalf of this corporation, or appoint another person or persons to act as
proxy or attorney in fact for this corporation with or without discretionary
power and/or power of substitution, at any meeting of stockholders or
shareholders of any other corporation or organization, any of whose securities
are held by this corporation.
Section 8.6. Evidence of Authority. A certificate by the secretary or
any assistant secretary as to any action taken by the stockholders, directors or
any officer or representative of the corporation shall, as to all persons who
rely thereon in good faith, be conclusive evidence of such action. The exercise
of any power which by law, by the Certificate of Incorporation, or by these
By-Laws, or under any vote of the stockholders or the Board of Directors, may be
exercised by an officer of the corporation only in the event of absence of
another officer or any other contingency shall bind the corporation in favor of
anyone relying thereon in good faith, whether or not such absence or contingency
existed.
Section 8.7. Corporate Records. The original, or attested copies, of the
Certificate of Incorporation, By-Laws, records of all meetings of the
incorporators and stockholders, and the stock transfer books (which shall
contain the names of all stockholders and the record address and the amount of
stock held by each) shall be kept in Delaware at the principal office of the
corporation, or at an office of the corporation, or at an office of its transfer
agent or of the secretary or of the assistant secretary, if any. Said copies and
records need not all be kept in the same office. They shall be available at all
reasonable times to inspection of any stockholder to the extent required by law.
Section 8.8. Charitable Contributions. The Board of Directors from time
to time may authorize contributions to be made by the corporation in such
amounts as it may determine to be reasonable to corporations, trusts, funds or
foundations organized and operated exclusively for charitable, scientific or
educational purposes, no part of the net earning of which inures to the private
benefit of any stockholder or individual.
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ARTICLE IX.
Amendments
Section 9.1. Amendment by Directors. Except as provided otherwise by
law, these By-Laws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
Section 9.2. Amendment by Stockholders. These Bylaws may be amended or
repealed at any annual meeting, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least 75% of the outstanding shares
of capital stock entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if a majority of the Continuing
Directors, as defined in the Corporation's Certificate of Incorporation,
recommends that stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative vote
of a majority of the outstanding shares of capital stock entitled to vote on
such amendment or repeal, voting together as a single class. Notwithstanding the
foregoing, stockholder approval shall not be required unless mandated by the
Certificate of Incorporation, these By-Laws, or other applicable law.
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Exhibit 4.2
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
This Third Amended and Restated Rights Agreement (the "Agreement") is
entered into as of November 3, 1999 by and between Connected Corporation, a
Delaware corporation (the "Company"), and those parties listed on Schedule A
hereto. For purposes of this Agreement the following terms shall have the
following meanings: the holders of the Series D Preferred Stock (the "Series D
Shares") of the Company (the "Series D Holders"); the holders of the Series C
Preferred Shares (the "Series C Shares") of the Company (the "Series C
Holders"); the holders of the Series A Preferred Stock (the "Series A Shares")
of the Company (the "Series A Holders"); the holders of the Series B Preferred
Stock (the "Series B Shares") of the Company (the "Series B Holders," together
with the Series A Holders and Series C Holders, the "ABC Holders"); and David A.
Cane and Howard A. Marson (the "Founders"). The ABC Holders and the Series D
Holders are sometimes collectively referred to herein as the "Preferred
Holders". The Company, the Series A, Series B, Series C and Series D Holders and
the Founders are sometimes referred to herein collectively as the "Parties" or
individually as a "Party." The Founders and the Preferred Holders are sometimes
collectively referred to herein as "Shareholders."
RECITAL
-------
The Company, the Founders, the Series A Holders, the Series B Holders and
the Series C Holders entered into a Second Amended and Restated Rights
Agreement, dated as of May 28, 1997 (the "1997 Rights Agreement"), which sets
forth certain registration rights and rights of first refusal. The Company, the
Founders, the Series A Holders, the Series B Holders, the Series C Holders and
certain investors and Silicon Valley Bank ("Lender") entered into a Restated
First Amendment to Second Amended and Restated Rights Agreement dated June 11,
1999. The Parties wish to amend and restate the 1997 Rights Agreement, as
amended, so that it reads in its entirety as set forth herein. Pursuant to
Section 3.4 of the Second Amended and Restated Rights Agreement, this Agreement
may be amended by the holders of a majority of the Registrable Securities and
when so amended shall be binding as to all holders of Registrable Securities.
The Parties now desire to set forth the registration rights applicable to
the Preferred Stock owned by the Holders and the Common Stock owned by the
Founders.
AGREEMENT
---------
In consideration of the foregoing and of the mutual promises and covenants
contained herein, the Parties agree as follows:
1. Registration Rights.
-------------------
1.1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
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<PAGE> 2
(a) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Conversion Stock" means the Common Stock issued or issuable upon
conversion of the Series A Shares, the Series B Shares, the Series C Shares and
Series D Shares.
(c) "Holder" means any person or persons to whom Registrable Securities
were originally issued or qualifying transferees under Section 1.11 hereof who
hold Registrable Securities.
(d) "Initiating Holders" shall mean any Holder or Holders of at least forty
percent (40%) of the Registrable Securities (excluding Registrable Securities
owned by the Founders).
(e) "Qualified Public Offering" shall mean a firmly underwritten public
offering of Common Stock resulting in gross proceeds of at least $25.0 million
at a price per share of at least $17.37 (as adjusted for stock splits, stock
dividend and recapitalizations).
(f) "Registrable Securities" means (i) the Conversion Stock; and (ii) stock
issued in respect of the stock referred to in (i) as a result of a stock split,
stock dividend, recapitalization or the like, which have not been sold to the
public.
Except for subsections 1.2, 1.4, 1.5, 1.10, 1.11 and 3.4, Registrable
Securities shall also mean shares of Common Stock owned by the Founders.
(i) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(j) "Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 1.2, 1.3 and
1.4 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders in the event of each registration provided for in Sections 1.2, 1.3 and
1.4 hereof.
(k) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor statute thereto and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(l) "Selling Expenses" shall mean all underwriting discounts, selling
commissions, expense allowances and stock transfer taxes applicable to the
securities registered by the Holders
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and, except as set forth above, all reasonable fees and disbursements of
counsel for the selling Holders.
1.2 Requested Registration.
(a) Request for Registration. If the Company receives from the
Initiating Holders or the holders of a majority of the Series D Shares a
written request that the Company effect a registration covering either (i) not
less than 25% of the Registrable Securities, or (ii) Registrable Securities
having an anticipated aggregate gross offering price, of at least $5,000,000,
the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use reasonable commercial efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.2:
(A) Before 180 days after the closing of the initial
public offering of its Common Stock, provided that the foregoing limitation
shall terminate on the date which is four (4) years from the date of this
Agreement;
(B) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(C) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use reasonable commercial efforts
to register, qualify or comply under this Section 1.2 shall be deferred for a
period not to exceed ninety (90) days from the date of receipt of written
request from the Initiating Holders, provided that the Company may not use this
right more than once in any twelve month period; or
(D) After the Company has effected four (4) registrations
pursuant to this Section 1.2, not more than two (2) such registrations at the
request of the Series D Holders and
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no more than two (2) such registrations at the request of the ABC Holders, and
such registrations have been declared or ordered effective.
Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders or the holders of a majority of the Series D Shares.
Notwithstanding any other provision to the contrary, the Company shall not take
any action to effect any such registration, qualification or compliance
pursuant to this Section 1.2 within twelve (12) months from the date hereof,
without the consent of the holders of a majority of the Series D Shares.
(b) Underwriting. In the event that a registration pursuant to
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to participate in
such registration shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent
requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Initiating Holders or the holders
of a majority of the Series D Shares, as the case may be, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders and the
holders of a majority of the Series D Shares in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all participating Holders and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders at the time of filing the registration statement, provided
however that notwithstanding any other provision of this Section 1.2, the
holders of the Series D Preferred shall be entitled to register not less than
50% of the shares to be underwritten in any registration pursuant to the first
two registrations initiated under this Section 1.2. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. If the underwriter has not
limited the number of Registrable Securities to be underwritten, the Company
may include securities for its own account (or for the account of other
stockholders) in such registration if the underwriter so agrees and if the
number of Registrable Securities that would otherwise have been included in
such registration and underwriting will not thereby be limited.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders.
1.3. Company Registration.
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(a) Notice of Registration. If, at any time prior to the fifth
anniversary of the closing date of the Company's initial public offering of its
Common Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act, the Company shall determine to
register any of its securities, either for its own account or the account of a
security holder or holders, other than (i) a registration relating solely to
employee benefit plans, (ii) a registration relating solely to a transaction
under Rule 145 under the Securities Act, or (iii) a registration effected
pursuant to Sections 1.2 or 1.4 hereof, the Company will;
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder; provided that the Holder making such request would
have been unable to sell all of its or his Registrable Securities pursuant to
Rule 144 under the Securities Act in the four-week period immediately preceding
the date of such written notice.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event, the right of any Holder to
register pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.3, if the
managing underwriter determines that marketing factors require limitation of the
number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration. The Company shall so
advise all Holders and the number of shares of securities that may be included
in the registration and underwriting (other than on behalf of the Company) shall
be allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders; provided,
however, in no event shall the amount of Registrable Securities of the Holders
included in the offering be reduced below twenty-five percent (25%) of the total
amount of securities included in such offering (unless such offering is the
initial public offering of the Company's securities in which case the Holders
may be excluded entirely if the underwriters make the determination described
above and provided that all other stockholders desiring to sell shares in the
offering are excluded). No securities of the Company held by parties other than
the Holders or the Company shall be included in any registration and
underwriting to which this section applies if the number of Registrable
Securities that would otherwise have been included in such registration and
underwriting will thereby be limited. If any Holder disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Company and the managing underwriter.
1.4. Registration on Form S-3.
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(a) If (i) any Holder or Holders holding in the aggregate not less than
ten percent (10%) of the then outstanding Registrable Securities or (ii) the
holders of a majority of the then outstanding Series D Shares requests that the
Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities, the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $500,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use reasonable commercial efforts to
cause such Registrable Securities to be registered for the offering on such
form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request; provided,
however, that the Company shall not be required to effect more than one (1)
registration pursuant to this Section 1.4 in any six (6) month period. The
substantive provisions of Section 1.2(b) shall be applicable to each
registration initiated under this Section 1.4.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 1.4;
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) within ninety (90) days of the effective date of any
registration referred to in Sections 1.2 and 1.3 above, provided that the
Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(iii) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its stockholders for registration statements to be filed in the near future,
then the Company's obligation to use reasonable commercial efforts to file a
registration statement shall be deferred for a period not to exceed ninety (90)
days from the receipt of the request to file such registration by such Holder,
provided that the Company may not use this right more than once in any twelve
month period.
1.5. Limitations on Subsequent Registration Rights. From and after the
date hereof, without the approval of the holders of a majority of the Series D
Shares and the holders of a majority of the Registrable Securities, the Company
shall not enter into any agreement granting any holder or prospective holder of
any securities of the Company registration rights with respect to such
securities, including more favorable standoff obligations, which are senior to
or on par with the registration rights granted to the Holders hereunder or
which would have the effect of reducing the amount of Registrable Securities
included in a registration by any Holder.
1.6. Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.2 and 1.3 and the
first four registrations pursuant to Section 1.4 shall be borne by the Company.
Unless otherwise stated, all Selling Expenses relating to securities
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<PAGE> 7
registered on behalf of the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
1.7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use reasonable commercial efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Use reasonable commercial efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and
(g) Use best commercial efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such
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securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
1.8 Indemnification.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such person within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable to
any such person in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission (or alleged untrue statement or omission), made in reliance upon
and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein or in connection with the preparation
thereof.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact
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<PAGE> 9
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein or in connection with the preparation thereof.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited to an amount equal to the aggregate proceeds
received by such Holder from the sale of Registrable Securities in such
registration.
(c) Each party entitled to indemnification under this Section 1.8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.9 Information by Holder. The Holders of securities included in any
registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 1.
1.10 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use reasonable commercial efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "Exchange Act").
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(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements);
(c) So long as a Holder owns any Registrable Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company, as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.11. Transfer of Registration Rights. The rights to cause the Company to
register securities granted to Holders under this Agreement may be assigned to
a transferee or assignee in connection with any transfer or assignment of
Registrable Securities by a Holder, provided that: (i) such assignment or
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee agrees to be bound by the terms and
conditions of this Agreement, and (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities (appropriately
adjusted for stock splits, combinations, dividends, distributions and
recapitalizations) not sold to the public, or (B) such assignee or transferee
is a partner, stockholder, subsidiary, member, affiliate, affiliated
partnership managed by a Holder, family member, family trust or the estate of
the Holder.
1.12. Standoff Agreement.
(a) Standoff. Each Party hereby agrees that in connection with the
Company's initial public offering of the Company's securities that, upon
request of the Company or the underwriters managing any underwritten offering
of the Company's securities, a Holder shall not sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
securities of the Company (other than those include in the registration)
without prior written consent of the Company or such underwriters, as the case
may be, for such period of time (not to exceed one hundred eighty (180) days)
from the effective date of such registration as may be requested by the Company
or underwriters, as the case may be; provided, that the Company or the
underwriters have obtained similar commitments from all of the directors and
officers of the Company and all holders of more than two percent (2%) of the
Company's capital stock.
(b) Company Obligation. The Company will enter into a standoff
agreement essentially similar to the standoff agreement contained in subsection
1.12(a) above with each holder of equity securities of the Company or
securities convertible into or exercisable for equity securities of the
Company.
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1.13 Qualified Public Offering. In the event of any Qualified Public
Offering of Common Stock, the Series D Holders shall have the right to purchase
up to an aggregate of 10% of the registrable shares offered for sale pursuant
to such offering.
2. Right of First Refusal Upon Issuance of Securities by the Company.
2.1. Right of First Refusal. The Company hereby grants to each Series A,
Series B, Series C and Series D Holder (the "Rights Holders") the right of
first refusal to purchase, pro rata, in order to maintain the Rights Holder's
percentage ownership interest in the Company, all or any part of New Securities
(as defined in Section 2.3 below) which the Company may, from time to time,
propose to sell and issue. A pro rata share, for purposes of this right of
first refusal, is the ratio that the number of shares of Common Stock issued or
issuable to each Rights Holder bears to the sum of the total number of shares
of Common Stock then outstanding (assuming conversion of all preferred stock of
the Company into Common Stock and the exercise of all outstanding options,
warrants and other rights to acquire Common Stock).
2.2. "Equity Securities" shall mean any securities having voting rights in
the election of the Board of Directors not contingent upon default, or any
securities evidencing an ownership interest in the Company, or any securities
convertible into or exercisable for any shares of the foregoing, or any
securities issuable pursuant to any agreement or commitment to issue any of the
foregoing.
2.3. Except as set forth below, "New Securities" shall mean any Equity
Securities, whether or not now authorized, and rights, options or warrants to
purchase said Equity Securities. Notwithstanding the foregoing, "New Securities"
does not include (i) Common Stock issued to employees, officers, consultants or
directors of the Company pursuant to sales or options granted or awards made at
any time after the date of incorporation of the Company; (ii) securities offered
to the public generally pursuant to a registration statement trader the
Securities Act; (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or other reorganization whereby the Company or its stockholders own not
less than fifty-one (51%) percent of the voting power of the surviving or
successor corporation; (iv) the Conversion Stock; or (v) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
2.4. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Rights Holder written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Rights Holder shall have twenty (20)
days from the date of receipt of any such notice to agree to purchase up to its
respective pro rata share of such New Securities for the price and upon the
applicable terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
2.5. In the event a Rights Holder fails to exercise the right of first
refusal within said twenty (20) day period (a "Non-Electing Rights Holder"),
the Company shall give each of the remaining Rights Holders written notice of
the number of shares of New Securities that remain available for purchase. Each
remaining Rights Holder shall then have five (5) days from the date of receipt
of any such notice to agree to purchase up to its respective pro rata share of
such New
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Securities (determined without reference to the number of shares of Common
Stock issued or issuable to the Non-Electing Rights Holder) for the price and
upon the applicable terms specified in the notice referred to in Section 2.4
above, by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
2.6. In the event less than all of the New Securities are purchased by the
Rights Holders, the Company shall have ninety (90) days thereafter to sell or
enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of
said agreement) to sell the New Securities not elected to be purchased by
Rights Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities within said ninety (90) day
period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities, without first offering such
securities in the manner provided above.
2.7. The right of first refusal granted under this Agreement shall expire
on the effective date of the Company's Qualified Public Offering pursuant to a
registration statement under the Securities Act.
2.8. The right of first refusal hereunder may be assigned to a transferee
or assignee in connection with any transfer or assignment of the Series A
Shares, the Series B Shares, the Series C Shares or the Series D Shares or the
Conversion Stock by a Rights Holder provided that: (i) such assignment or
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee agrees to be bound by the terms and
conditions of this Agreement, and (iii) either (A) such assignee or transferee
acquires at least 100,000 shares of Registrable Securities (appropriately
adjusted for stock splits, combinations, dividends, distributions and
recapitalizations) not sold to the public, or (B) such assignee or transferee
is a partner, stockholder, subsidiary, or affiliate of, or an affiliated
partnership managed by, a Rights Holder, family member, family trust or the
estate of the Rights Holder.
3. Miscellaneous.
3.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware as applied to transactions taking place
between Delaware residents and wholly within the State of Delaware.
3.2. Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Series A, Series B,
Series C or Series D Holder and the closing of the transactions contemplated
hereby.
3.3. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
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3.4 Entire Agreement; Amendment. This Agreement constitutes the full and
entire understanding and agreement between parties with regard to the subjects
hereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set
forth herein. With the written consent of the record or beneficial Holders of a
majority of the Registrable Securities (excluding Registrable Securities held
by the Founders), the obligations of the Company and the rights of the Holders
of the Registrable Securities under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board of Directors,
may enter into a supplementary agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities and none of the
rights of the Founders under this Agreement may be waived or modified without
their written consent; and provided, further, that such modification,
amendment, waiver or other action shall affect the Holders of each class or
series of stock, as well as all shares of stock within any given class or
series, in the same manner. Upon the effectuation of each such waiver, consent,
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged of terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 3.4.
This Section 3.4 may be amended, waived or terminated only with the written
consent of all of the Holders of the Registrable Securities.
3.5. Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Holder, at such Holder's address set
forth on the signature pages hereof, or at such other address as such Holder
shall have furnished to the Company in writing or (b) if the Company, at 63
Fountain street, Framingham, MA 01701, or at such other address as the Company
shall have furnished to each Purchaser in writing. Notices that are mailed
shall be deemed received five (5) days after deposit in the United States mail.
3.6. Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any holder of
any Registrable Securities, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such holder
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or a waiver of or acquiescence in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder shall be
cumulative and not alternative.
13
<PAGE> 14
3.7. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3.8. Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto, the parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
[SIGNATURE PAGE FOLLOWS]
14
<PAGE> 15
SCHEDULE A
HOLDERS OF SERIES A PREFERRED STOCK
H&Q Connected Investors L.P.
Technologies for Information and Entertainment III, L.P.
1995 Fisher Family Trust UTA 10/10/95, Lisa T. Rosenbaum, Trustee
Steven Kalmanovitz
HOLDERS OF SERIES B PREFERRED STOCK
Softbank Ventures, Inc.
H&Q Connected Investors L.P.
Technologies for Information and Entertainment III, L.P.
Ronald Lachman
The Ezra Goldman Trust, Ezra Goldman, Trustee
Solstice Capital L.P.
The Carl Lazarus 1996 Revocable Living Trust, Carl Lazarus, Trustee
Howard Lee Morgan
Morris Ventures
David Hirschman
1995 Fisher Family Trust UTA 10/10/95, Lisa T. Rosenbaum, Trustee
HOLDERS OF SERIES C PREFERRED STOCK
Intel Corporation
Technologies for Information and Entertainment III, L.P.
H&Q Connected Investors L.P.
Solstice Capital L.P.
David Hirschman
Morris Ventures
East river Ventures, L.P.
Michael T. Lash
Robert Hartman
Hudson River Capital, LLC
GKH Partners, L.P.
GKH Investments, L.P.
HOLDERS OF SERIES D PREFERRED STOCK
Silicon Valley Bank
David Hirschman
Craig Randall
Carl Lazarus
Norman Meisner
James Priest
David Cane
Technologies for Information and Entertainment III, L.P.
Softbank America, Inc.
Middlefield Ventures
<PAGE> 16
Charles Robbins
William Keating
David Arthur Norman and Mamie Ruth Norman TTE Norman
Family Revocable Trust u/a dated 8/20/87
Ronald Lachman
Charles Kline
Solstice Capital, L.P.
H&Q Connected Investors L.P.
Hambrecht and Quist Employee Venture Fund, L.P.
J3D Family Limited Partnership
The TIE Mezzanine Fund, L.P.
<PAGE> 17
The foregoing agreement is hereby executed as of the date first above written.
CONNECTED CORPORATION
By: /s/ David A. Cane
-------------------
David A. Cane, President
[COUNTERPART SIGNATURE PAGES FOLLOW]
Third Amended and Restated Rights Agreement
<PAGE> 18
PURCHASERS: BAKER COMMUNICATIONS FUND, L.P.
By: Baker Capital Partners, LLC.
-----------------------------
Its General Partner
By: /s/ Ashley Leeds
-----------------------------
Ashley Leeds, Manager
By: /s/ Larry Bettino
-----------------------------
Larry Bettino, Manager
[COUNTERPART SIGNATURE PAGES FOLLOW]
Third Amended and Restated Rights Agreement
<PAGE> 19
PURCHASERS: FIDELITY VENTURES TELECOM AND
TECHNOLOGY II LIMITED
PARTNERSHIP
By: Fidelity Investors Management, LLC
Its General Partner
By: /s/ Donald S. Heaton
__________________________________
Name: Donald S. Heaton
Title: Vice President
FIDELITY INVESTORS II LIMITED
PARTNERSHIP
By: Fidelity Investors Management, LLC,
Its General Partner
By: /s/ Donald S. Heaton
__________________________________
Name: Donald S. Heaton
Title: Vice President
FTT VENTURES LIMITED
By: /s/ Donald S. Heaton
__________________________________
Name: Donald S. Heaton
Title: Vice President
[COUNTERPART SIGNATURE PAGES FOLLOW]
Third Amended and Restated Rights Agreement
<PAGE> 20
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
COMMON HOLDERS:
By: /s/ David A. Cane
-----------------
Name: David A. Cane
Title:
Address: 63 Fountain Street
Framingham, MA 01702
<PAGE> 21
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
EAST RIVER VENTURES L.P.
By: /s/ Walter A. Carozzo
---------------------
Name: Walter A. Carozzo
Title: Manager of General Partner
Address: 645 Madison Avenue
22nd Floor
New York, NY 10022
Attn: Alicia Lindgren
<PAGE> 22
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
GKH INVESTMENTS, L.P.
By:
-----------------------
Name:
Title:
Address: 200 West Madison
Suite 2710
Chicago, IL 60606
<PAGE> 23
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
GKH PARTNERS, L.P.
By:
--------------------------
Name:
Title:
Address: 200 West Madison
Suite 2710
Chicago, IL 60606
<PAGE> 24
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
THE EZRA S. GOLDMAN TRUST
By: /s/ Ezra S. Goldman
--------------------------
Name: Ezra S. Goldman, Trustee
Title:
Address: 1720 Shagbark Court
Naperville, IL 60565
Common Stockholder and Preferred Stockholder
<PAGE> 25
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
H&Q CONNECTED INVESTORS, L.P.
By:
--------------------------
Name:
Title: Attorney-in-fact
Address: H&Q Connected Investors, L.P.
c/o Hambrecht & Quist Ventures
One Bush Street, 15th Floor
San Francisco, CA 94104
Preferred Stockholder and Noteholder
<PAGE> 26
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ David Hirschman
----------------------------
Name: David Hirschman
Title:
Address: 8 Kings Road
Sharon, Massachusetts 02067
Common Stockholder and Preferred Stockholder
<PAGE> 27
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
J3D FAMILY LIMITED PARTNERSHIP
By: /s/ Doug L. Michels
----------------------------
Name: Doug L. Michels, Trustee
Title:
Address: 4717 Branciforte Drive
Santa Cruz, CA 95065
<PAGE> 28
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Steven Kalmanovitz
----------------------------
Name: Steven Kalmanovitz
Title:
Address: 4004 Eagle Nest Lane
Danville, CA 94506
Preferred Stockholder
<PAGE> 29
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ William Keating
----------------------------
Name: William Keating
Title:
Address: 14903 Three Oaks Court
Saratoga, CA 95070
Noteholder
<PAGE> 30
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Ronald D. Lachman
----------------------------
Name: Ronald D. Lachman
Title:
Address: 3140 Whisperwoods Court
Northbrook, Illinois 60062
<PAGE> 31
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Michael Lash
----------------------------
Name: Michael Lash
Title:
Address: 544 Palm Avenue
Los Altos, California 94022
Preferred Stockholder
<PAGE> 32
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
THE CARL LAZARUS 1996
REVOCABLE LIVING TRUST
By: /s/ Carl Lazarus
-----------------------
Name: Carl Lazarus, Trustee
Title:
Address: c/o Connected Corporation
63 Fountain Street
Framingham, Massachusetts
01701
<PAGE> 33
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Carl Lazarus
-------------------------------
Name: Carl Lazarus
Title:
Address: 130 Berkeley Street
West Newton, MA 02465
Noteholder
<PAGE> 34
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Norman B. Meisner
-------------------------------
Name: Norman Meisner
Title:
Address: 15 Hampden Terrace
Newton, MA 02459
<PAGE> 35
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Howard Lee Morgan
--------------------------
Name: Howard Lee Morgan
Title:
Address: 764 Mt. Moro Road
Villanova, Pennsylvania 19085
<PAGE> 36
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
MORRIS VENTURES
By: /s/ Anthony P. Morris
--------------------------
Name: Anthony P. Morris
Title: Managing G.P.
<PAGE> 37
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
DAVID ARTHUR NORMAN AND
MAMIE ARTHUR NORMAN TTEE
NORMAN FAMILY REVOCABLE
TRUST U/A DATED 8/20/87
By: /s/ David Norman
-------------------------------
Name: David Norman
Title:
Address: 16101 Greenwood Road
Montel Serno, CA 95030
Noteholder
<PAGE> 38
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ James Priest
-----------------------------
Name: James Priest
Title:
Address: 121 Dexter Place
Escondido, CA 92029
<PAGE> 39
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
By: /s/ Charles R. Robbins
------------------------
Name: Charles R. Robbins
Title:
Address: 16 Queens Circle
Sharon, MA 02067
Common Stockholders and Noteholder
<PAGE> 40
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
THE FISHER FAMILY 1995 TRUST
U/T/A 10/10/95 WITH RONALD D.
FISHER AS DONOR
By: /s/ Lisa T. Rosenbaum
--------------------------------
Name: Lisa T. Rosenbaum, Trustee
Title:
Address: Ronald Fisher
99 Kirkstall Road
Newton, MA 02106
Preferred Stockholder
<PAGE> 41
CONNECTED CORPORATION
SECOND AMENDED AND RESTATED CO-SALE AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
----------------------------
Name: Yoshitaka Kitao
Title: President and CEO
Address: 3-23 Kanda-Nishikicho
Chiyoda-ku Tokyo 101-0054
JAPAN
Second Amended and Restated Co-Sale Agreement
<PAGE> 42
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
SOLSTICE CAPITAL, L.P.
BY: SOLSTICE CAPITAL G.P.L.P.
By: /s/ Henry Newman
-------------------------------
Name: Henry W. Newman
Title: General Partner
Address: 33 Broad Street
3rd Floor
Boston, MA 02109
Preferred Stockholder
<PAGE> 43
CONNECTED CORPORATION
THIRD AMENDED AND RESTATED
RIGHTS AGREEMENT
November 3, 1999
COUNTERPART SIGNATURE PAGE
TECHNOLOGIES FOR
INFORMATION AND
ENTERTAINMENT III, L.P.
By: /s/ Fred Bamber
-------------------------------
Name: Fred Bamber
Title: General Partner
THE TIE MEZZANINE FUND, L.P.
By: /s/ Fred Bamber
-------------------------------
Name: Fred Bamber
Title: General Partner
Address: TIE III, L.P.
c/o Applied Technology
One Cranberry Hall
Lexington, MA 02173
Preferred Stockholder and Noteholder
<PAGE> 1
EXHIBIT 4.3
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR STATE
SECURITIES LAWS. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID
SHARES MAY BE EFFECTED WITHOUT (I) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, OR (II) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL TO
THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE.
Warrant No. l STOCK PURCHASE WARRANT No. of Shares 100,550
-- -------
To Subscribe for and Purchase Common Stock of
CONNECTED CORPORATION
THIS CERTIFIES that, for value received, SOFTBANK Holdings Inc. (together
with any subsequent transferees of all or any portion of this Warrant, the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, to subscribe for and purchase from CONNECTED CORPORATION, a Delaware
corporation (hereinafter called the "Company"), at the price hereinafter set
forth in Section 2, up to one hundred thousand five hundred fifty (100,550)
fully paid and non-assessable shares (the "Shares") of the Company's Common
Stock, $.001 par value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the following
meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor statute
thereto and the rules and regulations of the Securities and Exchange Commission
issued under that Act, as they each may, from time to time, be in effect.
2. PURCHASE RIGHTS. The purchase rights represented by this Warrant shall
be exercisable by the Holder in whole or in part, in accordance with the
following schedule:
<TABLE>
<CAPTION>
Percentage of the Company's
Anniversary of Company's Customers Sourced by Cumulative Maximum Number
First Customer Shipment SOFTBANK of Warrants Exercisable
- ----------------------- -------- -----------------------
<S> <C> <C>
6 month anniversary At least 20% 10,055 (10%)
12 month anniversary At least 20% 25,138 (25%)
18 month anniversary At least 20% 50,275 (50%)
24 month anniversary At least 20% 100,550 (100%)
</TABLE>
For purposes of the foregoing schedule: the "Company's First Customer
Shipment" shall be deemed to have occurred on the first day of the month next
succeeding the month in which the Company first provided services for a fee to a
customer(s); the "Percentage of the Company's Customers Sourced by SOFTBANK"
shall be determined as follows: on each of the above anniversary dates, the
cumulative number of the Company's customers sourced by SOFTBANK Holdings Inc.
and its then "affiliated companies" (companies in which SOFTBANK has then
invested at least $1,000,000 or any affiliated partnerships managed by
SOFTBANK) ("SOFTBANK"), shall be expressed as a percentage of the total number
of the Company's customers, provided, however, that only fifty (50%) percent of
any Phoenix
<PAGE> 2
Publishing Systems, Inc. customers sourced by SOFTBANK for the Company
shall be deemed to have been sourced by SOFTBANK for purposes hereof, and,
provided further, that any person with which the Company had a relationship
independent of SOFTBANK, prior to such person becoming a customer of the
Company, except as provided herein, shall not be deemed to have been sourced by
SOFTBANK for purposes hereof. Subject to the foregoing, for purposes hereof,
"customers sourced by SOFTBANK" means a person or entity introduced to the
Company by SOFTBANK, who, subsequent to such introduction, becomes a customer
of the Company. With respect to any of the above anniversary dates, in the event
that the number of SOFTBANK sourced customers is less than twenty (20%) percent
of the Company's total customers, the number of Warrants which shall be
exercisable shall be equal to the product of (i) a fraction, the numerator of
which is equal to the percentage of the Company's total customers sourced by
SOFTBANK, and the denominator of which is twenty (20%) percent; and (ii) the
maximum number of Warrants which may be exercised on the anniversary date in
question, as set forth in the above schedule. For example, if, as of the 18
month anniversary date, SOFTBANK sourced customers represent 15% of the
Company's total customers, the number of Warrants exercisable would be
37,706.25, which is equal to (15% + 20%) x 50,275.
Within 30 days of each of the above anniversary dates, the Company shall
provide SOFTBANK with a certificate, signed by the President of the Company,
stating as of the respective anniversary date the number of the Company's
customers sourced by SOFTBANK, as determined in accordance herewith, as well as
the total number of the Company's customers.
The purchase rights represented by this warrant shall expire on June 12,
2001.
Subject to this Section 2, this Warrant may be exercised for Shares at a
price of four dollars ($4.00) per share, subject to adjustment as provided in
Section 6 (the "Warrant Purchase Price").
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holders name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants that
the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and charges with respect to the
issue thereof. During the period within which the purchase rights represented by
the Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issuance upon exercise of the purchase rights
represented by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
-2-
<PAGE> 3
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is
not the surviving corporation in any such transaction, the Board of Directors
of the surviving corporation) in the aggregate number and kind of shares
subject to this Warrant, and the number and kind of shares and the price per
share then applicable to shares covered by the unexercised portion of this
Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant and
the Shares shall not be sold or transferred unless either (i) they first shall
have been registered under the Act and applicable State Securities laws, or (ii)
the Company first shall have been furnished with an opinion of legal counsel
satisfactory to the Company to the effect that such sale or transfer is exempt
from the registration requirements of the Act and applicable State Securities
laws. Each certificate representing any Warrant shall bear the legend set out
on page 1 hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
Such Warrant and Shares may be subject to additional restrictions on transfer
imposed under applicable state and federal securities law.
9. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the Holder or the Company shall be delivered, or
shall be sent by certified or registered mail, postage prepaid, to the Holder at
its address shown on the books of the Company or in the case of the Company, at
the address indicated therefor on the signature page of this Warrant, or, if
different, at the principal office of the Company.
11. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss,
-3-
<PAGE> 4
theft, destruction or mutilation of this Warrant or any stock certificate and,
in the case of any such loss, theft or destruction, of an indemnity or security
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
12. REPRESENTATIONS AND WARRANTIES OF HOLDER. By accepting this Warrant,
the Holder represents and warrants that he, she or it is acquiring this Warrant
and the Shares for his, her or its own account, for investment and not with a
view to, or for sale in connection with, any distribution thereof or any part
thereof. Holder represents and warrants that he, she or it is (a) experienced in
the evaluation of businesses similar to the Company, (b) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Company, (c) has the ability to bear
the economic risks of an investment in the Company, (d) has been furnished with
or has had access to such information as is specified in subparagraph (b)(2) of
Rule 502 promulgated under the Act and (e) has been afforded the opportunity to
ask questions of and to receive answers from the officers of the Company and to
obtain any additional information necessary to make an informed investment
decision with respect to an investment in the Company.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Shares issuable upon exercise of this Warrant shall
survive the exercise and termination of this Warrant and all of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the Holder.
14. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
IN WITNESS WHEREOF, CONNECTED CORPORATION has caused this Warrant to be
executed under seal by its officer thereunto duly authorized.
ORIGINAL ISSUANCE DATE: June 12, 1996
CONNECTED CORPORATION
CORPORATE
SEAL
By: /s/ David A. Cane
-------------------------------
David A. Cane, President
Address: 63 Fountain Street
Framingham, MA 01701
-4-
<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: CONNECTED CORPORATION
1. The undersigned hereby elects to purchase ____ shares of Common Stock of
CONNECTED CORPORATION pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended, and applicable State Securities laws or
(ii) 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 applicable registration requirements.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
--------------------------------
(Name)
--------------------------------
(Address)
--------------------------------
(Signature)
--------------------------------
(Date)
<PAGE> 1
Exhibit 4.4
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR STATE
SECURITIES LAWS. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR SAID
SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, OR (ii) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL TO
THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE.
Warrant No. 2, STOCK PURCHASE WARRANT No. of Shares 18,750
-- ------
To Subscribe for and Purchase Common Stock of
CONNECTED CORPORATION
THIS CERTIFIES that, for value received, Carl Lazarus (together with any
subsequent transferees of all or any portion of this Warrant, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe for and purchase from CONNECTED CORPORATION, a Delaware corporation
(hereinafter called the "Company"), at the price hereinafter set forth in
Section 2, up to eighteen thousand seven hundred fifty (18,750) fully paid and
non-assessable shares (the "Shares") of the Company's Common Stock, $.001 par
value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the following
meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor statute
thereto and the rules and regulations of the Securities and Exchange Commission
issued under that Act, as they each may, from time to time, be in effect.
2. PURCHASE RIGHTS. Subject to this Section 2, the purchase rights
represented by this Warrant shall be exercisable by the Holder in whole or in
part, in forty-eight (48) equal monthly installments, commencing on the date
hereof.
Subject to the terms hereof, the purchase rights represented by this
Warrant shall expire on June 12, 2001.
If the Holder's employment with the Company is terminated for any reason
otherwise than by his death or disability (within the meaning of section
22(e)(3) of the Internal Revenue Code of 1986, as amended), he may exercise the
rights which he had hereunder at the time of such termination only within three
months from the date of termination. If his employment is terminated for reason
of disability, such rights may be exercised within twelve months from the date
of termination. Upon the death of the Holder, those entitled to do so by the
Holder's will or the laws of descent and distribution shall have the right, at
any time within twelve months after the date of death, to exercise in whole or
in part any rights which were available to the
<PAGE> 2
Holder at the time of his death, provided, that, in the event the Holder
dies prior to 24 months from the issuance date, the total exercisable purchase
rights shall be changed to be the lesser of (i) fifty (50%) percent of the total
rights granted hereunder (9,375) and (ii) a fraction, the numerator of which is
the total rights granted hereunder multiplied by the number of months from the
issuance date to the date of death plus twelve months; and the denominator of
which is 48. The total exercisable purchase rights include those rights already
exercised, if any. This Warrant shall terminate, and no rights hereunder may be
exercised, after the expiration of the applicable exercise period.
Subject to this Section 2, this Warrant may be exercised for Shares at a
price of four dollars ($4.00) per share, subject to adjustment as provided in
Section 6 (the "Warrant Purchase Price").
1. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the surrender of this Warrant and the duly executed Notice of
Exercise (the form of which is attached as Exhibit A) at the principal office of
the Company and by the payment to the Company, by check, of an amount equal to
the then applicable Warrant Purchase Price per share multiplied by the number of
Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holders name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
2. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants that
the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and charges with respect to the
issue thereof. During the period within which the purchase rights represented by
the Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issuance upon exercise of the purchase rights
represented by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the right represented by this Warrant.
3. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by the fair market value of such shares of Common
Stock, as determined in good faith by the Company's Board of Directors.
4. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares
-2-
<PAGE> 3
subject to this Warrant, and the number and kind of shares and the price per
share then applicable to shares covered by the unexercised portion of this
Warrant.
5. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the
Shares so purchased in accordance with the terms of the Warrant, the Holder or
the Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
6. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The Warrant and
the Shares shall not be sold or transferred unless either (i) they first shall
have been registered under the Act and applicable State Securities laws, or (ii)
the Company first shall have been furnished with an opinion of legal counsel
satisfactory to the Company to the effect that such sale or transfer is exempt
from the registration requirements of the Act and applicable State Securities
laws. Each certificate representing any Warrant shall bear the legend set out
on page 1 hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
Such Warrant and Shares may be subject to additional restrictions on transfer
imposed under applicable state and federal securities law.
7. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
8. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the Holder or the Company shall be delivered, or shall
be sent by certified or registered mail, postage prepaid, to the Holder at its
address shown on the books of the Company or in the case of the Company, at the
address indicated therefor on the signature page of this Warrant, or, if
different, at the principal office of the Company.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company covenants
with the Holder that upon its receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any
-3-
<PAGE> 4
such loss, theft or destruction, of an indemnity or security reasonably
satisfactory to it, upon reimbursement to the Company of all reasonable expenses
incidental thereto, and surrender and cancellation of this Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
10. REPRESENTATIONS AND WARRANTIES OF HOLDER. By accepting this Warrant,
the Holder represents and warrants that he, she or it is acquiring this Warrant
and the Shares for his her or its own account, for investment and not with a
view to, or for sale in connection with, any distribution thereof or any part
thereof. Holder represents and warrants that he, she or it is (a) experienced in
the evaluation of businesses similar to the Company, (b) has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and of an investment in the Company, (c) has the ability to bear the
economic risks of an investment in the Company, (d) has been furnished with or
has had access to such information as is specified in subparagraph (b)(2) of
Rule 502 promulgated under the Act and (e) has been afforded the opportunity to
ask questions of and to receive answers from the officers of the Company and to
obtain any additional information necessary to make an informed investment
decision with respect to an investment in the Company.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, all of the obligations of the
Company relating to the Shares issuable upon exercise of this Warrant shall
survive the exercise and termination of this Warrant and all of the covenants
and agreements of the Company shall inure to the benefits of the successors and
assigns of the Holder.
12. GOVERNING LAW. This Warrant shall be construed enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware.
IN WITNESS WHEREOF, CONNECTED CORPORATION has caused this Warrant to be
executed under seal by its officer thereunto duly authorized.
ORIGINAL ISSUANCE DATE: June 12, 1996
CONNECTED CORPORATION
CORPORATE
SEAL /s/ David A. Cane
------------------------------------
By: David A. Cane, President
Address: 63 Fountain Street
Framingham, MA 01701
-4-
<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE
------------------
To: CONNECTED CORPORATION.
1. The undersigned hereby elects to purchase ___ shares of Common Stock of
CONNECTED CORPORATION pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
The undersigned further represents that such shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended and applicable State Securities laws or (ii)
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 applicable registration requirements.
4. In the event of partial exercise, please re-issue an appropriate Warrant
exercisable into the remaining shares.
----------------------------
(Name)
----------------------------
(Address)
----------------------------
(Signature)
----------------------------
(Date)
<PAGE> 1
Exhibit 4.5
NEITHER THIS WARRANT FOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR STATE
SECURITIES LAWS. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS WARRANT OR
SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO, OR (ii) AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL TO THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE.
Warrant No. STOCK PURCHASE WARRANT No. of Shares 17,700
--- ------
To Subscribe for and Purchase Common Stock of
CONNECTED CORPORATION
THIS CERTIFIES that, for value received, Sandpiper Software Consulting, LLC
(together with any subsequent transferees of all or any portion of this Warrant,
the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from CONNECTED CORPORATION,
a Delaware corporation (hereinafter called the "Company"), at the price
hereinafter set forth in Section 2, up to Seventeen Thousand Seven Hundred
(17,700) fully paid and non-assessable shares (the "Shares") of the Company's
Common Stock, $.001 par value per share (the "Common Stock").
Andrew Swart ("Swart") and David Farber ("Farber"), principal owners of the
Holder, and the Company have as of the date of this Warrant entered into
Non-Competition Agreements (the "Non-Competition Agreements") under which such
persons have agreed, among other things, not to compete with the Company, all as
described in such Agreement.
This Warrant is being issued as consideration for Swart and Farber's
entering into the Non-Competition Agreements, and the Company has, at the
request of Swart and Farber, issued this Warrant to Sandpiper.
1. DEFINITIONS. As used herein the following term shall have the following
meaning: "Act" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. Subject to this Section 2, the purchase rights
represented by this Warrant shall be exercisable by the Holder in whole or in
part, in thirty six (36) equal monthly installments, commencing on the date
hereof, provided that the first six (6) monthly installments will not be
exercisable until six (6) months after the date hereof.
Subject to this Section 2, this Warrant may be exercised for Shares at a
price of forty cents ($0.40) per share, subject to adjustment as provided in
Section 6 (the "Warrant Purchase Price").
-1-
<PAGE> 2
Subject to the terms hereof, the purchase rights represented by this
Warrant shall expire on June 12, 2001.
If the Board of Directors determines in the good faith and reasonable
exercise of its judgment and notifies the Holder that there has been a breach of
the Non-Competition Agreement or that the Non-Competition Agreement has been
held to be unenforceable by a court of competent jurisdiction, then the Holder
shall have the right, for the 90 day period following the date of notice of
breach or unenforceability, to exercise this Warrant as to all shares with
respect to which the Holder could exercise this Warrant on the date of such
notice. Following the expiration of such 90 day period, the Holder shall have no
further rights hereunder.
The Holder shall not, during the term of the Non-Competition Agreement,
sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by
operation of law or otherwise ("transfer"), any of the purchase rights
represented by this Warrant Agreement, or any interest therein. If any transfer
of the purchase rights represented by this Warrant is made or attempted contrary
to the provisions of this Agreement, the purchase rights represented by this
Warrant shall simultaneously terminate without further action on the part of the
Company, the Holder or any transferee, and neither the Holder nor any transferee
shall have any further rights hereunder. In addition to any other legal or
equitable remedies which it may have, the Company may enforce its rights by
actions for specific performance (to the extent permitted by law).
This Warrant shall terminate, and no rights hereunder may be exercised,
after the expiration of the applicable exercise period.
1. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase rights
represented by this Warrant may be exercised, in whole or in part and from time
to time (but not more than two times during any 12 month period), by the
surrender of this Warrant and the duly executed Notice of Exercise (the form of
which is attached as Exhibit A) at the principal office of the Company and by
the payment to the Company, by check, of an amount equal to the then applicable
Warrant Purchase Price per share multiplied by the number of Shares then being
purchased. Upon exercise, the Holder shall be entitled to receive, within a
reasonable time, a certificate or certificates, issued in the Holder's name or
in such name or names as the Holder may direct, for the number of Shares so
purchased. The Shares so purchased shall be deemed to be issued as of the close
of business on the date on which this Warrant shall have been exercised.
2. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants that
the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and charges with respect to the
issue thereof. During the period within which the purchase rights represented by
the Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issuance upon exercise of the purchase rights
represented by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon the
exercise of this Warrant. In lieu thereof, a cash payment shall be made equal to
such fraction multiplied by
-2-
<PAGE> 3
the fair market value of such shares of Common Stock, as determined in good
faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Company, appropriate adjustments
shall be made by the Board of Directors of the Company (or if the Company is not
the surviving corporation in any such transaction, the Board of Directors of the
surviving corporation) in the aggregate number and kind of shares subject to
this Warrant, and the number and kind of shares and the price per share then
applicable to shares covered by the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to
exercise of this Warrant and the payment for the Shares so purchased. Upon valid
exercise of this Warrant and payment for the Shares so purchased in accordance
with the terms of the Warrant, the Holder or the Holder's designee, as the case
may be, shall be deemed a shareholder of the Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES: LEGEND. The Warrant and
the Shares underlying the Warrant shall not be sold or transferred unless either
(i) they first shall have been registered under the Act and applicable State
Securities laws, or (ii) the Company first shall have been furnished with an
opinion of legal counsel satisfactory to the Company to the effect that such
sale or transfer is exempt from the registration requirements of the Act and
applicable State Securities laws. Each certificate representing any Warrant
shall bear the legend set out on page 1 hereof. Each certificate representing
any Shares shall bear a legend substantially in the following form:
"The shares represented by this certificate have no been registered under
the Securities Act of 1933, as amended or state securities laws and may not
be sold, transferred or otherwise disposed of in the absence of an
effective registration statement under such Act and such laws or an opinion
of counsel satisfactory to the corporation to the effect that such
registration is not required."
Such Warrant and Shares may be subject to additional restrictions on
transfer imposed under applicable state and federal securities law.
9. RESERVED.
10. RESERVED.
11. MODIFICATIONS AND WAIVERS. This Warrant may not be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which enforcement of the same is sought.
-3-
<PAGE> 4
12. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the Holder or the Company shall be delivered, or
shall be sent by certified or registered mail, postage prepaid, to the Holder at
its address shown on the books of the Company or in the case of the Company, at
the address indicated therefor on the signature page of this Warrant, or, if
different, at the principal office of the Company.
13. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of any such loss, theft
or destruction, of an indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
14. REPRESENTATIONS AND WARRANTIES OF HOLDER. By accepting this Warrant,
the Holder represents and warrants that he, she or it is acquiring this Warrant
and the Shares for his, her or its own account, for investment and not with a
view to, or for sale in connection with, any distribution thereof or any part
thereof. Holder represents and warrants that he, she or it (a) is experienced in
the evaluation of businesses similar to the Company, (b) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Company, (c) has the ability to bear
the economic risks of an investment in the Company, (d) has been furnished with
or has had access to such information as he/she has requested, and (e) has been
afforded the opportunity to ask questions of and to receive answers from the
officers of the Company and to obtain any additional information necessary to
make an informed investment decision with respect to an investment in the
Company.
15. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts, other than the choice of law provisions
thereof.
IN WITNESS WHEREOF, CONNECTED CORPORATION has caused this Warrant to be
executed under seal by its officer thereunto duly authorized.
ORIGINAL ISSUANCE DATE: AS OF June 12, 1996
CONNECTED CORPORATION
CORPORATE /s/ David A. Cane
SEAL ---------------------------------
By: David A. Cane, President
Address: 63 Fountain Street
Framingham, MA 01701
-4-
<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE
To: CONNECTED CORPORATION
1. The undersigned hereby elected to purchase ----------- shares of Common
Stock of CONNECTED CORPORATION pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name or names as are specified
below.
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares. The undersigned further represents that such shares shall not be sold or
transferred unless either (1) they first shall have been registered under the
Securities Act of 1933, as amended, and applicable State Securities laws or (ii)
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 applicable registration requirements.
4. The undersigned acknowledges that the shares issuable to the
undersigned pursuant to this Notice of Exercise are subject to restrictions on
transfer, all as provided in the attached Warrant.
5. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
(Signature)
----------------------------------------
(Date)
-5-
<PAGE> 1
Exhibit 4.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
AMENDED AND RESTATED
COMMON STOCK WARRANT
Warrant No. CS-((Number)) - Amended and Restated
Connected Corporation
RECITAL
Connected Corporation, a Delaware corporation (hereinafter with its
successors called the "Company") and ((Name)) (the "Holder"), among others,
executed an Unsecured Convertible Promissory Note and Warrant Purchase Agreement
dated June ((Date)), 1999, (the "Agreement"), pursuant to which the Company
issued to the Holder: (1) an Unsecured Subordinated Convertible Promissory Note
dated June ((Date)), 1999 (the "Note"); and (2) a Common Stock Warrant dated
June ((Date)), 1999, and labeled with the designation CS-((Number)) (the
"Warrant"). Pursuant to Section 16 of the Warrant, the Warrant could be amended,
modified or waived with the written consent of the Company and the holders of
Warrants representing at least 50% of the number of shares of Common Stock then
issuable upon the exercise of the Warrants. On October 31, 1999, the Company and
the holders of Warrants representing at least 50% of the number of shares of
Common Stock then issuable upon the exercise of the Warrants agreed to amend and
restate the Warrant, as set forth below, by executing an Amendment to Unsecured
Subordinated Convertible Promissory Note and Warrant Purchase Agreement,
Unsecured Subordinated Convertible Promissory Note, and Common Stock Warrant.
Void after June ((Date)), 2004
1. Issuance. This Amended and Restated Common Stock Warrant is issued
to the Holder by the Company in substitution and exchange for the Warrant. This
Amended and Restated Warrant is intended to evidence and represent the rights of
the Holder under the Warrant, and is not intended as a novation thereof.
References to the Warrant shall mean this Amended and Restated Warrant for the
purposes of the remainder hereof.
<PAGE> 2
2. (a) Exercise of Warrant to Purchase Common Stock. Subject to the
terms and conditions hereinafter set forth, the registered holder of this
Warrant (the "Holder"), is entitled upon surrender of this Warrant with the
subscription form annexed hereto duly executed, at the office of the Company, 63
Fountain Street, Framingham, Massachusetts 01701, or such other office as the
Company shall notify the Holder of in writing, to purchase from the Company at a
price per share of Sixty-Five Cents ($0.65) (the "Purchase Price") an amount of
fully paid and nonassessable shares of Common Stock, $0.001 par value, of the
Company (the "Common Stock"). The Warrant may not be exercised until the
earliest of October 31, 1999, a Qualified Financing (as defined below) or a
Liquidation Transaction (as defined below). Until such time as this Warrant is
exercised in full or expires, the Purchase Price and the Common Stock issuable
upon exercise of this Warrant are subject to adjustment as hereinafter provided.
(b) Common Stock; Warrant Denominator. For purposes hereof,
Qualified Financing means the issuance and sale by the Company of shares of a
newly-designated series or class of Preferred Stock or other securities (the
"Qualified Financing Securities") for an aggregate sale price of at least
$3,000,000.00 net of any amount received from the conversion of the Notes (as
defined in the Purchase Agreement, as defined below) and Warrants. If the
Qualified Financing shall occur on or before October 31, 1999, the term "Warrant
Denominator" shall mean the per share purchase price of the Qualified Financing
Securities. If the Company sells, conveys, liquidates, or otherwise disposes of
all or substantially all fixed property, assets or business in any transaction
or series of related transactions or mergers into, consolidates with any other
corporation or entity or effects any transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is transferred to another person or entity on or before October 31,
1999 (a "Liquidation Transaction") or if the Qualified Financing does not occur
on or before October 31, 1999, the term "Warrant Denominator" shall be $4.20 per
share. The number of shares of Common Stock purchasable at the Purchase Price
upon exercise of this Warrant shall be equal to the quotient of (i)
((M_200_of_Principal_Investors_Note)), divided by (ii) the Warrant Denominator.
3. Payment of Purchase Price. The Purchase Price may be paid (i) in
cash or by check in immediately available funds, (ii) by the surrender by the
Holder to the Company of any promissory notes or other obligations issued by the
Company, with all such notes and obligations so surrendered being credited
against the Purchase Price in an amount equal to the principal amount thereof
plus accrued interest to the date of surrender, or (iii) by any combination of
the foregoing. The Board shall promptly respond in writing to an inquiry by the
Holder as to the fair market value of any securities the Holder may wish to
deliver to the Company pursuant to clause (iii) above.
4. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof by the surrender of this Warrant or such
portion to the Company, with the net issue election notice annexed hereto duly
executed, at the office of the Company. Thereupon, the Company shall issue to
the Holder such number of fully paid and nonassessable shares of Common Stock as
is computed using the following formula:
Amended and Restated Common Stock Warrant -- Page 2
<PAGE> 3
X = Y (A-B)
-------
A
where
X = the number of shares to be issued to the Holder pursuant
to this Section 4.
Y = the number of shares of Common Stock covered by this
Warrant in respect of which the net issue election is made
pursuant to this Section 4.
A = the fair market value of one share of Common Stock, as
determined in good faith by the Board, as at the time the net
issue election is made pursuant to this Section 4.
B = the Purchase Price in effect under this Warrant at the
time the net issue election is made pursuant to this Section
4.
The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.
5. Easy Sale Exercise. In lieu of the payment method set forth in
Section 4 above, when permitted by law and applicable regulations (including
Nasdaq and NASD rules), the Holder may pay the Purchase Price through a "same
day sale" commitment from the Holder (and if applicable a broker-dealer that is
a member of the National Association of Securities Dealers (a "NASD Dealer"),
whereby the Holder irrevocably elects to exercise this Warrant and to sell a
portion of the Shares so purchased to pay for the Purchase Price and the Holder
(or, if applicable, the NASD Dealer) commits upon sale (or, in the case of the
NASD Dealer, upon receipt) of such Shares to forward the Purchase Price directly
to the Company.
6. Partial Exercise. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.
7. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
8. Expiration Date; Automatic Exercise. This Warrant shall expire at
the close of business on June ((Date)), 2004, or effective upon the closing of a
firm commitment underwritten public offering of shares of Common Stock in which
(i) the aggregate price paid for such shares by the public shall be at least
$10,000,000 and (ii) the price paid by the public for such shares shall be at
least $8.00 per share (appropriately adjusted to reflect any subdivision,
combination or stock dividend of or with respect to the Common Stock) (the
"Qualifying Public Offering"), whichever is earlier, and shall be void
thereafter (the "Expiration Date"). Notwithstanding the
Amended and Restated Common Stock Warrant -- Page 3
<PAGE> 4
foregoing, this Warrant shall automatically be deemed to be exercised in full
pursuant to the provisions of Section 4 hereof, without any further action on
behalf of the Holder, immediately prior to the time this Warrant would otherwise
expire pursuant to the preceding sentence.
9. Reserved Shares; Valid Issuance. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, free from all preemptive or
similar rights therein, as will be sufficient to permit the exercise of this
Warrant in full and the conversion into shares of Common Stock receivable upon
such exercise. The Company further covenants that such shares as may be issued
pursuant to such exercise will, upon issuance, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
10. Stock Dividends. If after the Original Issue Date (as defined
below) the Company shall subdivide the Common Stock, by split-up or otherwise,
or combine the Common Stock, or issue additional shares of Common Stock in
payment of a stock dividend on the Common Stock, the number of shares issuable
on the exercise of this Warrant shall forthwith be proportionately increased in
the case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination, and the Purchase Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination.
11. Mergers and Reclassifications. If after the Original Issue Date
there shall be any reclassification, capital reorganization or change of the
Common Stock (other than as a result of a subdivision, combination or stock
dividend provided for in Section 10 hereof), or any consolidation of the Company
with, or merger of the Company into, another corporation or other business
organization (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification or
change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance, lawful
provisions shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so that the
Holder shall thereafter have the right to purchase, at a total price not to
exceed that payable upon the exercise of this Warrant in full, the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might have
been purchased by the Holder immediately prior to such reclassification,
reorganization, change, consolidation, merger, sale or conveyance (or, if there
are no holders of Common Stock at such time, by a holder of the number of shares
of Common Stock which might have been acquired by the Holder immediately prior
to such reclassification, reorganization, change, consolidation, merger, sale or
conveyance upon the exercise of this Warrant in full and the conversion into
shares of Common Stock of all shares of Common Stock receivable upon such
exercise), and in any such case appropriate provisions shall be made with
respect to the rights and interest of the Holder to the end that the provisions
hereof (including without limitation, provisions for the adjustment of the
Purchase Price and the number of shares issuable hereunder) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.
Amended and Restated Common Stock Warrant -- Page 4
<PAGE> 5
12. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 12,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.
13. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall promptly deliver to the Holder a
certificate of a firm of independent public accountants setting forth the
Purchase Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
14. Notices of Record Date, Etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any reclassification of the capital stock of the Company,
capital reorganization of the Company, consolidation or merger involving the
Company, or sale or conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
15. Other Warrants. This Warrant is one of a series of warrants
(collectively, the "Warrants") that were originally issued by the Company
pursuant to an Unsecured Subordinated Convertible Promissory Note and Warrant
Purchase Agreement between the Company and the Investors, dated June ((Date)),
1999, among the Company and the other parties thereto (as the same may be
amended from time to time, hereinafter referred to as the "Purchase Agreement").
The "Original Issue Date" of this Warrant is June ((Date)), 1999.
16. Amendment. The terms of this Warrant may be amended, modified or
waived only with the written consent of the Company and the holders of Warrants
representing at least 50% of the number of shares of Common Stock then issuable
upon the exercise of the Warrants. No such amendment, modification or waiver
shall be effective as to this Warrant unless the terms
Amended and Restated Common Stock Warrant -- Page 5
<PAGE> 6
of such amendment, modification or waiver shall apply with the same force and
effect to all of the other Warrants then outstanding.
17. Warrant Register; Transfers, Etc.
(a) The Company will maintain a register containing the names
and addresses of the registered holders of the Warrants. The Holder may change
its address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
(b) Subject to compliance with applicable federal and state
securities laws and transferee becoming subject to the obligations of the
Purchase Agreement, this Warrant may be transferred by the Holder with respect
to any or all of the shares purchasable hereunder. Upon surrender of this
Warrant to the Company, together with the assignment hereof properly endorsed,
for transfer of this Warrant as an entirety by the Holder, the Company shall
issue a new warrant of the same denomination to the assignee. Upon surrender of
this Warrant to the Company, together with the assignment hereof properly
endorsed, by the Holder for transfer with respect to a portion of the shares of
Common Stock purchasable hereunder, the Company shall issue a new warrant to the
assignee, in such denomination as shall be requested by the Holder hereof, and
shall issue to such Holder a new warrant covering the number of shares in
respect of which this Warrant shall not have been transferred.
(c) In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company,
provided, however, that so long as ((Name)) is the registered holder of this
Warrant, no indemnity shall be required other than its written agreement to
indemnify the Company against any loss arising from the issuance of such new
warrant.
18. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reclassification, capital
reorganization, consolidation, merger, sale or conveyance of assets,
dissolution, liquidation, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder.
19. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware.
Amended and Restated Common Stock Warrant -- Page 6
<PAGE> 7
20. Successors and Assigns. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.
21. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Massachusetts, then such action may be
taken or right may be exercised on the next succeeding day which is not a
Saturday or Sunday or such a legal holiday.
22. HSR Act. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the Hart Scott Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") and that Holder may be prevented from exercising this Warrant until
the expiration or early termination of all waiting periods imposed by the HSR
Act ("HSR Act Restrictions"). If on or before the Expiration Date the Holder has
not been able to complete the exercise of this Warrant prior to the Expiration
Date because of HSR Act Restrictions, the Holder shall be entitled to complete
the process of exercising this Warrant in accordance with the procedures
contained herein notwithstanding the fact that completion of the exercise of
this Warrant would take place after the Expiration Date or the completion of the
Qualifying Public Offering so long as the Holder has made the initial filing
required under the HSR Act within one month following the Expiration Date.
[Remainder of Page Left Intentionally Blank]
Amended and Restated Common Stock Warrant -- Page 7
<PAGE> 8
Dated: November 3, 1999 Connected Corporation
(Corporate Seal) By:__________________________
David A. Cane, President
Attest:
__________________________
Amended and Restated Common Stock Warrant -- Page 8
<PAGE> 9
Subscription
To: _________________________ Date: ___________________
The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:
_________________________
Signature
_________________________
Name for Registration
_________________________
Address
Net Issue Election Notice
To: _________________________ Date: ___________________
The undersigned hereby elects under Section 4 to surrender the right to
purchase _______ shares of Common Stock pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.
_________________________
Signature
_________________________
Name for Registration
_________________________
Address
Amended and Restated Common Stock Warrant -- Page 9
<PAGE> 10
Assignment
For value received ____________________________ hereby sells,
assigns and transfers unto ______________________________________
______________________________________________________________________
Please print or typewrite name and address of Assignee
______________________________________________________________________
the within Warrant, and does hereby irrevocably constitute and appoint
_______________________ its attorney to transfer the within Warrant on the books
of the within named Company with full power of substitution on the premises.
Dated:_______________________
_________________________________
In the Presence of:
______________________________
Amended and Restated Common Stock Warrant -- Page 10
<PAGE> 11
List of Warrant Holders
1. Technologies for Information & Entertainment III, LP
2. Middlefield Ventures, Inc.
3. Ronald O. Lachman
4. Solstice Capital
5. Softbank America, Inc.
6. Craig Randall
7. Norman Meisner
8. Carl Lazarus
9. James Priest
10. David Cane
11. Charles Robbins
12. Charles Kline
13. William Keating
14. David Arthur Norman and Mamie Ruth Norman, as Trustees of the Norman Family
Revocable Trust
15. J3D Limited Partnership
16. H&Q Connected Investors
17. Hambrecht & Quist Employee Venture Fund, L.P. II
<PAGE> 1
Exhibit 4.7
SUBSCRIPTION
February 2, 1996
To: The Board of Directors of Connected Corporation
63 Fountain Street
Framingham, MA 01701
Gentlemen:
The undersigned hereby subscribes to 115,000 shares of Common Stock,
$.01 par value (the "Shares") of Connected Corporation for consideration
consisting of $.01 per share in cash, for a total of $1,150.00
I acknowledge that the Shares will be issued to me subject to
Securities laws restrictions, and I have been advised that the Shares have not
been registered under the Securities Act of 1933 or any state securities laws.
I am acquiring the Shares for investment and not with a view to the sale or
distribution thereof. I understand that the Shares are being issued to me on the
ground that the transaction is exempt under one or more provisions of the
Securities Act of 1933 and the applicable state securities laws and I further
understand that they must be held by me indefinitely unless registered under
such acts or unless an exemption from registration is available for any
transfer by me.
I further acknowledge the Shares will be subject to certain rights of
repurchase by the Corporation and additional restrictions on transfer to any
party as follows:
a) The Corporation shall have the right to repurchase the Shares at a
price of $.01 per share in the event the undersigned ceases to be
an employee of the Corporation on or before January 22, 2000
provided, however, that the undersigned may refuse to honor the
exercise by the Corporation of such right in the event that such
termination has occurred on or after July 22, 1996, but only with
respect to that percentage of Shares that is derived by the
following formula, which shall be deemed vested for purposes of
paragraph (b) below:
Percentage of Shares Employee
May Retain Upon Termination =
Number of Months Occurring Since
January 22, 1996 as of the Date of Termination
______________________________________________________
48
The exercise of such right must occur by notice in writing from the
Corporation to the undersigned at the below address within thirty
(30) days of the date of termination.
b) The undersigned shall not sell, transfer, assign, hypothecate or
otherwise encumber in any way any Shares that have not vested
pursuant to paragraph (a), above.
Very truly yours,
/s/ Carl Lazarus
Carl Lazarus
130 Berkeley Street
West Newton, MA 02165
<PAGE> 1
Exhibit 10.1
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into as of this ___th day of ________,
2000 ("Agreement"), by and between Connected Corporation, a Delaware corporation
(the "Company"), and ___________________ (the "Indemnitee").
WHEREAS, highly competent persons are reluctant to serve corporations as
directors or officers or in other capacities unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of corporations; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that
Indemnitee be indemnified to the fullest extent permitted.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
Definitions
For purposes of this Agreement the following terms shall have the
meanings indicated:
1.01 "Board" shall mean the Board of Directors of the Company.
1.02 "Corporate Status" describes the status of a person who is or
was a director, officer, employee, agent, trustee or fiduciary of the Company or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other Enterprise which such person is or was serving at the request or
on behalf of the Company.
1.03 "Court" means the Court of Chancery of the State of Delaware,
the court in which the Proceeding, in respect of which indemnification is sought
by the Indemnitee, shall have been brought or is pending, or another court
having subject matter jurisdiction and personal jurisdiction over the parties.
1.04 "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
1.05 "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the request of the Company as a director,
officer, employee, agent, trustee or fiduciary.
<PAGE> 2
1.06 "Expenses" shall include, without limitation, all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, facsimile transmission
charges, and all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing to prosecute or
defend, investigating or being or preparing to be a witness in a Proceeding.
1.07 "Good Faith" shall mean Indemnitee having acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company or, in the case of an Enterprise which is an
employee benefit plan, the best interests of the participants or beneficiaries
of said plan, as the case may be, and, with respect to any Proceeding which is
criminal in nature, having had no reasonable cause to believe Indemnitee's
conduct was unlawful.
1.08 "Improper Personal Benefit" shall include, but not be limited
to, the personal gain in fact by reason of a person's Corporate Status of a
financial profit, monies or other advantage not also accruing to the benefit of
the Company or to the stockholders generally and which is unrelated to his or
her usual compensation including, but not limited to, (i) in exchange for the
exercise of influence over the Company's affairs, (ii) as a result of the
diversion of corporate opportunity, or (iii) pursuant to the use or
communication of confidential or inside information for the purpose of
generating a profit from trading in the Company's securities. Notwithstanding
the foregoing, "Improper Personal Benefit" shall not include any benefit,
directly or indirectly, related to actions taken in order to evaluate,
discourage, resist, prevent or negotiate any transaction with or proposal from
any person or entity seeking control of, or a controlling interest in, the
Company.
1.09 "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporate law and may include law firms
or members thereof that are regularly retained by the Company but not any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement unless such parties execute a written waiver of any such
conflict of interest.
1.10 "Officer" means the president, vice presidents, treasurer,
assistant treasurer(s), chief financial officer, secretary, assistant secretary
and such other executive officers as are appointed by the Board or by the board
of directors of the Enterprise, as the case may be.
1.11 "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation (including any internal corporate
investigation), administrative hearing or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative or investigative,
formal or informal, other than one initiated by Indemnitee. For purposes of the
foregoing sentence, a "Proceeding" shall not be deemed to have been initiated by
Indemnitee where Indemnitee seeks, pursuant to Article VIII of this Agreement,
to enforce Indemnitee's rights under this Agreement.
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<PAGE> 3
ARTICLE II
Term of Agreement
This Agreement shall continue until and terminate upon the later of: (i)
ten (10) years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee, agent, trustee or fiduciary of the Company or of
any other Enterprise; or (ii) the final termination of all pending Proceedings
in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Article VIII of this Agreement relating thereto.
ARTICLE III
Services by Indemnitee, Notice of Proceedings
3.01 Services. Indemnitee agrees to serve or continue to serve as a
director or Officer of the Company for so long as he or she is duly elected or
appointed. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
3.02 Notice of Proceeding. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the omission so to notify the Company shall not relieve
the Company from its obligations hereunder.
ARTICLE IV
Indemnification
4.01 In General. In connection with any Proceeding, the Company
shall indemnify, and advance Expenses, to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may hereafter from time
to time permit.
4.02 Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 4.02 if, by reason of Indemnitee's Corporate Status, Indemnitee
is, or is threatened to be made, a party to or is otherwise involved in any
Proceeding, other than a Proceeding by or in the right of the Company.
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement, actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection with such Proceeding or any claim, issue
or matter therein, if Indemnitee acted in Good Faith and such Indemnitee has not
been adjudged during the course of such Proceeding to have derived an Improper
Personal Benefit from the transaction or occurrence forming the basis of such
Proceeding.
4.03 Proceedings by or in the Right of the Company.
(a) Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4.03 if, by reason of Indemnitee's Corporate Status,
Indemnitee is, or is threatened to be made, a
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<PAGE> 4
party to or is otherwise involved in any Proceeding brought by or in the right
of the Company to procure a judgment in its favor. Indemnitee shall be
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding if Indemnitee acted in Good Faith and
such Indemnitee has not been adjudged during the course of such Proceeding to
have derived an Improper Personal Benefit from the transaction or occurrence
forming the basis of such Proceeding. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company if applicable law prohibits such indemnification; provided, however,
that, if applicable law so permits, indemnification shall nevertheless be made
by the Company in such event if and only to the extent that the Court which is
considering the matter shall so determine.
4.04 Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of Indemnitee's Corporate Status, a party to or is
otherwise involved in and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified, to the maximum extent permitted by
law, against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
indemnify Indemnitee, to the maximum extent permitted by law, against all
Expenses, judgments, penalties, fines, and amounts paid in settlement, actually
and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section 4.04 and without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
4.05 Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
ARTICLE V
Advancement of Expenses
Notwithstanding any provision to the contrary in Article VI, the Company
(acting through the President shall advance all reasonable Expenses which, by
reason of Indemnitee's Corporate Status, were incurred by or on behalf of
Indemnitee in connection with any Proceeding, within thirty (30) days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advance and undertakings to repay pursuant to this
Article V shall be unsecured and interest free. Advancement of Expenses pursuant
to this Article V shall not require approval of the Board or the stockholders of
the Company, or of any other person or body. The President or, at the
President's request, the Secretary of the Company shall promptly advise the
Board in writing of the request for
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<PAGE> 5
advancement of Expenses, of the amount and other details of the advance and of
the undertaking to make repayment pursuant to this Article V.
ARTICLE VI
Procedures for Determination of Entitlement
to Indemnification and Defense of Claims
6.01 Initial Request. To obtain indemnification under this
Agreement (other than advancement of Expenses pursuant to Article V), Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
as is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The President, or at the President's request, the
Secretary of the Company shall promptly advise the Board in writing that
Indemnitee has requested indemnification.
6.02 Method of Determination. A determination (if required by
applicable law in the specific case) with respect to Indemnitee's entitlement to
indemnification shall be made (a) by the Board by a majority vote of a quorum
consisting of Disinterested Directors, or (b) in the event that a quorum of the
Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, if such quorum of Disinterested Directors so directs, by Independent
Counsel, in a written opinion to the Board, a copy of which shall be delivered
to Indemnitee, or (c) by a special litigation committee of the Board appointed
by the Board, or (d) by the stockholders of the Company by vote of a majority of
the holders of the Company's outstanding capital stock at the time entitled to
vote on the election or removal of directors, voting as a single class,
including the capital stock of the Covered Person seeking indemnification.
6.03 Selection, Payment, Discharge of Independent Counsel. In the
event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 6.02 of this Agreement, the Independent
Counsel shall be selected, paid, and discharged in the following manner:
(a) The Independent Counsel shall be selected by the
Board, and the Company shall give written notice to
Indemnitee advising Indemnitee of the identity of the
Independent Counsel so selected.
(b) Following the initial selection described in clause
(a) of this Section 6.03, Indemnitee may, within
seven (7) days after such written notice of selection
has been given, deliver to the Company a written
objection to such selection. Such objection may be
asserted only on the ground that the Independent
Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1.09 of
this Agreement, and the objection shall set forth
with particularity the factual basis of such
assertion. Absent a proper and timely objection, the
person so selected shall act as Independent Counsel.
If such written objection is made, the Independent
Counsel so selected may not serve as Independent
Counsel unless and until a Court has determined that
such objection is without merit.
(c) Either the Company or Indemnitee may petition a Court
if the parties have been unable to agree on the
selection of Independent Counsel within twenty (20)
days after submission by Indemnitee of a written
request for
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<PAGE> 6
indemnification pursuant to Section 6.01 of this
Agreement. Such petition may request a determination
whether an objection to the party's selection is
without merit and/or seek the appointment as
Independent Counsel of a person selected by the Court
or by such other person as the Court shall designate.
A person so appointed shall act as Independent
Counsel under Section 6.03 of this Agreement.
(d) The Company shall pay any and all reasonable fees of
Independent Counsel and expenses incurred by such
Independent Counsel in connection with acting
pursuant to this Agreement, and the Company shall pay
all reasonable fees and expenses incident to the
procedures of this Section 6.03, regardless of the
manner in which such Independent Counsel was selected
or appointed.
(e) Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 8.02 of this
Agreement, Independent Counsel shall be discharged
and relieved of any further responsibility in such
capacity (subject to the applicable standards of
professional conduct then prevailing).
6.04 Cooperation. Indemnitee shall cooperate with the person,
persons or entity making the determination with respect to Indemnitee's
entitlement to indemnification under this Agreement, including providing to such
person, persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
6.05 Defense of Claim. With respect to any Proceeding to which
Indemnitee shall have requested indemnification in accordance with Section 6.01:
(a) The Company will be entitled to participate in the
defense at its own expense.
(b) Except as otherwise provided below, the Company
jointly with any other indemnifying party will be
entitled to assume the defense with counsel
reasonably satisfactory to Indemnitee. After notice
from the Company to the Indemnitee of its election to
assume the defense of a suit, the Company will not be
liable to the Indemnitee under this Agreement for any
legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense of the
Proceeding other than reasonable costs of
investigation or as otherwise provided below. The
Indemnitee shall have the right to employ his own
counsel in such Proceeding but the fees and expenses
of such counsel incurred after notice from the
Company of its assumption of the defense shall be at
the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall
have concluded reasonably that there may be a
conflict of interest between the Company and the
Indemnitee in the conduct of the defense of such
action and such conclusion is confirmed in writing by
the Company's outside legal counsel regularly
employed by it
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<PAGE> 7
in connection with corporate matters or (iii) the
Company shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of
which cases the fees and expenses of counsel shall be
at the expense of the Company. The Company shall be
entitled to participate in, but shall not be entitled
to assume the defense of any Proceeding brought by or
in the right of the Company or as to which the
Indemnitee shall have made the conclusion provided
for in (ii) above and such conclusion shall have been
so confirmed by the Company's said outside counsel.
(c) Notwithstanding any provision of this Agreement to
the contrary, the Company shall not be liable to
indemnify the Indemnitee under this Article for any
amounts paid in settlement of any Proceeding or claim
effected without its written consent. The Company
shall not settle any Proceeding or claim in any
manner which would impose any penalty, limitation or
disqualification of the Indemnitee for any purpose
without the Indemnitee's written consent. Neither the
Company nor the Indemnitee will unreasonably withhold
their consent to any proposed settlement.
6.06 Payment. If it is determined that Indemnitee is entitled to
indemnification not covered by defense of the claim afforded under Section 6.05
above, payment to Indemnitee shall be made within ten (10) days after such
determination.
ARTICLE VII
Presumptions and Effect of Certain Proceedings
7.01 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.01 of this Agreement, and the Company shall have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.
7.02 Effect of Other Proceedings. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of nolo contendere or its equivalent,
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in Good Faith.
7.03 Reliance as Safe Harbor. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good Faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the Officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. The provisions of this Section 7.03 shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
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<PAGE> 8
7.04 Actions of Others. The knowledge and/or actions, or failure to
act, of any director, Officer, employee, agent, trustee or fiduciary of the
Enterprise shall not be imputed to Indemnitee for purposes of determining the
right to indemnification under this Agreement.
ARTICLE VIII
Remedies of Indemnitee
8.01 Application. This Article VIII shall apply in the event of a
Dispute. For purposes of this Article, "Dispute", shall mean any of the
following events:
(a) a determination is made pursuant to Article VI of
this Agreement that Indemnitee is not entitled to
indemnification under this Agreement;
(b) advancement of Expenses is not timely made pursuant
to Article V of this Agreement;
(c) the determination of entitlement to be made pursuant
to Section 6.02 of this Agreement has not been made
within sixty (60) days after receipt by the Company
of the request for indemnification;
(d) payment of indemnification is not made pursuant to
Section 4.05 of this Agreement within ten (10) days
after receipt by the Company of a written request
therefor; or
(e) notice of election by the Company to assume defense
of a claim as provided for in Section 6.05 or payment
of indemnification, as the case may be, is not given
or made within ten (10) days after a determination
has been made that Indemnitee is entitled to
indemnification or such determination is deemed to
have been made pursuant to Article VI of this
Agreement.
8.02 Adjudication. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in an appropriate Court of Indemnitee's entitlement
to such indemnification or advancement of Expenses. Alternatively, Indemnitee,
at Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 8.02. The Company shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
8.03 De Novo Review. In the event that a determination shall have
been made pursuant to Article VI of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Article VIII shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. In any such proceeding or arbitration, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
8.04 Company Bound. If a determination shall have been made or
deemed to have been made pursuant to Article VI of this Agreement that
Indemnitee is entitled to indemnification, the
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<PAGE> 9
Company shall be bound by such determination in any judicial proceeding or
arbitration absent (i) a misstatement by Indemnitee of a material fact, or any
omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law.
8.05 Procedures Valid. The Company shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Article VIII that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such Court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
8.06 Expenses of Adjudication. In the event that Indemnitee,
pursuant to this Article VIII, seeks a judicial adjudication of or an award in
arbitration to enforce Indemnitee's rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses in Section 1.06 of this
Agreement) actually and reasonably incurred by Indemnitee in such adjudication
or arbitration, but only if Indemnitee prevails therein. If it shall be
determined in such adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of Expenses
sought, the expenses incurred by Indemnitee in connection with such adjudication
or arbitration shall be appropriately prorated.
ARTICLE IX
Non-Exclusivity, Insurance, Subrogation
9.01 Non-Exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-Laws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration, rescission or replacement of this Agreement or any
provision hereof shall be effective as to Indemnitee with respect to any action
taken or omitted by such Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration, rescission or replacement.
9.02 Insurance. The Company may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.
9.03 Subrogation. In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
9.04 No Duplicative Payment. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement, Certificate of
Incorporation, By-Laws or otherwise.
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<PAGE> 10
ARTICLE X
General Provisions
10.01 Successors and Assigns. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's legal representatives, heirs, executors and
administrators.
10.02 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including
without limitation, each portion of any Section of
this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not
itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, each
portion of any Section of this Agreement containing
any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
10.03 No Adequate Remedy. The parties declare that it is impossible
to measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that the other party has an adequate remedy at law,
and such party shall not urge in any such action or proceeding the claim or
defense that the other party has an adequate remedy at law.
10.04 Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.05 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
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<PAGE> 11
10.06 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, (ii) sent by prepaid
commercial overnight courier, or (iii) mailed by certified or registered mail
with postage prepaid, on the third business day after the date on which it is so
mailed:
If to Indemnitee, to: As shown with Indemnitee's
Signature below.
If to the Company, to: Connected Corporation
24 Prime Parkway
Natick, MA 01760
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
10.07 Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
CONNECTED CORPORATION
By: ___________________________
Name:
Title:
INDEMNITEE
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
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<PAGE> 1
Exhibit 10.2
AGREEMENT
AGREEMENT by and between Connected Corporation, a Delaware corporation
(the "Company"), and _____________ (the "Executive"), dated as of the _______
day of _______________, __________.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall be the first date during the "Change of
Control Period" (as defined in Section 1(b)) on which a Change of Control
occurs. Anything in this Agreement to the contrary notwithstanding, if the
Executive's employment with the Company is terminated or the Executive ceases to
be an officer of the Company prior to the date on which a Change of Control
occurs, and it is reasonably demonstrated that such termination of employment
(1) was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (2) otherwise arose in connection
with or in anticipation of the Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior to the date
of such termination of employment.
(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the fifth anniversary of such date; provided, however that
commencing on the date four years after the date hereof, and on each fifth year
anniversary of such date (such date and each fifth year anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended without any further action by the Company or the
Executive so as to terminate five years from such Renewal Date; provided,
however, that if the Company shall give notice in writing to the Executive, at
least sixty days prior to the Renewal Date, stating that the Change of Control
Period shall not be extended, then the Change of Control Period shall expire
five years from the last effective Renewal Date.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
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<PAGE> 2
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more
of the then outstanding shares of stock of the Company entitled to vote in the
election of directors (the "Outstanding Company Common Stock"), whether in one
transaction or in multiple transactions which in the aggregate equal or exceed
thirty percent (30%) of the Outstanding Company Common Stock; provided, however,
that (i) any acquisition by the Company or its subsidiaries, or any employee
benefit plan (or related trust) of the Company or its subsidiaries of thirty
percent (30%) or more of Outstanding Company Common Stock shall not constitute a
Change of Control; (ii) any acquisition by any individual, entity or group of
beneficial ownership of thirty percent (30%) or more but less than forty percent
(40%) of the Outstanding Company Common Stock may be deemed unanimously by the
Board as it is constituted as of the date of this Agreement (the "Incumbent
Board"), excluding any members of the Incumbent Board affiliated with the
acquiror, to not constitute a Change of Control, in the Incumbent Board's sole
and absolute discretion; and (iii) any acquisition by a corporation with respect
to which, following such acquisition, more than fifty percent (50%) of the then
outstanding shares of common stock of such corporation, is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of the Outstanding Company Common
Stock immediately prior to such acquisition in substantially the same proportion
as their ownership, immediately prior to such acquisition, of the Outstanding
Company Common Stock, shall not constitute a Change of Control; or
(b) Individuals who, as of the date of this Agreement, constitute the
members of the Incumbent Board cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date of this Agreement whose election or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office was or is in connection with any solicitation, subject to Rules 14a-3 to
14a-15 of the Exchange Act, by any person or group of persons for the purpose of
opposing a solicitation, subject to Rules 14a-3 to 14a-15 of the Exchange Act,
by any other person or group of persons with respect to the election or removal
of directors at any annual or special meeting of stockholders; or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock immediately prior to such
reorganization, merger or consolidation will not, following such reorganization,
merger or consolidation, beneficially own, directly or indirectly, more than 50%
of the then outstanding shares of common stock of the corporation resulting from
such a reorganization, merger or consolidation, other than a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as such term is used in Sections
13(d)
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<PAGE> 3
and 14(d) of the Exchange Act) acquires 30% or more of Outstanding Company
Common Stock; or (ii) the sale or other disposition of all or substantially all
of the assets of the Company, excluding a sale or other disposition of assets to
a subsidiary of the Company and excluding a sale or license of a portion of the
business of the Company which is deemed by the Incumbent Board, acting in its
sole and absolute discretion, to not constitute a Change of Control.
Anything in this Agreement to the contrary notwithstanding, if an event that
would, but for this paragraph, constitute a Change of Control results from or
arises out of a purchase or other acquisition of the Company, directly or
indirectly, by a corporation or other entity in which the Executive has a
greater than ten percent (10%) direct or indirect equity interest, such event
shall not constitute a Change of Control.
3. Employment Period. Subject to the terms and conditions hereof, the
Company hereby agrees to continue the Executive in its employ for the period
commencing on the Effective Date and ending on the last day of the twelfth month
following the month in which the Effective Date occurs (the "Employment
Period"). The Executive hereby agrees to remain in the employ of the Company for
the period commencing on the Effective Date and ending on the last day of the
sixth month following the month in which the Effective Date occurs (the "Six
Month Period").
4. Terms of Employment.
(a) Position and Duties.
(i) Except as provided in Section 4(c) below, during the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned at any time during the one hundred eighty-day
period immediately preceding the Effective Date and (B) the Executive's services
shall be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than thirty-five
miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote his or her full business time to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
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<PAGE> 4
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid at a
biweekly rate, at least equal to twelve times the highest monthly base salary
paid or payable to the Executive by the Company at any time during the
[twelve-month] period immediately preceding the month in which the Effective
Date occurs. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the average annualized (for
any fiscal year consisting of less than twelve full months or with respect to
which the Executive has been employed by the Company for less than twelve full
months) bonus (the "Average Annual Bonus") paid or payable to the Executive by
the Company in respect of the lesser of the three fiscal years immediately
preceding the fiscal year in which the Effective Date occurs or the number of
full fiscal years for which the Executive has been employed by the Company
immediately preceding the fiscal year in which the Effective Date occurs. Each
such Annual Bonus shall be paid no later than the end of the second month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus pursuant to deferral plans of the Company.
(iii) Incentive, Savings and Retirement Plans. In addition to
Annual Base Salary and Annual Bonus payable as hereinabove provided, the
Executive shall be entitled to participate during the Employment Period in all
incentive, savings and retirement plans, practices, policies and programs
applicable to other peer executives of the Company, but in no event shall such
plans, practices, policies and programs provide the Executive with incentive,
savings and retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the Company for the
Executive under such plans, practices, policies and programs as in effect at any
time during the one-year immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs) and applicable to other peer executives of the Company, but in no
event shall such plans, practices, policies and programs provide benefits which
are less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect at any time during the one-year
period immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive
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<PAGE> 5
in the conduct of the Company's business upon submission of appropriate
accountings in accordance with the most favorable policies, practices and
procedures of the Company in effect at any time during the one-year period
immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Company in effect at any time
during the one-year period immediately preceding the Effective Date. If at the
end of the Employment Period, the Company elects not to continue to employ
Executive for reasons other than for Cause, death or Disability, or if the
Executive shall terminate employment hereunder for Good Reason, the Company will
provide to Executive up to $15,000 in fees paid for out-placement assistance.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Executive by
the Company at any time during the one-year period immediately preceding the
Effective Date.
(viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company as in effect at any time during
the one-year period immediately preceding the Effective Date.
(c) Six Month Period. Notwithstanding anything to the contrary in this
Section 4, during the Six Month Period, the Company's obligations under this
Agreement are limited to employing the Executive in any capacity reasonably
assigned to Executive by the Company to assist in the transition caused by the
Change of Control at the location where the Executive was employed immediately
preceding the Effective Date or at any office or location less than thirty-five
miles from such location and providing to the Executive compensation and
benefits, as set forth in Section 4(b) hereof in accordance with the most
favorable plans, practices, policies and programs provided by the Company for
the Executive as in effect at any time during the one-year period immediately
preceding the Effective Date.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
"Disability" set forth below), it may give to the Executive written notice in
accordance with Section 10(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the thirtieth day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the thirty days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" means the absence of the Executive from the Executive's duties with
the Company on a full-time basis for an aggregate of 180 days during any 12
month period as a result of incapacity due to mental or physical illness which
is
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<PAGE> 6
determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for "Cause". For purposes of this Agreement, "Cause" means
(i) an act or acts of personal dishonesty taken by the Executive and intended to
result in substantial personal enrichment of the Executive at the expense of the
Company, (ii) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad faith or without
reasonable belief that such violations are in the best interests of the Company
and which are not remedied in a reasonable period of time after receipt of
written notice from the Company or (iii) the conviction of the Executive of a
felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" means:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any failure by the Company to fulfill its obligations to the
Executive during the Six Month Period, as set forth in Section 4(c) of this
Agreement, other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iv) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof;
(v) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(vi) any failure by the Company to comply with and satisfy Section
9(c) of this Agreement.
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<PAGE> 7
Notwithstanding the foregoing, during the Six Month Period, "Good Reason"
shall mean (iii), (iv), (v) or (vi) above only. For purposes of this Section
5(c), any good faith determination of "Good Reason" after the Six Month Period
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause or
without Cause or by the Executive for Good Reason shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
10(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, if applicable, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated, and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen days after the giving of such
notice). The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be; provided however, that (i) if the Executive's employment is
terminated by the Company other than by reason of death or Disability, the Date
of Termination shall be the date on which the Company notifies the Executive of
such termination and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date of death of
the Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than payment of the sum of the following amounts: (i) the
Executive's Annual Base Salary through the Date of Termination to the extent not
theretofore paid, (ii) the product of (A) the greater of (x) the Annual Bonus
paid or payable (and annualized for any fiscal year consisting of less than
twelve full months or for which the Executive has been employed for less than
twelve full months) to the Executive for the Company's most recently completed
fiscal year, and (y) the Average Annual Bonus and (B) a fraction, the numerator
of which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365, and (iii) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued bonus amounts or vacation pay, in each case,
to the extent not yet paid by the Company (the amounts described in
subparagraphs (i), (ii), and (iii) are hereafter referred to as "Accrued
Obligations" and shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within sixty days of the Date of Termination.
Anything herein to the contrary notwithstanding, the Executive's family shall be
entitled to receive benefits at least equal to the most favorable benefits
provided by the Company to surviving families of peer executives of the Company
under such plans, programs, practices and policies relating to family
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<PAGE> 8
death benefits, if any, as in effect with respect to other peer executives and
their families at any time during the one-year period immediately preceding the
Effective Date.
(b) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations of the Company to the Executive, other
than for payment of the Accrued Obligations (which shall be paid in a lump sum
in cash within sixty days of the Date of Termination). Anything herein to the
contrary notwithstanding, the Executive shall be entitled after the Disability
Effective Date to receive disability and other benefits at least equal to the
most favorable of those provided by the Company to disabled executives and/or
their families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect with respect to other peer
executives and their families at any time during the one-year period immediately
preceding the Effective Date.
(c) Cause, Other than for Good Reason. If the Executive's employment
shall be terminated by the Company for Cause or by the Executive other than for
Good Reason (and other than by reason of his death or Disability) during the
Employment Period, this Agreement shall terminate without further obligations of
the Company to the Executive other than the obligation to pay to the Executive
Annual Base Salary through the Date of Termination, plus the amount of any
compensation previously deferred by the Executive and any accrued and awarded
bonus amounts or vacation pay, in each case, to the extent theretofore unpaid.
In such case, such amounts shall be paid to the Executive in a lump sum in cash
within thirty days of the Date of Termination, except that accrued and awarded
bonus amounts, if any, shall be paid as previously scheduled at the time of the
award. The Executive shall, in such event, also be entitled to any benefits
required by law that are not otherwise provided by this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment other
than for Cause, death or Disability, or if the Executive shall terminate
employment under this Agreement for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within thirty days after the Date of Termination the aggregate of the following
amounts:
A. all Accrued Obligations; and
B. the amount (such amount shall be hereinafter referred to as the
"Severance Amount") equal to one year of Annual Base Salary.
(ii) the Company shall timely pay and provide, for eighteen months
from the Date of Termination, medical benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided in
accordance with the applicable plans (including the Company's 401(k), match and
profit-sharing plans), programs, practices and policies described in Section
4(b)(v) of this Agreement as if the Executive's employment had not been
terminated in accordance with the most favorable plans, practices, programs or
policies of the Company as in effect and
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<PAGE> 9
applicable generally to other peer executives and their families during the one
year period immediately preceding the Effective Date, provided, however, that if
the Executive becomes re-employed with another employer and is eligible to
receive medical and dental benefits under another employer provided plan, the
medical and dental benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility and
provided, further, that if any Company plan would not allow Executive to
participate, the Company shall provide to Executive comparable tax-adjusted
payments of an equivalent amount; and
(iii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive and/or the Executive's family any
other amounts or benefits required to be paid or provided or which the Executive
and/or the Executive's family is eligible to receive pursuant to this Agreement
and under any plan, program, policy or practice or contract or agreement of the
Company as in effect and applicable generally to other peer executives of the
Company and their families, including up to $15,000 in fees paid for
out-placement assistance (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
7. Nonexclusivity of Rights. Except as provided in Section 6, nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans, programs,
policies or practices, provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as the
Executive may have under any other agreements with the Company. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of the Company at or subsequent to
the Date of Termination shall be payable in accordance with such plan, policy,
practice or program except as explicitly modified by this Agreement.
8. Full Settlement.
(a) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(d)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement, unless a court of competent
jurisdiction determines that the Executive made such effort in bad faith), plus
in each case interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
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<PAGE> 10
(b) If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(d) as though such termination were by the Company without Cause, or by the
Executive with Good Reason; provided, however, that the Company shall not be
required to pay any disputed amount pursuant to this paragraph except upon
receipt of an undertaking by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
9. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
In addition, Executive's outstanding stock options or stock appreciation rights
of the Company will continue to vest in accordance with their terms during the
period from the Effective Date until the Date of Termination. The Executive
shall be entitled, upon exercise of any such outstanding stock options or stock
appreciation rights of the Company, to receive in lieu of shares of the
Company's stock, shares of such stock or other securities of such successor as
the holders of shares of the Company's stock received pursuant to the terms of
the merger, consolidation or sale.
10. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
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<PAGE> 11
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
____________________
____________________
____________________
If to the Company:
Connected Corporation
24 Prime Parkway
Natick, MA 01760
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision thereof.
(f) This Agreement contains the entire understanding of the Company and
the Executive with respect to the subject matter hereof and by entering into
this Agreement the Executive waives all rights he or she may have under the
Company's separation policy, provided that if the Company's separation policy
would provide greater benefits to the Executive than this Agreement, then the
Executive may elect to receive benefits under the Company's separation policy in
lieu of the benefits provided hereunder.
(g) The Executive and the Company acknowledge that prior to the
Effective Date and following the end of the Employment Period, the employment of
the Executive by the Company is "at will" and may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date,
the Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement. Notwithstanding anything contained
herein, if, during the Employment Period, the Executive shall terminate
employment with the Company other than for Good Reason, the Executive shall have
no liability to the Company.
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<PAGE> 12
(h) As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
IN WITNESS WHEREOF, the Executive has hereunto set his or her hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
CONNECTED CORPORATION
By:________________________________
Name:
Title:
EXECUTIVE
___________________________________
_________________________
<PAGE> 1
Exhibit 10.3
SUBLEASE
THIS SUBLEASE AGREEMENT ("Sublease") is made on this 11th day of October,
1999, and between THE MATHWORKS, INC., a California corporation (hereinafter
called "Sublandlord"), and CONNECTED CORPORATION, a Delaware corporation
(hereinafter called "Subtenant').
Reference is made to a Lease Agreement (hereinafter "Prime Lease"), dated
May 16, 1997, between Sublandlord, as tenant, and LMF Cochituate Corp., a
Massachusetts corporation, as landlord (hereinafter called "Prime Landlord"),
for approximately 102,398 square feet on the first, second, third, fourth, fifth
and basement floors located in the building commonly known as Cochituate Place,
24 Prime Parkway, Natick, Massachusetts ("Building") together with the right to
use in common with others the common areas of the Building, all as more
particularly described in the Prime Lease (hereinafter "Premises").
WHEREAS, the Sublandlord and Subtenant have agreed that Sublandlord will
sublet to Subtenant a portion of the Premises consisting of approximately 22,352
square feet located on the fourth (4th) floor of the Building ("Subleased
Premises ) more particularly described in Exhibit A attached hereto and made a
part hereof; and
WHEREAS, Sublandlord and Subtenant hereby execute and deliver this Sublease
upon the condition precedent of obtaining the Prime Landlord's written consent.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and for the mutual covenants
contained herein, the parties agree as follows.
1. LEASE: COMMENCEMENT DATE; EXPIRATION DATE. Sublandlord leases to
Subtenant, and Subtenant leases from Sublandlord the Subleased
Premises, together with any rights, privileges and easements
appurtenant thereto, for the term commencing at noon on November 1,
1999 ("Commencement Date") and ending at noon on October 31, 2001
("Expiration Date").
2. CONDITION OF THE SUBLEASED PREMISES. The Subleased Premises and the
Equipment (as defined below) are leased to Subtenant in their condition
on the date hereof and Sublandlord has made no representations,
warranties or promises with respect to the Subleased Premises or the
suitability thereof for the uses contemplated by this Sublease.
Subtenant agrees to accept possession of the Subleased Premises on the
Commencement Date "as is, in the same condition as it is on the date
hereof, except that the Subleased Premises shall contain no furniture
or equipment and the carpets shall be vacuumed. The Subleased Premises
shall include the UPS Battery Backup System, Leiben Air Conditioning
System and Data Patch Panels currently located in the computer room of
the Subleased Premises (collectively the "Equipment").
<PAGE> 2
3. RENT. The annual base rent shall be $538,906.72 U.S. dollars per year
(based on $22.00 per square foot for rent and $2.11 per square foot for
electricity), drawn on a U.S. bank, payable in advance in equal monthly
installments of $44,908.89 on the Commencement Date and thereafter on
the first day of each calendar month in advance. The cost of HVAC and
nightly cleaning is included in the annual base rent. Rent shall be
prorated for any partial months at the beginning and end of the Lease
term. Rent and all of there charges due hereunder shall be payable
without demand, notice, set-off, or counterclaim at Sublandlord's
address set forth above or at such other places as may be set forth in
notices, from time to time, from Sublandlord to Subtenant.
4. ADDITIONAL RENT. Subtenant agrees to pay as additional rent to
Sublandlord, its proportionate share of the amount by which real estate
and personal property taxes levied or assessed or becoming payable for
or in respect to the Lot on which the Building is located and the
Building and other improvements located on the Lot for each tax period
included in the term and any partial period at the beginning and end
thereof exceed the tax base amount for Fiscal Year 2000 (July 1, 1999
- July 20, 2000). Subtenant's proportionate share is equal to 20.9%.
And, sums payable to Sublandlord under this Paragraph 4 shall be paid
by Subtenant as required under the Prime Lease. Subtenant shall not pay
for escalations in Operating Costs.
5. ELECTRICITY. Subtenant shall have the right, at its expense, to perform
an audit of electricity costs after October 31, 2000. Any such audit
shall be performed by an independent accounting firm. If the audit
demonstrates that electricity costs per square foot is less than $2.11
per square foot, then Sublandlord will request a refund from Prime
Landlord equal to the amount by which rent paid for electricity
exceeded the actual cost thereof, and upon receipt of such refund from
Prime Landlord, Sublandlord shall pay a proportionate share of such
refund to Subtenant. Sublandlord shall not be obligated to pay any
electricity refund to Subtenant under this Section 5 unless Sublandlord
actually receives a refund from Prime Landlord. Subtenant acknowledges
and agrees that Prime Landlord is under no obligation to make such a
refund and that Sublandlord is only obligated to request such a refund
from Prime Landlord.
6. PERSONAL PROPERTY TAXES. Subtenant agrees to pay to local tax
authorities and other governmental agencies throughout the term of this
Sublease all personal property Taxes which may be levied against
Subtenant's merchandise, trade fixtures and other personal property in
and about the Subleased Premises.
7. USE. The Subtenant shall use the Subleased Premises only for general
office use.
8. EARLY ACCESS. Upon execution of this Sublease by Sublandlord and
Subtenant and receipt and delivery to Sublandlord of Prime Landlord's
written consent to this Sublease and to the Tenant Improvement (defined
below), Subtenant shall be permitted access to the Subleased Premises
to commence work on the Tenant Improvements, subject to all of the
provisions of section 13 hereof.
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<PAGE> 3
9. SUBORDINATE TO PRIME LEASE. This Sublease and all of its terms,
covenants, representations, warranties, agreements and conditions are
in all respects subject and subordinate to the Prime Lease, which Prime
Lease has been submitted to and examined by Subtenant. Subtenant
acknowledges notice and full knowledge of all of the terms, covenants
and conditions of the Prime Lease. In the event of any inconsistency
between the provisions of this Sublease and the Prime Lease, Subtenant
agrees that it shall be bound by the stricter provision. A true copy of
the Prime Lease is attached hereto as Exhibit B. Capitalized terms
defined in the Prime Lease and not otherwise defined herein shall have
the meanings as in the Prime Lease. Sublandlord represents that the
Prime Lease is in full force and effect as to the Subleased Premises
and to the best of Sublandlord's actual knowledge, neither Prime
Landlord or Sublandlord is in default beyond any applicable cure period
as of the date of this Sublease.
10. PRIME LEASE. With respect to the Subleased Premises, the terms and
conditions of the Prime Lease arc hereby incorporated by reference and
made a part hereof, meaning that, as applicable, references to "Tenant"
therein shall be deemed to be "Subtenant" hereunder, references to
"Landlord" therein shall be deemed to be "Sublandlord" hereunder, and
such other terms shall be deemed modified as may be appropriate in the
given context, provided (i) Prime Landlord shall continue to have all
rights set forth in the Prime Lease (notwithstanding the fact that
Sublandlord shall also have the same rights under this Sublease), and
(ii) Sublandlord shall not be deemed to have assumed any of the
obligations of Prime Landlord as a result of the incorporation of the
Prime Lease.
11. SUBTENANT OBLIGATIONS UNDER PRIME LEASE. For so long as the Prime Lease
remains in full force and effect, Subtenant agrees to perform,
fulfill, and observe all of the covenants, agreements, obligations,
conditions, representations, warranties, terms and provisions imposed
upon Sublandlord as tenant of the Subleased Premises under the Prime
Lease except for the amount of rent and charges which shall be governed
by Sections 3 and 4 of the Sublease. Subtenant agrees to indemnify and
hold Sublandlord harmless from and against all claims, liabilities,
losses and damages of any kind whatsoever which Sublandlord may incur
by reason of Subtenant's failure to perform, fulfill or observe any of
the covenants or agreements set forth herein or the applicable
provisions set forth in the Prime Lease.
12. TERMINATION. This Sublease shall terminate upon the termination of the
Prime Lease for any reason whatsoever, without any liability therefor
on the part of Sublandlord to Subtenant with the same force and effect
as if the date of such termination had been provided expressly in this
Sublease as the day of the expiration hereof.
13. ALTERATIONS. Notwithstanding the Prime Lease. Subtenant shall not make
any structural alterations or additions to the Subleased Premises nor
make any alterations or additions affecting basic building systems
without (a) the prior written consent of Sublandlord, which consent
shall not be unreasonably withheld
3
<PAGE> 4
or delayed, and (b) the consent of Prime Landlord as provided in the
Prime Lease. Any alterations made by Subtenant (including, without
limitation, the Tenant Improvements), are subject to the terms and
conditions set forth below:
(i) Subtenant shall cause such work to be completed in good and
workmanlike manner and in compliance with any and all applicable federal,
state or local laws, codes, ordinances, rules and regulations, including,
but not limited to, any demolition, building, zoning, health and
environmental laws, codes or ordinances, rules and regulations;
(ii) Subtenant shall at all times remain responsible for the actions of
its consultants, representatives, employees, agents, contractors and
subcontractors and any other parties responsible for any portion of the
work;
(iii) Subtenant shall not create or suffer or permit any lien, charge
or encumbrance to attach to or be filed against the Subleased Premises,
including, but not limited to, any mechanics' lien, materialmen's lien or
other claims for lien made by parties claiming to have provided labor or
material to the Subleased Premises;
(iv) Subtenant shall indemnify and hold Sublandlord harmless from and
against any and all losses, damages, costs (including costs of suits and
attorneys' fees), liabilities or causes of action arising out of or
relating to the work;
(v) Subtenant shall remain in substantial compliance with all of the
terms of this Sublease and shall not be in default hereunder, unless
Subtenant has the right to and is proceeding to cure such default;
(vi) Subtenant shall and does hereby indemnify and hold Sublandlord
harmless from any and all claims, damages and liability to Prime Landlord
in connection with or resulting from the making, use, maintenance or
removal of trade fixtures and trade equipment from the Subleased Premises
to the extent permitted in the Prime Lease; and
(vii) Notwithstanding the foregoing, and provided Subtenant obtains the
express written consent of the Prime Landlord in accordance with the Prime
Lease, Sublandlord agrees to the alterations to be performed by Sublessee
attached hereto as Exhibit C ("Tenant Improvements").
14. ASSIGNMENT AND SUBLETTING. Subtenant shall not assign or sublease this
Sublease without the prior written consent of Sublandlord and the prior
written consent of Prime Landlord as provided in the Prime Lease.
15. COMPLIANCE WITH LAW. Subtenant shall comply with all statutes,
ordinances, rules, orders, regulations or requirements, including
environmental regulations, which must be complied with due to
Subtenant's operations or use of the Subleased Premises.
16. CASUALTY AND CONDEMNATION. Sublandlord shall have no obligation to
repair or restore the Subleased Premises, whether in the event of fire
or casualty or otherwise, and Sublandlord shall have no obligation to
Subtenant if all or pan of
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<PAGE> 5
the Subleased Premises are taken in condemnation or by eminent domain
proceedings. To the extent that Sublandlord obtains compensation from Prime
Landlord in the event of condemnation or eminent domain proceedings, Subtenant
shall be entitled to a proportionate share of such compensation based on the
square footage of the Subleased Premises.
17. INSURANCE. Subtenant shall maintain, throughout the term hereof at its
sole cost and expense, insurance identical in all respects to that
required to be carried by Sublandlord under the Prime Lease. The
aforesaid insurance shall (i) be written by companies licensed to do
business in Massachusetts and reasonably acceptable to Sublandlord;
(ii) not be subject to cancellation, amendment or modification except
after at least thirty (30) days prior written notice to Sublandlord,
and (iii) name Sublandlord and Prime Landlord as additional insurers.
The original insurance policies (or certificates of insurance
reasonably satisfactory to Sublandlord) together with satisfactory
evidence of payment of the premiums thereon, shall be deposited with
Sublandlord prior to the commencement of the term of this Sublease and
renewals thereof shall be deposited with Sublandlord not less than
thirty (30) days prior to the end of the term of such coverage.
18. PRIME LANDLORD'S CONSENT CONTINGENCY. This Sublease is contingent upon
obtaining Prime landlord's written consent to all of the terms and
conditions of this Sublease including, without limitation, Prime
Landlord's consent to the Tenant Improvements. In the event Prime
Landlord's consent as described above is not received within seven (7)
business days of the execution of this Sublease, Subtenant shall have
the option to terminate this Sublease and Sublandlord shall return the
security deposit to Subtenant.
19. HOLDING OVER. If Subtenant remains on the Subleased Premises after the
expiration of the term of this Sublease or after any earlier
termination provided for herein, then such holding over shall not be
deemed to extend or renew the term of this Sublease or to create any
tenancy at will, but such holding over shall be as a
tenancy-at-sufferance only subject to all the terms and provisions of
this Sublease. In addition, Subtenant shall indemnify and hold harmless
Sublandlord from and against all liability, damages, and claims
incurred by Sublandlord in connection with the holding over of
Subtenant including, without limitation, any liability of Sublandlord
to Prime Landlord. Notwithstanding the foregoing, Sublandlord may, at
its option, regain possession of the Subleased Premises or any part
thereof by any and all means available to Sublandlord under this
Sublease, the Prime Lease, or at law. Subtenant shall not be deemed to
be holding over under the provisions of this Sublease in the event
that:(a) Subtenant has exercised its option to lease the Subleased
Premises from Prime Landlord and (b) has entered into a valid and
legally binding lease of all of the Subleased Premises with Prime
Landlord for a term commencing on November 1, 2001.
20. ATTORNMENT. Subtenant agrees (a) to attorn to Prime Landlord in the
event of a termination of the Prime Lease, and (b) that if Prime
Landlord succeeds to the interest of Sublandlord under this Sublease,
in no event shall Prime Landlord be
5
<PAGE> 6
(i) liable for any act or omission of Sublandlord; (ii) liable for the
return of any security deposit unless Prime Landlord is holding the
same; (iii) subject to any offsets or defenses which Subtenant may have
against Sublandlord; or (iv) bound by any rent or additional rent which
such Subtenant may have prepaid for more than the current month.
21. SECURITY DEPOSIT. Sublessee shall pay Sublandlord a security deposit
of Eighty-One Thousand Nine Hundred Fifty-Seven Dollars Thirty Four
Cents ($81,957.34) concurrently with the execution of this Sublease.
22. BROKERAGE REPRESENTATIONS. Sublandlord and Subtenant represent and
warrant that they have had no dealings with any broker in connection
with this Sublease other than Garry Holmes of R.W. Holmes Realty Co.,
Inc. and Joseph F. Sciolla of Cresa Partners and will indemnify and
hold harmless each other from and against any loss or expense suffered
by either party as a result of such dealings with any other broker or
agent.
23. NOTICES. Any notice required hereunder shall be deemed to have been
given if delivered Certified Mail, Return Receipt Requested, or by
overnight courier such as Federal Express, to:
If to Prime Landlord:
LMF Cochituate Corp.
182 West Central Street
Natick, Massachusetts 01760
Attention: Lou Franchi
If to Sublandlord:
The Mathworks, Inc.
24 Prime Parkway
Natick, Massachusetts O1760
Attention: Jeanne O'Keefe
With a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Thomas Schnorr, Esq.
If to Subtenant:
Connected Corporation
24 Prime Parkway
4th Floor
Natick, Massachusetts 01760
Attention: Carl Lazarus
Any party may change its address for notice by notifying the other parties
as aforesaid.
6
<PAGE> 7
24. NO PARTNERSHIP. Sublandlord shall not be held to be a partner, joint
venturer, or associate of Subtenant in the conduct of its business, it
being expressly understood and agreed that the relationship between
the parties hereto is and at all times shall remain that of Sublandlord
and Subtenant.
25. ENTIRE AGREEMENT. All prior understandings and agreements between the
parties are merged within this Sublease, which alone fully and
completely sets forth the understanding of the parties, and this
Sublease may not be changed or terminated orally or in any manner other
than by an agreement will writing and signed by the party against whom
enforcement of the change or termination is Sought.
26. BINDING EFFECT. The covenants and agreements herein contained shall
bind and inure to the benefit of Sublandlord and Subtenant and their
respective successors and assigns.
27. GOVERNING LAW. The Sublease and all rights and remedies thereunder
shall be - governed by the law of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF the parties hereto set their hands and seals this 11th
day of October, 1999.
ATTEST:
___________________________________
Treasury Manager
SUBLANDLORD:
THE MATHWORKS, INC.
By: ________________________________
Its: _______________________________
ATTEST:
____________________________________
SUBTENANT:
CONNECTED CORPORATION
By:_________________________________
Its:________________________________
7
<PAGE> 8
EXHIBIT A
SUBLEASED PREMISES
<PAGE> 9
EXHIBIT B
PRIME LEASE
The Mathworks, Inc.
Three Apple Hill
Natick, MA 01760
Attn: Jeanne O'Keefe
<PAGE> 10
EXHIBIT C
TENANT IMPROVEMENTS
1. Enclose approximately 850 ft. sq. of open space at the west end of the
floor, to make a company meeting room/lunchroom. Install a sink, refrigerator,
dishwasher, and 2 microwave ovens. Walls will be built up to, but not through,
the existing suspended ceiling. There will be a north and a south doorway to
this room from the existing corridor.
2. Expand the existing computer room by combining it with the two rooms
adjacent to it on its north side. These rooms were once part of the computer
room, so the alteration is primarily the removal of walls that were added a few
years ago. The existing raised flooring will be continued into the expanded
area.
3. Expand the existing tech support lab by combining it with the two rooms
adjacent to it on its east side. Add a dedicated air conditioning unit.
4. Create a reception area inside the tenant space at the south-side
entrance from the elevator area. The existing open space inside the tenant area
(formerly used for copying) will be enlarged by removing the adjacent office on
its west side. A non-structural wall will be added behind a reception desk that
will face the existing entrance.
<PAGE> 11
SUBTENANT'S OPTION TO EXTEND
Subtenant (Connected Corporation) shall have the right, exercisable no more than
one (1) time and provided Subtenant is not in default, beyond any applicable
notice, grace or cure period, at either time of exercise or upon the original
Termination Date to extend the Termination Date for the fourth floor premises of
22,352 rentable square feet in the building commonly known as Cochituate Place,
24 Prime Park Way, Natick, Massachusetts for a period of five (5) additional
years (November 1, 2001 - October 31, 2006) at the then Fair Market Rent, as
determinated below but in no event less that $24.00 per rentable square square
foot. Subtenant must exercise their extention on option in writing on or before
November 1, 2000.
Fair Market Rent shall be determined as follows: Landlord and Subtenant shall
agree on the then prevailing Fair Market Rent within fifteen (15) days of
Landlord's receipt of Subtenant's notice of extension. If the parties are unable
to reach agreement on the then prevailing Fair Market Rent by such date then
Subtenant shall have the right to rescind its notice of extension by delivering
to Landlord within five (5) business days thereafter written notice or
rescission of Subtenant's exercise of its option to extend. In the event
Landlord and Subtenant cannot agree upon the then prevailing Fair Market Rent,
and Subtenant has not so rescinded its notice of extension, the following
procedure shall be followed. Each will select an appraiser or commercial real
estate broker with five or more years experience in the Natick rental market who
will jointly determine the market rent. If the appraisers and/or brokers so
selected cannot agree upon the market rent within twenty-one (21) days of their
selection, the appraisers and/or brokers so named shall select a third
similarly qualified appraiser or broker and the decision as to the market rent
of any two of the appraisers and/or brokers, so selected shall bind the parties.
Both Subtenant and Landlord understand that the option to extend is subject to
the following: 1) review of Subtenant's financials and a mutually agreeable
security deposit, and 2) a mutually agreeable lease which must be executed by
December 15, 2000.
LANDLORD: LMF COCHITUATE CORP.
BY: ________________________________
PASCUALE FRANCHI, PRESIDENT
SUBTENANT: CONNECTED CORPORATION
BY:_________________________________
NAME: CARL LASGRAW
TITLE: VICE PRESIDENT, OPERATIONS
DULY AUTHORIZED
<PAGE> 12
LEASE AGREEMENT
This Lease Agreement made this 16th day of May, 1997, by LMF COCHITUATE
CORP., a Massachusetts corporation (hereinafter called "Landlord") and THE
MATHWORKS, INC., a California corporation with its principal office located at
24 Prime Park Way, Natick, Massachusetts 01760 (hereinafter called "Tenant").
This Lease Agreement is intended to supersede and replace a prior Lease dated
November 30, 1990, as amended, entered into by Tenant regarding a portion of
the Premises of the Building, as hereinafter defined. Accordingly, upon
execution and delivery of this Lease Agreement by both parties the terms and
provision of the prior Lease shall be deemed superseded by the terms and
provisions hereof, which in the event of any inconsistency shall control.
WITNESSETH THAT
In consideration of the rent and covenants herein set forth and
contained, on the part of Tenant to be paid, performed and observed, Landlord
does hereby demise and lease unto Tenant a total of 102,398 square feet, subject
to adjustment as set forth in Exhibit A, on the first, second, third, fourth,
fifth and basement floors (hereinafter called the "Premises") in the Building
commonly known as Cochituate Place, 24 Prime Parkway, Natick, Massachusetts (the
"Building") containing approximately 107,000 square feet, located on a parcel
of land containing approximately 4.53 acres of land (the "Lot"), together with
the right to use in common with Landlord and others from time to time entitled
thereto the appurtenances to the Building, the common areas and facilities of
the Building, the parking spaces and the Lot, including the right to use in
common the roads, driveways and utilities serving or adjacent to the Building or
the Lot (hereinafter collectively called the "Property").
The Premises are outlined on Exhibit B attached and made a part hereof.
The Lot is described in Exhibit C attached and made a part hereof.
ARTICLE I
TERM
To have and to hold the Premises for the various terms (the "Terms") as
set forth in Exhibit A, subject to the right to extend the Terms as specified in
Section 11.1. The parties acknowledge that the Terms commence at 12:01 a.m. on
the various commencement dates set forth in Exhibit A (the "Commencement Dates")
and shall end at 11:59 p.m. on the various extended term termination dates set
forth in Exhibit A (the "Termination Dates").
ARTICLE II
PAYMENT OF RENT
Tenant covenants and agrees with Landlord to pay as rent during the term
hereof and so long thereafter as Tenant or anyone claiming under Tenant occupies
the Premises:
2.1 BASE RENT. Base Rent at the annual rates set forth in Exhibit A payable
in monthly installments as set forth in Exhibit A on the first day of each month
in advance commencing on the
<PAGE> 13
Commencement Date. In the event there is any partial month at the beginning
or end of the term, the monthly rent for such partial month will be adjusted
proportionately.
2.2 ADDITIONAL RENT. Tenant shall pay as additional rent to Landlord, at
least thirty (30) days before the same are due to the Town of Natick, Tenant's
proportionate share of the amount by which real estate and personal property
taxes levied or assessed or becoming payable for or in respect to the Lot on
which the Building is located and the Building and other improvements located on
the Lot for each tax period included in the term and any partial period at the
beginning and end thereof exceed the tax base amount ("Tax Base") set forth on
Exhibit D, which shall be the amount of such taxes for Fiscal Year 1996.
If at any time during the term, under the Laws of the United States of any
state or political subdivision thereof in which the Premises are situated, there
shall be adopted some other method of taxation on real estate as a substitute in
whole or in part for taxes on real estate as now constituted such as tax on the
fixed rent, additional rent or the other charges payable by Tenant hereunder by
whatever names called which is levied, assessed or imposed against Landlord or
the rent or other charges payable hereunder to Landlord (which substitute tax on
the fixed rent, additional rent, or other charges or other substitute method of
taxation are hereinafter collectively referred to as "Substitute Taxes"),
Tenant, to the extent that such Substitute Taxes are means of raising revenue
from or with respect to the Premises, shall pay to Landlord within thirty (30)
days after notice from landlord, Tenant's proportionate share of Substitute
Taxes in excess of the Tax Base as soon as the same shall become due and
payable. In the event that any such Substitute Taxes shall be based upon the
income of Landlord, then Tenant's obligation with respect to the aforesaid
Substitute Taxes shall be limited to the amount thereof as computed at the rates
that would be payable if the same were the sole taxable net income of Landlord
but without deduction or provision for any deductions, exemptions or credits to
which Landlord may be entitled in computing the tax, Landlord would so bear on
account of the fixed rent, additional rent or other charges then due or
thereafter becoming due from Tenant for the taxable period under the terms of
this Lease, all as if Landlord were not entitled to any such deductions,
exemptions or credits. Provided, however, that the taxation of Landlord's income
by the United States and the Commonwealth of Massachusetts, presently referred
to as the "Federal Income Tax" and "State Income Tax" or similar methods of
taxation, including any local income taxes, are not intended to be herewith appl
icable and are specifically excluded.
2.2.1. Tenant shall pay as additional rent to Landlord, Tenant's
proportionate share of each installment of any public, special or betterment
assessment levied or assessed or becoming payable for or in respect of the Lot
or Building, or both for each installation period wholly included in the term,
and, for any fraction of an installment period included in the term at the
beginning or end thereof, provided only in the case of each respective
assessment that Landlord shall have elected to pay such assessment in
installments over the longest period permitted by law and not otherwise.
Landlord hereby represents to Tenant that to the best of its knowledge, there
are no such special assessments pending or threatened at the date hereof.
2.2.2. If Tenant deems itself aggrieved by any assessment as to which
Tenant is required to pay under Subsections 2.2. or 2.2.1. hereof, Tenant may at
Tenant's expense, without delaying the payment of such assessment beyond the
extent permitted by law or otherwise bonding the obligation in an manner
reasonably acceptable to Landlord, seek an abatement thereof, and Landlord shall
cooperate with Tenant
<PAGE> 14
to the extent reasonably necessary to enable Tenant to do so. If such abatement
is granted the parties hereto shall be reimbursed for reasonable expenses
incurred in connection with such abatement proceedings, and Tenant's obligation
for such taxes and assessments shall be thereafter adjusted in accordance with
the remaining balance of the abatement.
All taxes levied on the personal property of Tenant shall be the
obligation and be paid by Tenant whether the same is assessed to Tenant or
Landlord and whether the same shall be considered part of the realty or
personalty and further that Tenant agrees to indemnify, and hold harmless the
Landlord from any loss, damage, debt or claim resulting therefrom.
2.2.3. INSURANCE. Tenant shall provide Commercial General Liability
Insurance indemnifying Landlord and Tenant against all claims and demands for
any injury to person or property which may be claimed to have occurred on the
Premises or on the sidewalks or ways adjoining the Premises, in amounts which
shall, at the beginning of the term, be not less than 100% replacement for
property damage, $2,000,000 for injury or death of one person and $2,000,000 for
injury or death of more than one person in any single accident, and, from time
to time during the term, shall be in such higher amounts, if any, as are
customarily carried in the metropolitan Boston area on property similar to the
Premises and use for similar purposes. Such insurance shall be written by
companies licensed to do business in Massachusetts and be reasonably acceptable
to Landlord. Tenant shall provide Landlord with evidence, reasonably acceptable
to Landlord, of all insurance required in connection with the Premises.
2.2.3.1 Tenant shall pay to Landlord, as a part of excess Operating Costs
as specified in Section 2.2.4., Tenant's proportionate share of the cost to
Landlord of taking out and maintaining throughout the term of this Lease the
following insurance protecting Landlord:
2.2.3.1.1 Fire Insurance with extended coverage in an amount at least
equal to the replacement cost of the Building at the time of loss, and rent loss
insurance protecting Landlord against abatement or loss of rent in an amount
equal to at least all rent and additional rent payable for one year under this
Article II.
2.2.3.1.2 Insurance against loss or damage from sprinklers and from
leakage or explosion or cracking of boilers, pipes carrying steam or water, or
both, pressure vessels or similar apparatus, in the so-called "broad form" and
in such amounts as Landlord may reasonably require. Also, insurance against
other hazards as may from time to time be reasonably required by any bank
insurance company or other lending institution holding a first mortgage on the
Premises, provided that such insurance is customarily carried in the
metropolitan Boston area on property similar to the Premises and used for
similar purposes.
2.2.3.1.3 Policies for insurance required under the provisions of
Subsections 2.2.3.1.1. and 2.2.3.1.2. shall, in the case of loss, be first
payable to the holders Of any mortgages on the Premises and shall be deposited
with the holder of any mortgage on the Premises or with Landlord, as Landlord
may elect. Landlord Reserves the right to provide the insurance required under
Sections 2.2.3.1.1. and 2.2.3.1.2 or insurance in substitution acceptable to
Landlord through a blanket policy and Tenant agrees to pay an allocated portion
of the costs of such blanket policy; provided, however, in such event, Tenant
shall have the right to procure at its direct expense such insurance from
underwriters
<PAGE> 15
licensed to do business in Massachusetts and reasonably acceptable to Landlord.
The amount of insurance carded by Landlord pursuant to Sections 2.2.3.1.1. and
2.2.3.1.2. shall be reasonably acceptable to Tenant to insure sufficient net
proceeds to restore the Premises pursuant to Article IV.
2.2.3.2 All insurance which is carried by either party with respect to
the Premises, whether or not required, if either party so requests, it can be so
written, and if it does not result in additional premium, or if the requesting
party agrees to pay any additional premium, shall include provisions which
either designate the requesting party as one of the insured or deny to the
insurer acquisition by subrogation of rights of recovery against the requesting
party to the extent such rights have been waived by the insured party prior to
occurrence of loss or injury. The requesting party shall be entitled to have
duplicates or certificates of any policies containing such provisions. Each
party hereby waives all rights of recovery against the other for loss or injury
against which the Waiving party is protected by insurance containing said
provisions, reserving, however, any rights with respect to any excess of loss or
injury over the amount recovered by such insurance. Subject to Section 4.3,
Tenant shall not acquire as insured under any insurance carried on the Building,
any right to participate in the adjustment of loss or to receive insurance
proceeds and agrees upon request promptly to endorse and deliver to Landlord any
checks or other instrument in payment of loss in which Tenant is named payee.
2.2.4 UTILITY CHARGES. All electric meters which Landlord may will cause
to be installed to serve lights and electric receptacles in the Premises will be
billed to Tenant. Tenant shall pay directly the proper authorities charged with
the collection thereof all charges for the consumption of utilities and other
services on the Premises, whether called charge, tax, assessment, fee or
otherwise, if any, all such charges to be paid as the same from time to time
become due. Tenant will deliver to Landlord's manager from time to time copies
of all electric bills.
2.2.5 OPERATING COSTS. With reference to the Operating Costs described in
this Section 2.2, it is agreed as follows:
a) The Tenant shall pay to the Landlord, as additional rent, monthly, in
advance, during the Lease Term, the installments equal to one-twelfth
(1/12) Tenant's proportionate share of Estimated Excess Operating Costs
for the Premises in Excess of the Operating Costs ("Excess Operating
Costs") incurred in the operation of the Building and Lot in calendar
year 1996 ("Base Year") defined below. The Estimated Excess Operating
Costs shall be determined by Landlord based on the prior year's actual
Operating Costs in accordance with Section 2.2.5(b) below. After
presentation to Tenant following each lease year of a statement in
reasonable detail summarizing the Operating Costs for such lease year,
an adjustment shall be made to account for actual Operating Costs for
such lease year. If the total amount of Estimated Excess Operating
Costs actually received by the Landlord from the Tenant for any lease
year shall be less than the Excess Operating Costs for such lease year,
then the amount of such difference shall be payable by the Tenant
within twenty (20) days of receipt of the annual statements summarizing
Operating Costs. If the total amount of the Estimated Excess Operating
Costs actually received by the Landlord from the Tenant for any lease
year shall be greater than the Excess Operating Costs for such lease
year, then the Landlord shall, at its option, within twenty (20) days
of delivery of the
<PAGE> 16
annual statements summarizing Operating Costs either pay to the Tenant
the amount of such excess or credit an equal amount against the
Tenant'srental obligations hereunder.
b) As used herein, Estimated Excess Operating Costs means, with respect to
the calendar year 1997, an amount equal to the product obtained by
multiplying $.10 times the number of square feet of Rentable Area
described on Page 1, and with respect to subsequent lease years an
amount equal to 105% of the Excess Operating Costs, adjusted to reflect
full occupancy for twelve (12) months, for the immediately preceding
lease year, adjusted, if necessary, to reflect any changes in the
Rentable Area, as set forth in Exhibit A.
c) For the purpose of this Article "lease year" shall mean any calendar
year from January 1 to December 31, except that the first lease year
during the term of this Lease shall commence on the Commencement Date
and end on the next following December 31 and the last lease year
during the term of this Lease shall end on the date this Lease
terminates; and "Operating Costs" shall include any and all cost
incurred by Landlord in the operation and maintenance of the Premises
including, but not limited to:
(1) All expenses incurred by the Landlord or its agents which shall be
directly related to employment of day and night supervisors,
janitors, handymen, carpenters, engineers, firemen, mechanics,
electricians, plumbers, lobby and elevator attendants, guards,
porters, cleaners and other personnel (including amounts incurred
for wages, salaries and other compensation for services, payroll,
social security, unemployment and similar taxes, workmen's
compensation insurance, disability benefits, pensions,
hospitalization, retirement plans and group insurance, uniforms and
working clothes and the cleaning thereof, and expenses imposed on
the Landlord or its agents pursuant to any collective bargaining
agreement), for services in connection with the operation, repair,
maintenance, cleaning and protection in a manner customarily
provided to first-class office space (collectively, the "Operation"
of the Building), the Building heating, ventilating,
air-conditioning, electrical (exclusive of the charges for
electricity) plumbing, and elevator systems and the Lot
(collectively, the "Property"), and personnel engaged in
supervision of any of the persons mentioned above;
(2) The cost of services, materials and supplies furnished or used in
the Operation of the Property;
(3) The cost of replacements for tools and equipment used in the
Operation of the Property;
(4) The amounts paid to managing agents and for legal and other
professional fees relating to the Operation of the Property, but
excluding such fees paid in connection with negotiations for
leases;
(5) Insurance Premiums;
<PAGE> 17
(6) Costs for utilities, including electricity, required in the
Operation of the Property not directly billed to Tenant;
Water and sewer use charges;
(7) Water and sewer use charges;
(8) The costs of plowing and snow removal, landscaping, maintaining
driveways, loading docks in good repair reasonably free of snow and
ice;
(9) Amounts paid to independent contractors for services, materials and
supplies furnished for the Operation of the Property;
(10) In the event Landlord improves or modifies the Building by
installing equipment, devices or materials designed or intended to
reduce Operating Expenses, the cost of such improvements or
modifications may be amortized over a period of time determined by
Landlord together with interest at the rate of Bank of Boston prime
plus 2% per annum on the unamortized balance, and included as an
item of Operating Expense. (In the event Bank of Boston prime
rate is no longer available, then a similar prime rate shall be
used.) In no event, however, shall the amortization expense and
interest for all such improvements or modifications for any single
lease year exceed the Operating Expense savings generated by such
improvements or modifications.
The failure of the savings generated from such improvements or
modifications to equal the amortization and interest expense in any
given year shall not extend the amortization period.
Savings will be determined by (1) calculating the Operating Expense
as if no improvements or modifications had been installed, and (2)
subtracting from this amount the actual cost of operation for the
lease year in question. Tenant will cooperate and provide copies of
receipts when requested by Landlord; and
(11) All other expenses incurred in connection with the Operating of
the Property, including the share attributable to Property of
Landlord's costs for the maintenance and upkeep of Cochituate Place
and common areas not exclusively leased to others. The Property's
share of common area expenses shall be based on the rentable
square feet of space constructed in Cochituate Place benefiting or
burdening each common area or facility.
Operating Costs shall be computed on an accrual basis and shall be determined in
accordance with generally accepted accounting principles consistently applied.
They may be incurred directly or by way of reimbursement, and shall include
taxes applicable thereto. The Landlord shall use reasonable efforts to obtain
competitive prices for the goods and services provided in the Operation of the
Property. The following shall be excluded from Operating Costs:
<PAGE> 18
(1) Salaries of officers and executives of the Landlord not connected
with Operation of the Property;
(2) The initial cost of tools and equipment used in the Operation of
the Building;
(3) Depreciation of the Building;
(4) Expenses relating to alterations made by the Tenant;
(5) Interest and amortization on indebtedness;
(6) Expenses for which the Landlord, by the terms of this Lease, makes
a separate charge;
(7) Real estate taxes;
(8) The cost of any electric current furnished directly to and paid for
by the Tenant;
(9) Leasing fees or commissions; and
(10) All other items which under generally accepted accounting
principles as consistently applied in the real estate industry for
first-class office buildings are properly classified as capital
expenditures except, however, that if any capital improvement
results in reduced Operating Costs (e.g. an energy saving
improvement) then with respect to the lease year in which the
improvement is made and each subsequent lease year, the amount of
such reduction shall be added to Operating Costs for such lease
year.
All Operating Costs shall be reduced by the amount (net of collection
costs) of any insurance reimbursement, discount or allowance received
by the Landlord in connection with such costs.
(d) Tenant's proportionate share as used in this Lease shall be 86.14%
of the total Building Operating Costs and taxes, subject to
adjustment in the event of any future changes in Rentable Area, as
set forth in Exhibit A.
ARTICLE III
ADDITIONAL COVENANTS OF TENANT
Tenant further covenants and agrees:
3.1 To pay when due all rent and other charges payable by Tenant hereunder.
3.1.2 CONDITION. To keep the Premises, including, without
limitation, both the inside and outside of all doors and windows, therein, in
the same order and repair as they are in on the
<PAGE> 19
Commencement Date, reasonable use and wear, damage by fire or casualty, damage
by taking, or damage resulting from any negligent failure of Landlord to perform
its obligations hereunder only excepted. It is further agreed that the exception
to reasonable use and wear shall not apply so as to permit Tenant to keep the
Premises in anything less than suitable, tenantlike and efficient and usable
condition considering the nature of the Premises and the use reasonably made
thereof, or in less than good and tenantlike repair. Subject to damage covered
by manufacturer's warranties or otherwise insured against and not the fault of
Landlord, Tenant shall keep all glass in good repair. Tenant shall also make all
repairs to the Building (including, without limitation, the structure, outer
walls and roof thereon and common areas therein) and the Lot, if the same are
occasioned by Tenant's improper or untenantlike use thereof, or by the
intentional acts or negligence of Tenant, its agents, invitees or employees and
if such repairs are not reimbursable by Landlord's insurance carriers. Landlord
agrees to promptly notify Tenant of any damage to the Premises, Building or Lot
resulting from the negligence or intentional action of Tenant, its agents,
employees or invitees. In the event Tenant repairs or causes to be repaired such
damage, Landlord agrees to assign its rights against any third party causing
such damage to Tenant.
3.2 TENANT'S INDEMNITY. The Tenant shall indemnify and save harmless the
Landlord, the directors, officers, agents and employees of the Landlord and
those in privity of estate with the Landlord, from and against all claims,
expenses or liability for injury or damage to persons or property arising from
any default, act, omission or negligence of the Tenant, or the Tenant's
contractors, licensees, agents, servants or employees, or the failure of the
Tenant or such persons to comply with any rule, order, regulation or lawful
direction now or hereinafter in force or any public authority, in each case, to
the extent the same are related, directly or indirectly, to the Premises or the
Tenant's use thereof, or arising directly or indirectly from any accident,
injury or damage, however caused, to any person or property on or about the
Premises; provided, however, that in no event shall the Tenant be obligated
under this Section 3.2 to indemnify the Landlord, the directors, officers,
agents and employees of the Landlord, or those in privity of estate with the
Landlord, where such claim, expense or liability arose from any omission, fault,
negligence or other misconduct of the Landlord or such persons on or about the
Premises or the Building.
This indemnity and hold harmless agreement shall include indemnity
against all expenses and liability incurred in or in connection with any such
claim or proceeding brought thereon and the defense thereof with counsel
reasonably acceptable to the Landlord or counsel selected by an insurance
company which has accepted liability for such claim.
3.2.1 TENANT'S RISK. The Tenant agrees to use and occupy the
Premises and to use other portions of the Lot as the Tenant is herein given the
right to use at the Tenant's own risk; and the Landlord shall have no
responsibility or liability for any loss of or damage to fixtures, equipment or
other personal property of the Tenant except for damage caused by the willful or
negligent acts of Landlord, its agents or servants.
3.2.2 INJURY CAUSED BY THIRD PARTIES. The Tenant agrees that the
Landlord shall not be responsible or liable to the Tenant, or to those claiming
by, through or under the Tenant, for any loss or damage resulting to the Tenant
or those claiming by, through or under the Tenant, or its or their property, for
any loss or damage from the breaking, bursting, crossing, stopping or leaking of
electric cables and wires, and water, gas, sewer or steam pipes or like matters.
<PAGE> 20
3.2.3 All merchandise, furniture, fixtures, effects and property
of every kind, nature and description of Tenant and of all persons claiming
through or under Tenant, except as herein otherwise provided, which may be on
the Premises during the continuance of this lease or any occupancy by Tenant
thereof, shall be at the sole risk and hazard of Tenant, and if the whole or any
part thereof shall be destroyed or damaged by fire, water or otherwise, or by
the leakage or bursting of water pipes, steam pipes or other pipes, by theft or
from any other cause, no part of said loss or damage is to be charged to or be
borne by Landlord.
3.3 ASSIGNMENT AND SUBLETTING. Tenant agrees not to assign or sublet
this Lease without first obtaining on each occasion the consent in writing of
Landlord and to reimburse Landlord promptly for reasonable legal expenses not to
exceed $1.500.00 incurred by Landlord in connection with any request by Tenant
for such consent. Notwithstanding anything contained herein, (a) one-quarter of
any rent received by Tenant in excess of that provided herein resulting from an
assignment of lease or sublet of space located on the 4th floor of the
Premises, and (b) one-half of any rent received by Tenant in excess of that
provided herein resulting from an assignment of lease or sublet of space located
on all remaining floors of the Premises less in all cases the cost(s) normally
chargeable to the acquisition of a subtenant will be paid as additional rent to
Landlord. On the occasion of any subletting or assignment of this lease,
Landlord on thirty (30) days written notice to Tenant may terminate this lease
with respect to the portion of the Premises so sublet, and recapture the
portion of the Premises so sublet with rights of access thereto. Tenant may,
without Landlord's consent, assign this Lease to a corporation owning a
controlling interest in the voting capital stock of Tenant, to a corporation
into which Tenant is merged provided such corporation assumes in writing all of
Tenant's obligations hereunder, or sublet to a subsidiary corporation of which
Tenant owns a majority of the voting stock. No assignment or subletting shall in
any way impair the continuing primary liability of Tenant hereunder, and no
consent to any assigning or subletting in a particular instance shall be deemed
to be a waiver of the obligation to obtain the Landlord's approval in the case
of any other assignment or subletting. Landlord agrees that it will not withhold
its consent to any sublet or assignment to a credit worthy subtenant or assignee
which will occupy the Premises for first class office use and/or other uses
allowed hereunder, and otherwise in compliance with this Lease.
3.4 TENANT COMPLIANCE. Tenant agrees to conform and comply with all
state and municipal laws and with all requirements of any public body or
officers having jurisdiction of the Premises and to and with the requirements or
regulations of any Board of Fire Underwriters or insurance company insuring the
Premises at the time with respect to the care, maintenance, use and
non-structural alteration of the Premises, all at Tenant's own expense without
reimbursement from Landlord.
3.5 LANDLORD'S ACCESS. Tenant shall permit Landlord and its agents to
enter and examine the Premises at reasonable times and to show the Premises to
prospective tenants during the nine (9) months preceding expiration of the Terms
and to prospective purchasers and mortgagees at all reasonable times. Except in
emergencies, Landlord shall enter the Premises on business days only after
reasonable notice to Tenant and only in the company of an employee or agent of
Tenant. Tenant shall further permit Landlord's agent entry into the Premises
for the purposes of cleaning, maintaining and repairing the Premises.
3.6 RIGHT TO CURE. If Tenant shall at any time default in the
performance of any Tenant obligation under this Lease and fails to commence to
cure or if commenced falls to diligently pursue,
<PAGE> 21
Landlord shall have the right, after first giving Tenant ten (10) days written
notice of such default (unless such default materially endangers the Premises or
Landlord's interest therein, in which case no such notice shall be required), to
perform such obligation notwithstanding the fact that no provision for such
substituted performance by Landlord is made in this Lease with respect to such
default. In performing such Tenant obligation Landlord may make any reasonable
payment of money or perform any other reasonable act. All sums so paid by
Landlord and all necessary incidental costs and expenses in connection with the
performance of any such act by Landlord shall be deemed to be additional rent
under this Lease and shall be payable to Landlord immediately on demand.
Landlord may exercise the foregoing rights without waiving or releasing Tenant
from any of its obligations under this Lease. Tenant agrees to pay to Landlord,
within thirty (30) days after written demand as additional rent under this
Lease, the amount of all reasonable costs and expenses, including reasonable
fees and the expenses of legal counsel, incurred by Landlord in enforcing any of
Landlord's tights or Tenant's obligations; provided Landlord prevails.
3.6.1 LATE CHARGES. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent and other sums due hereunder shall cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed coveting the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
said amount is past due, then Tenant shall pay to Landlord a late charge equal
to seven (7%) percent of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge and
any interest thereon by Landlord shall constitute a waiver of Tenant's default
with respect to such overdue amount unless Tenant is otherwise advised by
Landlord. Such acceptance unless it constitutes a waiver shall not prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
Additionally, any payment of money due hereunder which is not paid within thirty
(30) days of the due date shall bear interest at the rate of 15% Per annum.
3.7 OBLIGATIONS UPON TERMINATION. Upon the expiration or other
termination of the term of this Lease, Tenant shall quit and surrender to
Landlord the Premises, broom clean, in good order and condition, ordinary wear
and tear, damage by fire or other casualty not the fault of Tenant, damage by
taking, and damage arising out of the failure of Landlord to perform its
obligations hereunder excepted. Tenant shall remove all of its property,
including if requested by Landlord at the time Landlord approves the
alteration, any alterations or additions made by Tenant. Tenant's obligation to
observe or perform this covenant shall survive the expiration or other
termination of the term of this Lease. If the last day of the term of this Lease
or any renewal thereof falls on Sunday, this Lease shall expire on the business
day immediately preceding. If Landlord elects to treat Tenant as a holdover for
a further term, any concession of rent or agreement in respect of decorations or
the like in the Initial Term shall not apply to such holdover. Rent during such
holdover term shall be one and one-half (1.5) times the amount paid during the
last preceding period.
3.8 Tenant further covenants and agrees:
<PAGE> 22
(a) USE. Subject in each instance to applicable governmental law and
regulations, to use the Premises only for the following: General
office use, and/or research and development of computer software
and the training of customers in the use of Tenant's computer
software.
(b) ALTERATIONS. Not to make or permit any structural alterations or
additions nor make any alterations or additions affecting basic
building systems without the prior written consent of Landlord.
Tenant may, with Landlord's consent, not to be unreasonably
withheld, make or cause to be made interior alterations and changes
in the distribution of building systems. In each instance, all work
to be performed in accordance with plans and specifications and by
mechanics reasonably acceptable to Landlord.
(c) PARKING. To use reasonable diligence to prevent Tenant's employees
and customers and other persons visiting the Premises from using
any street abutting the Lot for parking, and Tenant shall park in
parking area(s) as designated by Landlord.
(d) NO LIENS. Not to permit or suffer any lien to be placed upon the
Building or Lot as a consequence of any activity of Tenant, its
agents, employees and/or subcontractors and to promptly cause any
such lien to be discharged or bonded with or without the request of
Landlord.
(e) SIGNAGE. Not to place on the Premises any placard or sign
advertising that the Premises or any part thereof may be sublet.
Not to place any other sign or placard on the Premises or the
Building. Landlord agrees that Tenant shall have the fight to place
and maintain signs of size, design and shape reasonably acceptable
to Landlord, at Tenant's cost, in the following locations: (i)
entrance to Premises and (ii) Building directory.
In addition, Tenant shall be allowed to install one attractive
backlit sign on the exterior of the Building identifying Tenant,
provided that the size, design and shape of same is reasonably
approved by Landlord, and further provided that Tenant first
complies with all applicable code requirements and secures all
necessary approvals and permits for same, and further provided that
Tenant pays all electrical costs of same.
Should Tenant give notice of vacating the Premises or relinquishing
20,000 square feet or more on the 1st through 5th floors of the
Building, the Landlord reserves the right to request Tenant's sign
be removed within ten (10) business days. Removal of the sign will
be at Tenant's sole cost and expense.
(f) EXTERIOR. Not to place on the Premises any draperies, venetian
blinds, curtains or similar furnishings visible from the exterior
of the Building without the written consent of Landlord.
<PAGE> 23
(g) NO DAMAGE. Not to injury, overload, deface or permit to be injured,
overloaded or defaced, the Building and/or improvements and not to
permit any holes to be made in the outside stone or brickwork, or
any awnings to be placed on or suspended from the Building except
such and in such places as Landlord shall in writing first approve;
and not to make, allow or suffer any waste or any unlawful,
improper or offensive use of the Premises or any occupation or
unoccupancy thereof that shall be injurious to any person or
property or invalidate any insurance on the Building or increase
the premium thereof.
(h) RULES AND REGULATIONS. Tenant shall follow reasonable rules and
regulations applicable to all tenants in Cochituate Place,
established by the Landlord from time to time, for the operation of
the Cochituate Place. Landlord reserves the fight to make
reasonable modifications which shall be binding upon Tenant and all
other tenants upon delivery of a copy of them to Tenant. Such rules
and regulations shall not hamper Tenant's quiet enjoyment or
occupancy of the Premises.
3.9 ESTOPPEL CERTIFICATES. Tenant agrees from time to time, upon not less
than fifteen (15) days prior written request by Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect and that Tenant has no
defenses, offsets or counterclaims against its obligations to pay the fixed and
additional rent and any other charges and to perform its other covenants under
this Lease (or, if there have been any modifications that the same is in full
force and effect as modified and stating the modifications and, if there are any
defenses, offsets or counterclaims, setting them forth in reasonable detail),
and the dates to which the fixed and additional rent and other charges have been
paid. Any such statement delivered pursuant to this Section 3.9 may be relied
upon by any prospective purchaser or mortgagee of the Premises, Building and Lot
or one or more of them, or any prospective assignee of any such mortgage.
ARTICLE IV
DAMAGE OR DESTRUCTION BY EMINENT DOMAIN, FIRE OR CASUALTY
4.1 RIGHTS TO TERMINATE. In the event that the Premises, or any material
part thereof, shall be taken by any public authority or for any public use, or
shall be destroyed or damaged by fire or unavoidable casualty, or by the action
of any public authority, then this Lease may be terminated at the election of
Landlord. Such election shall be made by the giving of written notice by
Landlord to Tenant within thirty (30) days after the right of election accrues.
If by such taking Tenant is deprived of the use of more than 20% of the floor
area of the Premises, or if by such fire or other casualty more than 20% of the
floor area shall be rendered untenantable, or if the Premises are so damaged as
to create a material risk that Tenant's property will be subject to loss, and if
Landlord does not within five (5) days after notice from Tenant commence and
diligently pursue repairs sufficient to protect Tenant's property, Tenant may at
its option terminate this Lease by notice in writing to Landlord within thirty
(30) days after the date of such damage or destruction, or within thirty (30)
days after it has received notice of such taking, as the case may be. If Tenant
exercises such option, this Lease shall terminate, in the case of a taking, when
the Tenant is required to vacate such portion of the Premises, and in the case
of such damage or destruction, on that date designated in its notice of
termination, which shall not be less than fifteen (15) nor more than (30) days
after the date of such notice.
<PAGE> 24
4.2 ABATEMENT OF RENT. If this Lease is not terminated pursuant to the
provisions, of Section 4.1, this Lease shall continue in force and a just
proportion of the rent reserved, according to the nature and extent of the
damages sustained by the Premises, shall be suspended or abated until the
Premises, or what may remain thereof, shall be put by Landlord in proper
condition for use, which Landlord covenants to do with reasonable diligence to
the extent permitted by the net proceeds of insurance recovered or damages
awarded for such taking, destruction or damage and subject to zoning and
building laws then in existence. "Net proceeds of insurance recovered or damages
awarded" refers to the expenses of Landlord in connection with the collection of
same, including without limitation, fees and expenses for legal and appraisal
services. If such "Net proceeds of insurance recovered or damages awarded" are
inadequate to restore the Premises to substantially the condition they were in
prior to the damage, then Tenant shall have the option of funding the shortfall
whereupon the Premises shall to the extent feasible be substantially restored to
such pre-existing condition. In the case of a taking which permanently reduces
the floor area of the Premises, the rent shall be abated for the remainder of
the term in proportion to the amount by which the floor area has been reduced.
4.3 RIGHT TO DAMAGES. Irrespective of the form in which recovery may be
had by law, all rights to damages or compensation shall belong to Landlord in
all cases, except for damage to Tenant's fixtures, property or equipment, and
for damages, if any, awarded for relocation expenses and business interruption,
provided that the same shall not reduce the damages or compensation which
Landlord would otherwise recover. Tenant hereby grants to Landlord all of
Tenant's rights to such damages and covenants to deliver such further
assignments thereof as Landlord may from time to time request.
ARTICLE V
DEFAULT
5.1 (a) If Tenant shall default in the performance of any of its
obligations set forth in Article II hereof, and if such default shall continue
for ten (10) days after notice, or if for a period of thirty (30) days after
written notice from Landlord to Tenant specifying any other default which Tenant
does not thereafter diligently pursue the correction of to completion, or (b) if
any assignment shall be made by Tenant for the benefit of creditors, or (c) if
the Tenant's leasehold interest shall be taken on execution or (d) a petition is
filed by Tenant for adjudication as a bankrupt or for an Order for Relief or for
reorganization of an arrangement under any provision of the Bankruptcy Act as
then in force and effect, or (e) any involuntary petition under any of the
provisions of the said Bankruptcy Act is filed against Tenant and such
involuntary petition is not dismissed within sixty (60) days thereafter, then
and in any of such cases Landlord may lawfully, immediately or at any time
thereafter, so long as such default remains uncured, and without further notice
or demand, and without prejudice to any other remedies either enter into and
upon the Premises or any part thereof, or mail a notice of termination addressed
to Tenant at the Premises, and upon such entry or mailing this Lease shall
terminate, cease and be at an end. Without mitigating any default of Tenant
respecting Article II, Landlord agrees to give Tenant written notice of such
default in a timely fashion. In the event that this Lease is terminated under
any of the foregoing provisions contained in this Article V, or otherwise for
breach of Tenant's obligations hereunder, Tenant covenants after any such ending
to pay punctually to Landlord all the sums and perform all the obligations which
Tenant covenants in this Lease to pay and to perform in the same manner and to
the same extent and at the same times as if this Lease had not been terminated.
In calculating the amounts to be paid by Tenant under the
<PAGE> 25
foregoing covenant, Tenant shall be credited with any additional rent actually
obtained by Landlord by reletting the Premises, after deducting the expenses of
collecting the same. Tenant further covenants as an additional and cumulative
obligation upon Tenant's failure to meet any of its obligations under the
foregoing covenant to pay forthwith to Landlord as compensation the total rent
due for the residue of the term. This covenant shall run with the land, and in
calculating the rent due there shall be included the value of all other
considerations agreed to be paid or performed by Tenant for such residue, of the
term. Nothing herein contained shall, however, limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or insolvency or
arrangement with creditors as liquidated damages by reason of such determination
an amount equal to the maximum allowed by any statute or rule of law in effect
at the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the
amounts referred to above.
ARTICLE VI
SERVICES TO BE FURNISHED BY LANDLORD
6.1 CLEANING SERVICES. The Landlord shall cause cleaning services to be
provided to the Premises as described in Exhibit E and charged to Tenant as part
of operating costs.
6.2 OTHER SERVICES. Until such time as Landlord separately meters the
Premises for electric service, the Landlord shall cause electric service for
normal office usage to be furnished to the Tenant, the cost of same to be borne
by Tenant as an operating cost.
6.3 ADDITIONAL SERVICES. Upon reasonable advance notice from Tenant,
Landlord will endeavor to furnish other services to the Premises on days and at
time other than as provided in Exhibit E, and Tenant will on demand and as
additional rent pay to Landlord, on account thereof, the actual costs for such
additional services as determined by the Landlord's accountants.
ARTICLE VII
MISCELLANEOUS
7.1 NO WAIVER. Any consent or permission by Landlord to any act or
commission which otherwise would be a breach of any covenant or condition
herein, or any waiver by Landlord of the breach of any covenant or condition
herein, shall not in any way be held or construed (unless expressly so declared)
to operate so as to impair the continuing obligation of any covenant or
conditions herein, or otherwise, except as to the specific instance, operate to
permit similar acts of omissions.
7.2 SUBORDINATION AND NONDISTURBANCE. This Lease shall be subject and
subordinate to any first mortgage that may hereafter be placed upon the Premises
granted to a bank, insurance company, or institutional lender of like character,
provided that such mortgagee enters into a non-disturbance and attornment
agreement with Tenant or other agreement which have the affect of recognizing
and protecting Tenant's rights hereunder (such agreements shall be deemed in
compliance herewith if the same are on forms customarily used for such by the
mortgagee in question and are otherwise reasonable). This Section shall be
self-operative, but in confirmation thereof, Tenant shall execute and deliver
whatever instruments may be required to acknowledge such subordination in
recordable form.
<PAGE> 26
7.3 BINDING AGREEMENT. It is agreed that the agreements and conditions
in this Lease contained on the part of Tenant to be performed and observed shall
be binding upon Tenant and its successors and assigns and shall inure to the
benefit of Landlord and its successors and assigns, and the agreements and
conditions in this Lease contained on the part of Landlord to be performed and
observed shall be binding upon Landlord and its successors and assigns and shall
inure to the benefit of Tenant and its successors and assigns. If at any time or
times during the term Landlord shall be the trustee of a trust, Tenant agrees
that only the trust estate of Landlord shall be liable for the performance of
Landlord's obligations hereunder, and that in no event shall any trustee or
beneficiary of such trust be individually liable hereunder, and Tenant further
agrees that the Landlord named herein and any subsequent Landlord shall be
liable hereunder only for obligations accruing while owner of the Premises. No
holder of a mortgage of the Landlord's interest shall be deemed to be the owner
of the Premises until such holder shall have acquired indefeasible title to the
Premises.
7.4 BROKERAGE. Landlord and Tenant warrants to each other that they have
had no dealings with any broker or agent in connection with this Lease except
with Garry Holmes of R.W. Holmes Realty Co. (to whom Landlord will owe a
commission upon execution hereof) as agreed in an agreement of even date and
covenants to defend with counsel reasonably acceptable to the other and hold
harmless and indemnify each other from and against any and all costs, expense or
liability for any compensation, commission and charges claimed by any other
broker or agent with respect to the others dealings in connection with this
Lease or the negotiation thereof.
7.5 LEASE NOT TO BE RECORDED. Tenant agrees that it will not record this
Lease. Both parties shall simultaneously herewith execute and deliver a notice
or short form of this Lease in such form, if any, as may be permitted by
applicable statute. If this Lease is terminated before the term expires, the
parties shall execute, deliver and record an instrument acknowledging such fact
and the actual date of termination of this Lease.
7.6 ACTS OF GOD. In any case where either party hereto is required to do
any act, delays caused by or resulting from Acts of God, war, shortages of
labor, materials or equipment, government regulations or other causes beyond
such party's reasonable control shall not be counted in determining the time
during which work shall be completed, whether such time be designated by a fixed
date, a fixed time or "a reasonable time". Except for conditions resulting from
Landlord's negligence or willful misconduct, Landlord shall not be liable to
Tenant for any indirect or consequential damages.
7.7 SEVERABILITY. It is agreed that if any provision of this Lease shall
be determined to be void by any court of competent jurisdiction, then such
determination shall not affect any other provision of this Lease, all of which
other provisions shall remain in full force and effect; and it is the intention
of the parties hereto that if any provision of this Lease is capable of two
constructions, one of which would render the provision void and the other of
which would render the provision valid, then the provision shall have the
meaning which would render it valid.
7.8 SUBMISSION NOT AN OPTION. The submission of this Lease or a summary
of some or all of its provisions for examination does not constitute a
reservation of or option for the Premises, or an offer to lease, it being
understood and agreed that this Lease shall not bind Landlord or Tenant in any
manner whatsoever until it has been approved and executed by Landlord and Tenant
and delivered to Tenant.
<PAGE> 27
7.9 TIME. In any instance herein where a reference is made to days, it
shall mean business days.
7.10 QUIET ENJOYMENT. Landlord covenants that Tenant on paying the rent
and performing the Tenant obligations in this lease, shall peacefully and
quietly have, hold and enjoy the Premises, subject to all of the terms and
provisions hereof. Tenant shall have access and the right to utilize the
Premises twenty-four hours each day including non-business days or card access
during the term hereof.
ARTICLE VII
LEASEHOLD IMPROVEMENT
8.1 COMPLIANCE WITH LEASE. Prior to the beginning of the term, Tenant
shall perform, and shall cause its employees, agents, contractors,
subcontractors, material suppliers and laborers to perform all Tenant's
obligations under this lease except the obligations to pay Fixed Rent and
additional rent and other charges and other obligations the performance of which
would be clearly incompatible with the installation of furnishings, fixtures and
equipment pursuant hereto.
ARTICLE IX
NOTICES
9.1 All notices for Landlord shall be addressed to Landlord at 182 West
Central Street, Natick, MA 01760, with a courtesy copy to Dana A. Cetlin,
Uehlein, Cunningham & Machanic, 220 North Main Street, Natick, MA 01760 or to
such other place as may be designated by written notice to Tenant; and all
notices for Tenant shall be addressed to Tenant at the Premises, with a courtesy
copy to: Palmer & Dodge LLP, One Beacon Street, Boston, MA 02108, Attn: Thomas
M. Spera, Esq. or to such other places as may be designated by written notice to
Landlord. Any notice shall be deemed duly served if addressed to the respective
party as aforesaid and mailed postage prepaid registered or certified mail.
Unless otherwise directed in writing, all rents shall be payable to Landlord.
ARTICLE X
10.1 This instrument contains the entire and complete agreement between
the parties hereto. This Lease may not be amended or modified except by a
writing executed by Landlord and Tenant.
10.2 This Lease shall be governed by Massachusetts Law.
ARTICLE XI
OPTION TO EXTEND
11.1 Tenant shall have the right, exercisable no more than three (3)
times and provided Tenant is not then in default, beyond any applicable notice,
grace or cure period, to extend the Extended Term Termination Dates set forth in
Exhibit A hereof for a period of one (1) additional year on the same terms and
conditions contained herein except that the rent for any portion of the Premises
during such further extended term shall be adjusted to
<PAGE> 28
further extension or (b) ninety-five (95%) percent of the then Fair Market
Rent, as determined below. Tenant must provide at least nine (9) months advanced
written notice to Landlord in order to extend any Lease termination date as set
forth in Exhibit A. Upon exercising any extension option all of the Extended
Term Termination Dates as set forth in Exhibit A will be deemed automatically
extended for an additional one year period at rental amounts equal to
ninety-five (95%) percent of the then Fair Market Rent.
Fair Market Rent shall be determined as follows. Landlord and Tenant
shall agree on the then prevailing Fair Market Rent within fifteen (15) days of
Landlord's receipt of Tenant's notice of extension. If the parties are unable to
reach agreement on the then prevailing Fair Market Rent by such date then Tenant
shall have the right to rescind its notice of extension by delivering to
Landlord within five (5) business days thereafter written notice of recission of
Tenant's exercise of its option to extend. In the event Landlord and Tenant
cannot agree upon the then prevailing Fair Market Rent, and Tenant has not so
rescinded its notice of extension, the following procedure shall be followed.
Each will select an appraiser with five or more years experience in the Natick
rental market who will jointly determine the market rent. If the appraisers so
selected cannot agree upon the market rent within forty-five (45) days, of their
selection, the appraisers so named shall select a third appraiser and the
decision as to the market rent of any two of the appraisers so selected shall
bind the parties.
LANDLORD: LMF COCHITUATE CORP.
By:
-------------------------------------
Pasquale Franchi, President
TENANT: THE MATHWORKS, INC.
By:
-------------------------------------
Name: Jeanne O'Keefe
--------------------------------
Title: CFO
--------------------------------
Duly Authorized
<PAGE> 29
RIDER A TO LEASE AGREEMENT
BETWEEN LMF COCHITUATE CORP., LANDLORD
AND THE MATHWORKS, INC., TENANT
RE: 24 PRIME PARK WAY, NATICK, MASSACHUSETTS 01760
DATED: May 16, 1997
1. IMPROVEMENTS. Upon execution of this Agreement, Landlord will be
responsible for the following common area improvements: Touch-up paint where
needed for all common areas of the building, and entrance areas within the 2nd
and 5th Floor Premises, replace kitchen cabinet doors and surfaces on the 5th
floor, and other minor improvements to be mutually agreed upon by the parties.
2. APPROVAL OF PLANS. Landlord acknowledges approval of Tenant's floor
plans for buildout of portions of Premises located on the 4th floor. All
construction shall be completed at Tenant's sole cost and expense and shall be
subject to final approval by Landlord. Tenant shall be solely responsible for
obtaining all permits and approvals in connection with said buildout, which
shall be completed in compliance with all applicable codes.
3. LETTER OF CREDIT. Tenant shall furnish Landlord with a Letter of
Credit in favor of Landlord in the amount of $350,000.00 as security for
Tenant's obligations. Landlord may draw on such Letter of Credit only upon
occurrence of default by Tenant under this Lease and only to extent necessary to
cure such default.
4. HAZARDOUS MATERIALS. Tenant shall not in manner unlawfully generate,
store, dispose of, release or permit the release of any flammable substances,
explosives, radioactive materials, hazardous wastes, toxic substances or
materials from, into or on the Premises as any of such terms may be defined in
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 U.S.C. 9601, Chapter 21E of the Massachusetts General Laws, and
regulations adopted thereunder, or in any other applicable federal, state or
local environmental laws, rules or regulations governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of such materials. Tenant shall indemnify, defend and hold Landlord
harmless in the event of any violation of this paragraph.
<PAGE> 30
THE MATHWORKS, INC.
LEASE AGREEMENT
24 PRIME PARK WAY, NATICK, MASS.
EXHIBIT B
FLOOR PLANS OF PREMISES
<PAGE> 31
EXHIBIT C
<PAGE> 32
THE MATHWORKS, INC.
LEASE AGREEMENT
24 PRIME PARK WAY, NATICK, MASS.
EXHIBIT D
FISCAL YEAR 1996 REAL ESTATE TAXES
<PAGE> 33
THE MATHWORKS, INC.
LEASE AGREEMENT
24 PRIME PARK WAY, NATICK, MASS.
EXHIBIT E
CLEANING SERVICES
<PAGE> 34
CLEANING SERVICES TO BE FURNISHED BY LANDLORD
---------------------------------------------
A. General Cleaning of Demised Premises: (unless otherwise indicated, General
Cleaning Services are to be performed nightly).
1. Empty and clean all wastepaper baskets, ash trays, receptacles, etc.,
and damp dust as necessary.
2. Remove normal office waste paper refuse to a designated area or areas.
3. Dust and wipe clean all furniture, fixtures within hand-high reach,
and window sills.
4. Wipe clean all glass furniture tops.
5. Carpet sweep all carpeted areas and rugs.
6. Sweep any private stairways or, if carpeted, carpet sweep.
7. Keep slop sink rooms, if any, in clean and orderly condition.
B. Core Lavatories-Nightly:
1. Sweep and wash all flooring.
2. Wash and polish all mirrors, powder shelves, bright work, etc.,
including flushometers, piping and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wipe clean all toilet tissue, soap, towel, and sanitary napkin
dispensers.
5. Wash all basins, bowls and urinals, and disinfect.
6. Dust all partitions and tile walls.
7. Empty, clean and disinfect paper towels and sanitary napkin disposal
receptacles.
<PAGE> 35
CLEANING SERVICES TO BE FURNISHED BY LANDLORD (CONT.)
-----------------------------------------------------
8. Remove waste paper and refuse to a designated area or areas.
9. Fill all toilet tissue holders, soap dispensers and towel dispensers.
C. Building Entrance Lobbies-Nightly:
1. Sweep and wash flooring.
2. Vacuum or wash all rubber mats.
3. Clean all cigarette urns and replace sand as necessary (sand to be
furnished by Landlord or Landlord's contractor).
4. Wash floors in elevator cab, or vacuum clean or carpet sweep if
carpeted.
5. Dust and rub down walls, metal work and saddles in elevator cabs.
6. Dust and rub down all elevator doors.
7. Clean and polish all drinking fountains.
<PAGE> 1
Exhibit 10.4
CONNECTED CORPORATION
1996 EQUITY INCENTIVE PLAN
(Amended and Restated May 27, 1999)
Section 1. Purpose
The purpose of the Connected Corporation 1996 Equity Incentive Plan (the
"Plan") is to attract and retain key employees, directors and consultants to
provide an incentive for them to assist Connected Corporation (the "Company") to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Company.
Section 2. Definitions
(a) "Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a
significant financial interest as determined by the Committee.
(b) "Award" means any Option, Stock Appreciation Right, Performance or Award
Share, or Restricted Stock awarded under the Plan.
(c) "Award Share" means a share of Common Stock awarded to an employee without
payment therefor.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means a committee of not less than three members of the Board
appointed by the Board to administer the Plan. Alternatively, if the Board
so designates, the President of the Company shall serve as the sole member
of the Committee.
(g) "Common Stock" or "Stock" means the Common Stock, par value $.001 per
share, of the Company.
(h) "Company" means Connected Corporation.
(i) "Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Board, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
(j) "Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Board
in good faith or in the manner established by the Board from time to time.
(k) "Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
(l) "Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is not intended to be
an Incentive Stock Option.
<PAGE> 2
(m) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
(n) "Participant" means a person selected by the Board to receive an Award
under the Plan.
(o) "Performance Cycle" or "Cycle" means the period of time selected by the
Board during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
(p) "Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
(q) "Restricted Period" means the period of time selected by the Board during
which an award of Restricted Stock may be forfeited to the Company.
(r) "Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
(s) "Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
(t) "Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of
Common Stock, awarded to a Participant under Section 10.
Section 3. Administration
The Plan shall be administered by the Board. The Board shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Board's
decisions shall be final and binding. To the extent permitted by applicable law,
the Board may delegate to the Committee the power to make Awards to Participants
and all determinations under the Plan with respect thereto.
Section 4. Eligibility
All employees and, in the case of Awards other than Incentive Stock
Options, directors and consultants of the Company or any Affiliate capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan of Options to acquire not in excess of 1,750,000 shares of
Company Common Stock. Other Awards may be made as the Board may
determine, provided that a maximum of 1,750,000 shares of Common Stock
may be issued under this Plan. If any Award in respect of shares of
Common Stock expires or is terminated unexercised or is forfeited for
any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, including without limitation
the surrender of shares in payment for the Award or any tax obligation
thereon, the shares subject to such Award or so surrendered, as the
case may be, to the extent of such expiration, termination, forfeiture
or decrease, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any
limitation required
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<PAGE> 3
under the Code. Common Stock issued through the assumption or
substitution of outstanding grants from an acquired company shall not
reduce the shares available for Awards under the Plan. Shares issued
under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) In the event that the Board in its discretion determines that any stock
dividend, extraordinary cash dividend, creation of a class of equity
securities, recapitalization, reorganization, merger, consolidation,
split-up, spin-off, combination or reclassification of shares exchange
of shares, warrants or rights offering to purchase Common Stock at a
price substantially below fair market value, or other similar capital
change affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be
made available under the Plan, then the Board, subject, in the case of
Incentive Stock Options, to any limitation required under the Code,
shall equitably adjust any or all of (i) the number and kind of shares
in respect of which Awards may be made under the Plan, (ii) the number
and kind of shares subject to outstanding Awards, and (iii) the award,
exercise or conversion price with respect to any of the foregoing, and
if considered appropriate, the Board may make provision for a cash
payment with respect to an outstanding Award, provided that the number
of shares subject to any Award shall always be a whole number.
(c) In the event of a consolidation or merger of the Company with another
corporation, or the sale or exchange of all or substantially all of the
assets of the Company, or a reorganization or liquidation of the
Company, the Participant shall be entitled to receive upon exercise and
payment in accordance with the terms of this Plan the same shares,
securities or property as he would have been entitled to receive upon
the occurrence of such event if he had been, immediately prior to such
event, the holder of the number of shares of Common Stock purchasable
under this Plan, or if another corporation shall be the survivor, such
corporation shall substitute therefor substantially equivalent shares,
securities or property of such other corporation; provided, however,
that in lieu of the foregoing the Board may upon written notice to the
Participant provide that this Plan shall terminate on a date not less
than twenty (20) days after the date of such notice unless theretofore
exercised. In connection with such notice, the Board may in its
discretion accelerate or waive any deferred exercise period.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Board may award Incentive
Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and
the conditions and limitations applicable to the exercise of the
Option. The terms and conditions of Incentive Stock Options shall be
subject to and comply with Section 422 of the Code, or any successor
provision, and any regulations thereunder.
(b) The Board shall establish the option price at the time each Option is
awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to
Incentive Stock Options.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Board may specify in the applicable Award
or thereafter. The Board may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or
advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the
Company. Such payment may be made in whole or in
-3-
<PAGE> 4
part in cash or, to the extent permitted by the Board at or after the
award of the Option, by delivery of a note or shares of Common Stock
owned by the optionholder, including Restricted Stock, valued at their
Fair Market Value on the date of delivery, or such other lawful
consideration as the Board may determine.
(e) The Board may provide for the automatic award of an Option upon the
delivery of shares to the Company in payment of an Option for up to the
number of shares so delivered.
(f) In the case of Incentive Stock Options the following additional
conditions shall apply:
(i) Such options shall be granted only to employees of the
Company, and shall not be granted to any person who owns stock
that possesses more than ten percent of the total combined
voting power of all classes of stock of the Company or of its
parent or subsidiary corporation (as those terms are defined
in section 422(b) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder), unless,
at the time of such grant, the exercise price of such option
is at least 110% of the fair market value of the stock that is
subject to such option and the option shall not be exercisable
more than five years after the date of grant;
(ii) Such options shall not be exercisable more than ten years from
the date hereof and shall not be exercisable more than ten
years from the date of grant;
(iii) Such options shall, by their terms, be transferable by the
optionee only by will or the laws of descent and distribution,
and shall be exercisable only by such employee during his
lifetime.
Section 7. Stock Appreciation Rights
Subject to the provisions of the Plan, the Board may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised.
Section 8. Performance Shares
(a) Subject to the provisions of the Plan, the Board may award Performance
Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more
than one Performance Cycle in existence at any one time, and the
duration of Performance Cycles may differ from each other. The payment
value of Performance Shares shall be equal to the Fair Market Value of
the Common Stock on the date the Performance Shares are earned or, in
the discretion of the Board, on the date the Board determines that the
Performance Shares have been earned.
(b) The Board shall establish performance goals for each Cycle, for the
purpose of determining the extent to which Performance Shares awarded
for such Cycle are earned, on the basis of such criteria and to
accomplish such objectives as the Board may from time to time select.
During any Cycle, the Board may adjust the performance goals for such
Cycle as it deems equitable in recognition of unusual or non-recurring
events affecting the Company, changes in applicable tax laws or
accounting principles, or such other factors as the Board may
determine.
-4-
<PAGE> 5
(c) As soon as practicable after the end of a Performance Cycle, the Board
shall determine the number of Performance Shares which have been earned
on the basis of performance in relation to the established performance
goals. The payment values of earned Performance Shares shall be
distributed to the Participant or, if the Participant has died, to the
Participant's Designated Beneficiary, as soon as practicable
thereafter. The Board shall determine, at or after the time of award,
whether payment values will be settled in whole or in part in cash or
other property, including Common Stock or Awards.
Section 9. Restricted Stock
(a) Subject to the provisions of the Plan, the Board may award shares of
Restricted Stock and determine the duration of the Restricted Period
during which, and the conditions under which, the shares may be
forfeited to the Company and the other terms and conditions of such
Awards. Shares of Restricted Stock may be issued for no cash
consideration or such minimum consideration as may be required by
applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Board,
during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Board may determine. Any certificates
issued in respect of shares of Restricted Stock shall be registered in
the name of the Participant and unless otherwise determined by the
Board, deposited by the Participant, together with a stock power
endorsed in blank, with the Company. At the expiration of the
Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Stock Units
(a) Subject to the provisions of the Plan, the Board may award Stock Units
subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Board shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration
as may be required by applicable law. Such shares of Common Stock may
be designated as Award Shares by the Board.
Section 11. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and
conditions thereof and containing such other terms and conditions not
inconsistent with the provisions of the Plan as the Board considers
necessary or advisable to achieve the purposes of the Plan or comply
with applicable tax and regulatory laws and accounting principles.
(b) Board Discretion. Each type of Award may be made alone, in addition to
or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Board need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the
Board at the time of award or at any time thereafter.
-5-
<PAGE> 6
(c) Settlement. The Board shall determine whether Awards are settled in
whole or in part in cash, Common Stock, other securities of the
Company, Awards or other property. The Board may permit a Participant
to defer all or any portion of a payment under the Plan, including the
crediting of interest on deferred amounts denominated in cash and
dividend equivalents on amounts denominated in Common Stock.
(d) Dividends and Cash Awards. In the discretion of the Board, any Award
under the Plan may provide the Participant with (i) dividends or
dividend equivalents payable currently or deferred with or without
interest, and (ii) cash payments in lieu of or in addition to an Award.
(e) Termination of Employment. The Board shall determine the effect on an
Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period
during which, the Participant's legal representative, guardian or
Designated Beneficiary may receive payment of an Award or exercise
rights thereunder.
(f) Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company, the Board in
its discretion may, at the time an Award is made or at any time
thereafter, take one or more of the following actions: (i) provide for
the acceleration of any time period relating to the exercise or
realization of the Award, (ii) provide for the purchase of the Award
upon the Participant's request for an amount of cash or other property
that could have been received upon the exercise or realization of the
Award had the Award been currently exercisable or payable, (iii) adjust
the terms of the Award in a manner determined by the Board to reflect
the change in control, (iv) cause the Award to be assumed, or new
rights substituted therefor, by another entity, or (v) make such other
provision as the Board may consider equitable and in the best interests
of the Company.
(g) Withholding. The Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than
the date of the event creating the tax liability. In the Board's
discretion, such tax obligations may be paid in whole or in part in
shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value on the
date of delivery. The Company and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
(h) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Board
considers necessary or advisable to achieve the purposes of the Plan or
comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the
same or a different type, changing the date of exercise or realization
and convening an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into
account any related action, would not materially and adversely affect
the Participant.
Section 12. Miscellaneous
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Company
expressly reserves the right at any time to dismiss a Participant
-6-
<PAGE> 7
free from any liability or claim under the Plan, except as expressly
provided in the applicable Award.
(b) No Rights As Shareholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights
as a shareholder with respect to any shares of Common Stock to be
distributed under the Plan until he or she becomes the holder thereof.
A Participant to whom Common Stock is awarded shall be considered the
holder of the Stock at the time of the Award except as otherwise
provided in the applicable Award.
(c) Effective Date. This amended and restated Plan became effective on May
27, 1999. The original Plan first became effective, subject to
shareholder approval, on February 21, 1996.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no amendment shall be
made without shareholder approval if such approval is necessary to
comply with any applicable tax requirement.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of
Massachusetts.
-7-
<PAGE> 1
Exhibit 10.5
CONNECTED CORPORATION
2000 COMBINATION STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of this Connected Corporation 2000 Combination Stock Option
Plan (the "Plan") is to attract and retain employees and consultants and to
provide an incentive for them to assist Connected Corporation (the "Company") to
achieve long-range performance goals, and to enable them to participate in the
long-term growth of the Company.
SECTION 2. DEFINITIONS
As used herein, the following terms have the indicated meanings:
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee of not less than two nonemployee directors
appointed by the Board to administer the Plan or, alternatively, if the Board so
determines, the whole Board.
"Common Stock" or "Stock" means the Common Stock, $.001 par value, of the
Company.
"Company" means Connected Corporation, a Delaware corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time, or any successor statute.
"Fair Market Value" means the fair market value of Common Stock as determined in
accordance with Section 10 of this Plan.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 5 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonqualified Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 5 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonqualified Stock Option.
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<PAGE> 2
"Parent Corporation" has the meaning specified in Section 424(e) of the Code.
"Participant" means a person selected by the Committee to receive an Award under
the Plan.
"Permanent Disability" has the meaning in Section 22(e)(3) of the Code.
"Plan" means this Connected Corporation 2000 Combination Stock Option Plan.
"Subsidiary Corporation" has the meaning specified in Section 424(f) of the
Code.
"Ten Percent Stockholder" means an individual who owns (within the meaning of
Section 425(d) of the Code) capital stock possessing more than 10% of the total
combined voting power of all classes of capital stock of the Company or any
Parent Corporation or Subsidiary Corporation at the time an Incentive Stock
Option is granted under this Plan.
SECTION 3. ELIGIBILITY
All employees, including directors who are also employees, and
consultants of the Company or any Affiliate, capable of contributing
significantly to the successful performance of the Company, other than a person
who has irrevocably elected not to be eligible, are eligible to be Participants
in the Plan. Consultants are not eligible to receive Incentive Stock Options
under the Plan.
SECTION 4. STOCK SUBJECT TO PLAN
(a) Subject to adjustment under Section 9, the maximum aggregate number
of shares of the Company's Common Stock that may be issued under this Plan shall
be 6,000,000 shares., plus an annual increase to be made on the first day of
each fiscal year equal to the lesser of (a) 1.5% of the Issued Shares (as
defined below) on the last day of the immediately preceding fiscal year, (b)
450,000 shares, or (c) an amount determined by the Board. "Issued Shares" shall
mean the number of shares of Common Stock of the Company outstanding on the last
day of the immediately preceding fiscal year, plus any shares reacquired by the
Company during the fiscal year that ends on such date.
(b) The shares to be issued under this Plan may be made available, at
the discretion of the Board, from: (i) authorized but unissued shares; (ii)
shares previously reserved for issuance upon exercise of Options which have
expired or been terminated; or (iii) treasury shares and shares reacquired by
the Company for the purpose, including shares purchased in the open market.
(c) If any Option expires or is terminated unexercised or is forfeited
for any reason or settled in a manner that results in fewer shares issued and
outstanding than were initially subject to the Option, including without
limitation the surrender of shares in payment for the Award or any tax
obligation thereon, the shares subject to such Award or so surrendered, as the
case may be, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available
-2-
<PAGE> 3
for Awards under the Plan, subject, in the case of Incentive Stock Options, to
any limitation required under the Code.
(d) Shares of Common Stock issued or received for issuance through the
assumption or substitution of outstanding grants from an acquired company shall
not reduce the shares available for Awards under the Plan.
SECTION 5. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Except where the
full Board serves as the Committee, the Committee shall serve at the pleasure of
the Board, which may from time to time appoint additional members of the
Committee, remove members and appoint new members in substitution for those
previously appointed, and fill vacancies however caused. A majority of the
Committee shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present shall be deemed the action
of the Committee. The Committee may act by unanimous written consent in lieu of
a meeting.
(b) Subject to the express provisions of this Plan and provided that
all actions taken shall be consistent with the purposes of the Plan, the
Committee shall have full and complete authority and the sole discretion to: (i)
determine those persons eligible under Section 3; (ii) select those persons to
whom Awards shall be granted under the Plan; (iii) determine the number of
shares covered by and the form of the Awards to be granted; (iv) determine the
time or times when Awards shall be granted; (v) establish the terms and
conditions upon which Options may be exercised; (vi) alter any restrictions or
conditions upon any Awards; and (vii) adopt rules and regulations, establish,
define and/or interpret any other terms and conditions, and make all other
determinations (which may be on a case-by-case basis) deemed necessary or
desirable for the administration of the Plan.
(c) The terms of each type of Award need not be identical, and the
Committee need not treat Participants uniformly. Except as otherwise provided by
the Plan or a particular Award, any determination with respect to an Award may
be made by the Committee at the time of award or at any time thereafter.
(d) In making its determinations hereunder, the Committee shall take
into account the nature of the services rendered or to be rendered by the
recipient, his or her present and potential contributions to the success of the
Company, and such other factors as the Committee, in its discretion, shall deem
relevant in order to accomplish the purposes of the Plan.
(e) Neither the Board nor the Committee, nor any member of either or
any delegatee thereof, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with this Plan,
and the members of the Board and the Committee (and any delegatee thereof) shall
be entitled in all cases to indemnification and reimbursement by the Company in
respect of any claim, loss, damage or expense (including, without limitation,
reasonable attorneys' fees) arising or resulting therefrom to the fullest extent
permitted by law,
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<PAGE> 4
the Company's Certificate of Incorporation and By-Laws, and/or under any
directors' and officers' liability insurance coverage which may be in effect
from time to time.
SECTION 6. STOCK OPTIONS
(a) General. Subject to the provisions of the Plan, the Committee may
award Incentive Stock Options and Non-Qualified Stock Options and determine the
number of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. Any Option
granted under this Plan shall be upon such terms and conditions not inconsistent
with this Plan as the Committee may determine. At the time of grant of any
Option, the Committee shall specify whether the Option is intended to be an
Incentive Stock Option or a Non-Qualified Stock Option. If the Option is not
intended to be an Incentive Stock Option but otherwise qualifies to be such, the
agreement evidencing such Option will include a specific statement that it is
not intended to qualify as an Incentive Stock Option.
(b) Price. The price at which any shares of Stock may be purchased
pursuant to the exercise of an Option shall be determined by the Committee but
may not be less than the greater of (i) the minimum legal consideration required
under the laws of the jurisdiction in which the Company is then organized or
(ii) in the case of Incentive Stock Options, the Fair Market Value of the Stock
on the date of grant of the Option (or, in the case of Incentive Stock Options
granted to Ten Percent Stockholders, 110% of the Fair Market Value on such
date).
(c) Period of Option. Each Option granted under this Plan shall
continue in effect for such period not exceeding ten years as the Committee
shall determine; provided, that any Incentive Stock Option must be granted
within ten years from the date of establishment of this Plan or the date the
Plan is approved by stockholders, whichever is earlier, and must have a term of
not more than five years from the date of grant in the case of Incentive Stock
Options granted to Ten Percent Stockholders.
(d) Incentive Stock Options; Transferability Generally.
(i) Incentive Stock Options shall be granted only to
employees of the Company;
(ii) No Incentive Stock Option shall be exercisable beyond
three months after the date upon which the Option
holder ceases to be an employee of the Company or a
Parent Corporation or Subsidiary Corporation, except
that the Committee may provide in the Incentive Stock
Option that in the event of termination of employment
by reason of death or Permanent Disability of the
holder, the Option may be exercised by the holder or
his estate for a period of up to one year after
termination of employment;
(iii) No Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and
distribution and all Options shall be exercisable,
during the optionee's lifetime, only by the optionee,
or by the
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optionee's legal representative or guardian in the event of
the optionee's incapacity. Notwithstanding the foregoing, the
Committee, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may
transfer his or her Non-Qualified Stock Options to members of
his immediate family, to trusts for the benefit of such family
members, or to partnerships in which such family members are
the only partners, provided that the transferee agrees in
writing with the Company to be bound by all of the terms and
conditions of this Plan and the applicable Option.
(iv) The terms and conditions of Incentive Stock Options shall be
subject to and comply with Section 422 of the Code, or any
successor provision, and any regulations thereunder.
SECTION 7. EXERCISE OF OPTIONS; PAYMENT
(e) Options may be exercised in whole or in part at such time
and in such manner as the Committee may determine and as shall be
prescribed in the written agreement with each holder.
(f) The purchase price of shares of Stock upon exercise of an
Option shall be paid by the Option holder in full upon exercise and may
be paid as the Committee may determine in its sole discretion in any
combination of: (i) cash or check payable to the order of the Company;
(ii) delivery of a promissory note; (iii) delivery of shares of Common
Stock (valued at Fair Market Value at the date of purchase of the
Common Stock subject to the Option), including by way of so-called
"cashless exercise" and the netting of the number of shares of Common
Stock subject to the Option having an aggregate Fair Market Value equal
to the purchase price of the shares of Stock upon exercise of the
Option; or (iv) such other means as the Committee may permit; provided,
however, that payment of the exercise price by delivery of shares of
Common Stock of the Company owned by the Option holder or "cashless
exercise" may be made only if such payment does not result in a charge
to earnings for financial accounting purposes, as determined by the
Committee.
(g) With the consent of the Committee, payment of the exercise
price may also be made by delivery of a properly executed exercise
notice to the Company, together with a copy of irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale or
loan proceeds to pay the exercise price. To facilitate such
arrangements, the Company may enter into agreements for coordinating
procedures with one or more securities brokerage firms. The date of
delivery of such exercise notices shall be deemed the date of exercise.
(h) The Committee may impose such conditions with respect to
the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or
advisable, including making the Common Stock issued upon exercise
subject to restrictions on vesting or transferability, or to risk of
forfeiture, upon the happening of such
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events as the Committee may determine, any of which may be accelerated or waived
in the Committee's sole discretion.
(i) No shares of Common Stock shall be issued upon exercise of
any Option under this Plan until full payment in the form approved by
the Committee has been made and all other legal requirements applicable
to the issuance or transfer of such shares and such other requirements
as are consistent with the Plan have been complied with to the
satisfaction of the Committee.
SECTION 8. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Documentation. Each Award under the Plan shall be
evidenced by a writing delivered to the Participant specifying the
terms and conditions thereof and containing such other terms and
conditions not inconsistent with the provisions of the Plan as the
Committee considers necessary or advisable to achieve the purposes of
the Plan or comply with applicable laws and accounting principles.
(b) Date of Award. The date of any Award hereunder shall be
the date upon which such Award is voted by the Committee (or approved
by the full Board if such approval is legally required), unless the
vote expressly provides otherwise.
(c) Termination of Employment. The Board shall determine the
effect on an Award of the disability, death, retirement or other
termination of employment of a Participant and the extent to which, and
the period during which, the Participant's legal representative,
guardian or designated beneficiary may exercise rights under an Award.
(d) Withholding. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any taxes
required by law to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. In the
Committee's discretion, such tax obligations may be paid in whole or in
part in shares of Common Stock, including shares retained from the
Award creating the tax obligation, valued at their Fair Market Value on
the date of delivery. The Company and its Affiliates may, to the extent
permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Participant.
(e) Foreign Nationals. Awards may be made to Participants who
are foreign nationals or employed outside the United States on such
terms and conditions different from those specified in the Plan as the
Board considers necessary or advisable to achieve the purposes of the
Plan or comply with applicable laws.
(f) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award, including substituting therefor
another Award of the same or a different type, changing the date of
exercise, or conversion of an Incentive Stock Option to a Non-Qualified
Stock Option; provided, that the Participant's consent to such action
shall be required unless the
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<PAGE> 7
Board determines that the action, taking into account any related action, would
not materially and adversely affect the Participant.
(g) Loans. The Company may make loans to Participants to permit them to
exercise Options. If any such loans are made, the requirements of applicable
Federal and State law regarding such loans shall be met.
SECTION 9. ADJUSTMENTS
Upon the occurrence of any of the following events, a Participant's
rights with respect to Awards granted to him or her hereunder shall be adjusted
as hereinafter provided, unless otherwise specifically provided in the written
agreement between the Participant and the Company.
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidation or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
shall, as to outstanding Awards, make appropriate provision for the continuation
of such Awards by substituting on an equitable basis for the shares then subject
to such Awards the consideration payable with respect to the outstanding shares
of Common Stock in connection with the Acquisition and by adjusting on an
equitable basis the exercise price of such Awards to reflect such Acquisition.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than an Acquisition)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, a Participant upon
exercising rights under an Award shall be entitled to receive what he would have
received if he or she had exercised prior to such recapitalization or
reorganization.
(d) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) of this Section with
respect to Incentive Stock Options shall be made only after the Committee, after
consulting with counsel for the Company, determines whether such adjustments
would constitute a "modification" of such Incentive Stock Options (as that term
is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such Incentive Stock Options. If the Committee
determines that such adjustments made with respect to Incentive Stock Options
would constitute a modification of such Incentive Stock Options, it may refrain
from making such adjustments.
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<PAGE> 8
(e) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(f) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
(h) Adjustments. Upon the happening of any of the events described in
subparagraphs (a), (b) or (c) of this Section, the class and aggregate number of
shares set forth in Section 4 hereof that are subject to Awards which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee shall determine the specific adjustments to be made under this
Section 9 and subject to Section 5, its determination shall be conclusive.
SECTION 10. FAIR MARKET VALUE
(a) If the Common Stock is then traded on any national securities
exchange or automated quotation system which has sale price reporting, the Fair
Market Value of the Common Stock shall be the closing sales price, if any, on
such exchange or system on the date as of which Fair Market Value is being
determined or, if none, shall be determined by taking the closing sales price on
the nearest date before that date in accordance with applicable regulations
under the Code.
(b) If the Common Stock is then traded on an exchange or system which
does not have sale price reporting, the Fair Market Value of the Common Stock
shall be the mean between the average of the "Bid" and the average of the "Ask"
prices, if any, as reported for the date as of which Fair Market Value is being
determined, or, if none, shall be determined by taking the average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after such date in accordance with applicable regulations under the
Code.
(c) With respect to Common Stock if it is not publicly traded and with
respect to any other property, the Fair Market Value of such property shall be
determined in good faith by the Committee or in the manner otherwise provided by
the Committee from time to time.
SECTION 11. MISCELLANEOUS
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(a) No Right To Employment. No person shall have any claim or right to
be granted an Award, and the grant of an Award shall not be construed as giving
a Participant the right to continued employment or affiliation with the Company.
The Company expressly reserves the right at any time to dismiss a Participant
free from any liability or claim under the Plan, except as expressly provided in
the applicable Award.
(b) No Rights Other Than Those Expressly Created. No person eligible to
receive Awards under this Plan shall have any claim or right to be granted an
Award hereunder. Neither this Plan nor any action taken hereunder shall be
construed as (i) giving any Award holder any right to continue to be affiliated
with the Company, (ii) giving any Award holder any equity or interest of any
kind in any assets of the Company, or (iii) creating a trust of any kind or a
fiduciary relationship of any kind between the Company and any such person. As
to any claim for any unpaid amounts under this Plan, any person having a claim
for payments shall be an unsecured creditor. No Award holder shall have any of
the rights of a stockholder with respect to shares of Stock covered by an Award
until such time as the Stock has been issued.
(c) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
(d) Effective Date of Plan. The effective date of this Plan shall be
the date of its adoption by the Board. If the Plan is subject to the approval of
the stockholders under paragraph (e) below, upon such approval it shall be
effective as of the date of its adoption by the Board. The Committee may grant
Awards under the Plan prior to any such required stockholder approval, and any
such Awards which are of a type that require stockholder approval shall become
effective as of the date of grant upon receipt of such approval.
(e) Stockholder Approval. The adoption of this Plan, or any amendment
hereto, shall be subject to approval by stockholders only to the extent required
by (i) the Code, (ii) the rules under Section 16 of the Exchange Act, (iii)
rules of any stock exchange or over-the-counter stock market, or (iv) as
otherwise required by law. Any such approval shall be obtained within the time
required by such law or rule. Any stockholder approval of this Plan or any
amendment so required shall mean the affirmative vote of at least a majority of
the shares of capital stock present and entitled to vote at a duly held meeting
of stockholders, unless a greater vote is required by state corporation law or
the law or rule requiring stockholder approval, in which case such greater
requirement shall apply.
(f) Amendment of Plan. The Board may at any time, and from time to
time, amend, suspend or terminate this Plan in whole or in part; provided,
however, that the Board may not modify the Plan in a manner requiring the
approval of stockholders under paragraph (e) above unless such approval is
obtained to the extent required.
(g) Term of Plan. This Plan shall terminate ten years from the date of
adoption by the Board, and no Award shall be granted under this Plan thereafter,
but such termination shall not affect the validity of Awards granted prior to
the date of termination.
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Exhibit 10.6
CONNECTED CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The Connected Corporation 2000 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of Connected
Corporation (the "Company") will have an opportunity to acquire a proprietary
interest in the Company through the purchase of shares of the Company's $.001
par value common stock (the "Common Stock"). It is the intention of the Company
to have the Plan qualify as an "employee stock purchase plan" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code.
2. Eligible Employees.
(a) All employees of the Company (including employees who are directors
of the Company) or any of its participating subsidiaries shall be eligible to
receive options under this Plan to purchase the Company's Common Stock. In no
event may an employee be granted an option if such employee, immediately after
the option is granted, owns stock possessing five (5%) percent or more of the
total combined voting power or value of all classes of stock of the Company or
of its parent corporation or subsidiary corporation as the terms "parent
corporation" and "subsidiary corporation" are defined in Section 424(e) and (f)
of the Code. For purposes of determining stock ownership under this paragraph,
the rules of Section 424(d) of the Code shall apply and stock which the employee
may purchase under outstanding options shall be treated as stock owned by the
employee.
(b) For the purpose of this Plan, the term employee shall not include
an employee whose customary employment is for not more than twenty (20) hours
per week or is for not more than five (5) months in any calendar year.
3. Stock Subject to the Plan.
The stock subject to the options granted hereunder shall be shares of
the Company's authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company, including shares purchased in the open market. The
aggregate number of shares which may be issued pursuant to the Plan is 500,000,
subject to increase or decrease by reason of stock split-ups, reclassifications,
stock dividends, changes in par value and the like. If the number of shares of
Common Stock reserved and available for any Offering Period (as defined
hereafter) is insufficient to satisfy all purchase requirements for that
Offering Period, the reserved and available shares for that Offering Period
shall be apportioned among participating employees in proportion to their
options.
<PAGE> 2
4. Offering Periods and Stock Options.
(a) Six month periods during which payroll deductions will be
accumulated under the Plan ("Offering Periods") will commence on October 1 and
April 1 of each year and end on March 31 or September 30 next following the
commencement date; provided, however, the first Offering Period shall commence
on the date on which the Company's Common Stock commences public trading
following the time when the Company's Registration Statement on Form S-1
relating to the Company's initial public offering is declared effective by the
Securities and Exchange Commission and will end on September 30, 2000.
Thereafter the Offering Periods will commence on October 1 and April 1. Each
Offering Period includes only regular pay days falling within it. The Offering
Commencement Date is the first day of each Offering Period. The Offering
Termination Date is the applicable date on which an Offering Period ends under
this Section.
(b) On each Offering Commencement Date, the Company will grant to each
eligible employee who is then a participant in the Plan an option to purchase on
the Offering Termination Date at the Option Exercise Price, as provided in this
paragraph (b), that number of full shares of Common Stock reserved for the
purpose under the Plan as his or her accumulated payroll deductions on the
Offering Termination Date (including any amount carried forward pursuant to
Article 8 hereof) will pay for at the Option Exercise Price; provided that such
employee remains eligible to participate in the Plan throughout such Offering
Period. The Option Exercise Price for each Offering Period shall be the lesser
of (i) eighty-five percent (85%) of the fair market value of the Common Stock on
the Offering Commencement Date, or (ii) eighty-five percent (85%) of the fair
market value of the Common Stock on the Offering Termination Date, in either
case rounded up to avoid fractions other than multiples of 1/8. In the event of
an increase or decrease in the number of outstanding shares of Common Stock
through stock split-ups, reclassifications, stock dividends, changes in par
value and the like, an appropriate adjustment shall be made in the number of
shares and Option Exercise Price per share provided for under the Plan, either
by a proportionate increase in the number of shares and proportionate decrease
in the Option Exercise Price per share, or by a proportionate decrease in the
number of shares and a proportionate increase in the Option Exercise Price per
share, as may be required to enable an eligible employee who is then a
participant in the Plan to acquire on the Offering Termination Date that number
of full shares of Common Stock as his accumulated payroll deductions on such
date will pay for at the Option Exercise Price, as so adjusted.
(c) For purposes of this Plan, the term "fair market value" on any date
means, if the Common Stock is listed on a national securities exchange or on the
NASDAQ National Market, the average of the high and low sales prices of the
Common Stock on such date on such exchange or as reported on the NASDAQ National
Market or, if the Common Stock is traded in the over-the-counter securities
market, but not on the NASDAQ National Market, the average of the high and low
bid quotations for the Common Stock on such date, each as published in the Wall
Street Journal. If no shares of Common Stock are traded on the Offering
Commencement Date or Offering Termination Date, the fair market value will be
determined by taking the
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average of the fair market values on the immediately preceding and the next
following business days on which shares of Common Stock are traded.
(d) For purposes of this Plan the term "business day" as used herein
means a day on which there is trading on a national securities exchange or the
NASDAQ National Market on which the Common Stock is listed.
(e) No employee shall be granted an option which permits his or her
rights to purchase Common Stock under the Plan and any similar plans of the
Company or any parent or participating subsidiary corporations to accrue at a
rate which exceeds $25,000 of fair market value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time. The purpose of the limitation in the preceding sentence
is to comply with and shall be construed in accordance with Section 423(b)(8) of
the Code.
5. Exercise of Option.
Each eligible employee who continues to be a participant in the Plan on
the Offering Termination Date shall be deemed to have exercised his or her
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose under the Plan as
his or her accumulated payroll deductions on such date, plus any amount carried
forward pursuant to Article 8 hereof, will pay for at the Option Exercise Price,
but in no event may an employee purchase shares of Common Stock in excess of
2,000 shares of Common Stock on any Offering Termination Date. If a participant
is not an employee on the Offering Termination Date and throughout an Offering
Period, he or she shall not be entitled to exercise his or her option. All
options issued under the Plan shall, unless exercised as set forth herein,
expire at the end of the Offering Termination Date with respect to the Offering
Period during which such options were issued.
6. Authorization for Entering Plan.
(a) An eligible employee may enter the Plan by filling out, signing and
delivering to the Chief Financial Officer of the Company or his or her designee
an authorization ("Authorization"):
(i) stating the amount to be deducted regularly from his or her pay;
(ii) authorizing the purchase of Common Stock for him or her in each
Offering Period in accordance with the terms of the Plan;
(iii) specifying the exact name in which Common Stock purchased for
him or her is to be issued in accordance with Article 11 hereof;
and
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(iv) at the discretion of the employee in accordance with Article 14,
designating a beneficiary who is to receive any Common Stock
and/or cash in the event of his or her death.
Such Authorization must be received by the Chief Financial Officer of the
Company or his designee at least ten (10) business days before an Offering
Commencement Date.
(b) The Company will accumulate and hold for the employee's account the
amounts deducted from his or her pay. No interest will be paid thereon.
Participating employees may not make any separate cash payments into their
account.
(c) Unless an employee files a new Authorization or withdraws from the
Plan, his or her deductions and purchases under the Authorization he or she has
on file under the Plan will continue as long as the Plan remains in effect. An
employee may increase or decrease the amount of his or her payroll deductions as
of the next Offering Commencement Date by filling out, signing and delivering to
the Chief Financial Officer of the Company or his or her designee a new
Authorization. Such new Authorization must be received by the Chief Financial
Officer of the Company or his or her designee at least ten (10) business days
before the date of such next Offering Commencement Date.
7. Allowable Payroll Deductions.
An employee may authorize payroll deductions in any even dollar amount
up to but not more than ten percent (10%) of his or her base pay; provided,
however, that the minimum deduction in respect of any payroll period shall be
one percent (1%) of his or her base pay but in no event less than five dollars
($5); and provided further that the maximum percentage shall be reduced to meet
the requirements of Section 4(e) hereof. Base pay means regular straight-time
earnings and, if applicable, commissions, but excluding payments for overtime,
bonuses, and other special payments.
8. Unused Payroll Deductions.
Only full shares of Common Stock may be purchased. Any balance remaining
in an employee's account after a purchase will be reported to the employee and
will be carried forward to the next Offering Period. However, in no event will
the amount of the unused payroll deductions carried forward from a payroll
period exceed the Option Exercise Price per share for the immediately preceding
Offering Period. If for any Offering Period the amount of unused payroll
deductions should exceed the Option Exercise Price per share, the amount of the
excess for any participant shall be refunded to such participant, without
interest.
9. Change in Payroll Deductions.
Deductions may not be increased or decreased during an Offering Period.
10. Withdrawal from the Plan.
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(a) An employee may withdraw from the Plan and withdraw all but not less
than all of the payroll deductions credited to his or her account under the Plan
at any time prior to the Offering Termination Date by delivering a notice to the
Chief Financial Officer of the Company or his or her designee (a "Withdrawal
Notice") in which event the Company will promptly refund without interest the
entire balance of such employee's deductions not theretofore used to purchase
Common Stock under the Plan.
(b) If an employee withdraws from the Plan, the employee's rights under
the Plan will be terminated and no further payroll deductions will be made. To
reenter, such an employee must file a new Authorization at least ten (10)
business days before the next Offering Commencement Date. Such Authorization
will become effective for the Offering Period that commences on such Offering
Commencement Date.
11. Issuance of Stock.
Upon written request, certificates for Common Stock will be issued and
delivered to participants as soon as practicable after each Offering Period.
Common Stock purchased under the Plan will be issued only in the name of the
employee, or in the case of employees who are not subject to Section 16 of the
Securities Exchange Act of 1934, as amended, if the employee's Authorization so
specifies, in the name of the employee and another person of legal age as joint
tenants with rights of survivorship.
12. No Transfer or Assignment of Employee's Rights.
An employee's rights under the Plan are his or hers alone and may not be
transferred or assigned to, or availed of by, any other person. Any option
granted to an employee may be exercised only by him or her, except as provided
in Article 13 in the event of an employee's death.
13. Termination of Employee's Rights.
(a) Except as set forth in the last paragraph of this Article 13, an
employee's rights under the Plan will terminate when he or she ceases to be an
employee because of retirement, resignation, lay-off, discharge, death, change
of status, failure to remain in the customary employ of the Company for greater
than twenty (20) hours per week or more than five (5) months in any calendar
year, or for any other reason. A Withdrawal Notice will be considered as having
been received from the employee on the day his or her employment ceases, and all
payroll deductions not used to purchase Common Stock will be refunded.
(b) If an employee's payroll deductions are interrupted by any legal
process, a Withdrawal Notice will be considered as having been received from him
or her on the day the interruption occurs.
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(c) Upon termination of the participating employee's employment because
of death, the employee's beneficiary (as defined in Article 14) shall have the
right to elect, by written notice given to the Chief Financial Officer of the
Company or his or her designee prior to the expiration of the thirty (30) day
period commencing with the date of the death of the employee, either (i) to
withdraw, without interest, all of the payroll deductions credited to the
employee's account under the Plan, or (ii) to exercise the employee's option for
the purchase of shares of Common Stock on the next Offering Termination Date
following the date of the employee's death for the purchase of that number of
full shares of Common Stock reserved for the purpose of the Plan which the
accumulated payroll deductions in the employee's account at the date of the
employee's death will purchase at the applicable Option Exercise Price (subject
to the maximum number set forth in Article 5), and any excess in such account
will be returned to said beneficiary. In the event that no such written notice
of election shall be duly received by the Chief Financial Officer of the Company
or his or her designee, the beneficiary shall automatically be deemed to have
elected to withdraw the payroll deductions credited to the employee's account at
the date of the employee's death and the same will be paid promptly to said
beneficiary, without interest.
14. Designation of Beneficiary.
A participating employee may file a written designation of a beneficiary
who is to receive any Common Stock and/or cash in case of his or her death. Such
designation of beneficiary may be changed by the employee at any time by written
notice. Upon the death of a participating employee and upon receipt by the
Company of proof of the identity and existence at the employee's death of a
beneficiary validly designated by him under the Plan, the Company shall deliver
such Common Stock and/or cash to such beneficiary. In the event of the death of
a participating employee and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such employee's death, the Company
shall deliver such Common Stock and/or cash to the executor or administrator of
the estate of the employee, or if, to the knowledge of the Company, no such
executor or administrator has been appointed, the Company, in the discretion of
the Committee, may deliver such Common Stock and/or cash to the spouse or to any
one or more dependents of the employee as the Committee (as defined in Section
19) may designate. No beneficiary shall, prior to the death of the employee by
whom he or she has been designated, acquire any interest in the Common Stock or
cash credited to the employee under the Plan.
15. Termination and Amendments to Plan.
(a) The Plan may be terminated at any time by the Company's Board of
Directors, effective on the next following Offering Termination Date.
Notwithstanding the foregoing, it will terminate when all of the shares of
Common Stock reserved for the purposes of the Plan have been purchased. Upon
such termination or any other termination of the Plan, all payroll deductions
not used to purchase Common Stock will be refunded without interest.
(b) The Board of Directors reserves the right to amend the Plan from
time to time in any respect; provided, however, that no amendment shall be
effective without stockholder approval if the amendment would (a) except as
provided in Articles 3, 4, 24 and 25, increase the
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aggregate number of shares of Common Stock to be offered under the Plan, or (b)
change the class of employees eligible to receive options under the Plan.
16. Limitations of Sale of Stock Purchased Under the Plan.
Common Stock purchased under the Plan by employees who are subject to
Section 16 of the Securities Exchange Act of 1934, as amended, may not be sold
for six (6) months after the Offering Termination Date on which such shares were
purchased, unless such transaction shall be exempt from Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. Thereafter, such employees may sell
Common Stock purchased under the Plan at any time. Notwithstanding the
foregoing, because of certain Federal tax requirements, all employees will agree
by entering the Plan, promptly to give the Company notice of any such Common
Stock disposed of within two (2) years after the Offering Commencement Date on
which the related option was granted showing the number of such shares disposed
of. The employee assumes the risk of any market fluctuations in the price of
such Common Stock. Certificates representing shares of Common Stock purchased
under the Plan will bear a legend reflecting the restrictions on transfer set
forth herein.
17. Company's Payment of Expenses Related to Plan.
The Company will bear all costs of administering and carrying out the
Plan.
18. Participating Subsidiaries.
The term "participating subsidiaries" shall mean any subsidiary of the
Company which is designated by the Committee (as defined in Article 19) to
participate in the Plan. The Committee shall have the power to make such
designation before or after the Plan is approved by the stockholders.
19. Administration of the Plan.
(a) The Plan shall be administered by a committee of "Non-Employee
Directors" as that term is defined in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended, appointed by the Board of Directors of the Company,
which shall be the Company's Compensation Committee (the "Committee"). The
Committee shall consist of not less than two members of the Company's Board of
Directors. The Board of Directors may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board of Directors. No member of the Committee shall be
eligible to participate in the Plan while serving as a member of the Committee.
(b) The Committee shall select one of its members as chairman, and shall
hold meetings at such times and places as it may determine. Acts by a majority
of the Committee, or acts reduced to or approved in writing by all of the
members of the Committee, shall be the valid acts of the Committee.
-7-
<PAGE> 8
(c) The interpretation and construction by the Committee of any
provisions of the Plan or of any option granted under it shall be final. The
Committee may from time to time adopt such rules and regulations for carrying
out the Plan as it may deem best. With respect to persons subject to Section 16
of the Securities and Exchange Act of 1934, as amended, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under said Act. To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by that Committee.
(d) Promptly after the end of each Offering Period, the Committee shall
prepare and distribute to each participating employee in the Plan a report
containing the amount of the participating employee's accumulated payroll
deductions as of the Offering Termination Date, the Option Exercise Price for
such Offering Period, the number of shares of Common Stock purchased by the
participating employee with the participating employee's accumulated payroll
deductions, and the amount of any unused payroll deductions either to be carried
forward to the next Offering Period, or returned to the participating employee
without interest.
(e) No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted under it. The Company shall indemnify each member of the
Board of Directors and the Committee to the fullest extent permitted by law with
respect to any claim, loss, damage or expense (including counsel fees) arising
in connection with their responsibilities under this Plan.
20. Optionees Not Stockholders.
Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the Company with
respect to the shares covered by such option until such shares have been
purchased by and issued to him or her.
21. Application of Funds.
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan may be used for any corporate
purposes, and the Company shall not be obligated to segregate participating
employees' payroll deductions.
22. Governmental Regulation.
(a) The Company's obligation to sell and deliver shares of the Company's
Common Stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance or sale of
such stock.
(b) In this regard, the Board of Directors may, in its discretion,
require as a condition to the exercise of any option that a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
shares of Common Stock reserved for issuance upon exercise of the option, be
effective.
-8-
<PAGE> 9
23. Transferability.
Neither payroll deductions credited to an employee's account nor any
rights with regard to the exercise of an option or to receive Common Stock under
the Plan may be assigned, transferred, pledged, or otherwise disposed of in any
way by the employee. Any such attempted assignment, transfer, pledge, or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Article 10.
24. Effect of Changes of Common Stock.
If the Company should subdivide or reclassify the Common Stock which has
been or may be optioned under the Plan, or should declare thereon any dividend
payable in shares of such Common Stock, or should take any other action of a
similar nature affecting such Common Stock, then the number and class of shares
of Common Stock which may thereafter be optioned (in the aggregate and to any
individual participating employee) shall be adjusted accordingly.
25. Merger or Consolidation.
If the Company should at any time merge into or consolidate with another
corporation, the Board of Directors may, at its election, either (i) terminate
the Plan and refund without interest the entire balance of each participating
employee's payroll deductions, or (ii) entitle each participating employee to
receive on the Offering Termination Date upon the exercise of such option for
each share of Common Stock as to which such option shall be exercised the
securities or property to which a holder of one share of the Common Stock was
entitled upon and at the time of such merger or consolidation, and the Board of
Directors shall take such steps in connection with such merger or consolidation
as the Board of Directors shall deem necessary to assure that the provisions of
this Article 25 shall thereafter be applicable, as nearly as reasonably
possible. A sale of all or substantially all of the assets of the Company shall
be deemed a merger or consolidation for the foregoing purposes.
26. Withholding of Additional Federal Income Tax.
The Company will undertake such withholding in connection with the Plan
as it determines is appropriate, in its sole discretion.
27. Approval of Stockholders.
The Plan shall not take effect until approved by the holders of a
majority of the outstanding shares of Common Stock of the Company pursuant to
written consent, or by the holders of a majority of the shares of Common Stock
of the Company present and entitled to vote at a duly held meeting of
stockholders, which approval must occur no later than the end of the first
Offering Period after the date the Plan is adopted by the Board of Directors.
Options may be granted under the Plan prior and subject to such stockholder
approval. If the Plan is not so
-9-
<PAGE> 10
approved by the stockholders, all payroll deductions from participating
employees shall be returned without interest and all options so granted shall
terminate.
Date of Approval by the Board of Directors: March __, 2000
Date of Approval by the Stockholders:
-10-
<PAGE> 1
EXHIBIT 10.7
CONNECTED CORPORATION
2000 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of this 2000 Nonemployee Director Stock Option
Plan is to attract and retain the services of experienced and knowledgeable
independent directors of the Corporation for the benefit of the Corporation and
its stockholders and to provide additional incentives for such independent
directors to continue to work for the best interests of the Corporation and its
stockholders through continuing ownership of its common stock.
2. Definitions. As used herein, each of the following terms has the
indicated meaning:
"Corporation" means Connected Corporation.
"Fair Market Value" means the last sale price of the Shares as reported
on the NASDAQ National Market ("NASDAQ") or another national securities exchange
on which the Shares may be traded on the date on which such determination is to
be made. If the Shares are not publicly traded, the fair market value shall mean
the "Fair Market Value" of the Shares as determined by the Board of Directors.
"Option" means the contractual right to purchase Shares upon the
specific terms set forth in this Plan.
"Option Exercise Period" means the period commencing on the date of
grant of an Option pursuant to this Plan and ending ten years from the date of
grant.
"Plan" means this Connected Corporation 2000 Nonemployee Director Stock
Option Plan.
"Shares" means the Common Stock, $.001 par value, of the Corporation.
3. Stock Subject to the Plan. The aggregate number of Shares that may be
issued and sold under the Plan shall be 1,000,000 Shares. The Shares to be
issued upon exercise of Options granted under this Plan shall be made available,
at the discretion of the Board of Directors, from (i) treasury Shares and/or
Shares reacquired by the Corporation for such purposes, including Shares
purchased in the open market, (ii) authorized but unissued Shares, and (iii)
Shares previously reserved for issuance upon exercise of Options which have
expired or been terminated. If any Option granted under this Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased Shares covered thereby shall become available for grant as
additional Options under the Plan so long as it shall remain in effect.
4. Administration of the Plan. The Plan shall be administered by the
Board of Directors of the Corporation (the "Board"). The Board shall, subject to
the provisions of the Plan, grant options under the Plan and shall have the
power to construe the Plan, to determine all questions as to eligibility, and to
adopt and amend such rules and regulations for the
<PAGE> 2
administration of the Plan as it may deem desirable. The Board may delegate any
and all of its authority hereunder to one or more Committees of the Board.
5. Eligibility; Grant of Options. Options will be granted only to a
director who is not, at the time of the grant, an employee of the Corporation
("Eligible Director"). Each Eligible Director will be granted an Option to
purchase 90,000 shares of Common Stock under the Plan as of the date he or she
is first elected or appointed as a director, provided, however, that the number
of shares of Common Stock subject to the Option may be increased at the time of
grant by the Board in appropriate circumstances; and each Eligible Director who
is a director on the effective date of the Plan will be granted an Option to
purchase 90,000 shares of Common Stock under the Plan on the effective date of
the Plan. Each Eligible Director shall be granted an additional Option to
purchase 90,000 shares on the third anniversary of the date on which such
Eligible Director most recently received an Option under the Plan.
6. Terms of Options and Limitations Thereon.
(a) Option Agreement. Each Option granted under this Plan shall
be evidenced by an option agreement between the Corporation and the Option
holder and shall be upon such terms and conditions not inconsistent with this
Plan as the Board may determine. Each Option shall explicitly state that it is
not intended to be an "incentive stock option" as that term is defined in
Section 422 of the Internal Revenue Code.
(b) Price. The price at which any Shares may be purchased
pursuant to the exercise of an Option shall be the Fair Market Value of the
Shares on the date of grant, but in no event shall the price be less than the
par value of the Shares.
(c) Exercise of Options. Subject to Paragraph 7 of this Plan,
each Option granted under this Plan may be exercised in full at one time or in
part from time to time only during the Option Exercise Period by the giving of
written notice, signed by the person or persons exercising the Option, to the
Corporation stating the numbers of Shares with respect to which the Option is
being exercised, accompanied by full payment for such Shares pursuant to section
7(b) hereof; provided, however, (i) if a person to whom an Option has been
granted is permanently disabled or dies during the Option Exercise Period, the
portion of such Option then exercisable, as provided in Paragraph 7(a) shall be
exercisable by him or her or by the executors, administrators, legatees or
distributees of his or her estate during the 12 months following his or her or
death or permanent disability and, (ii) if a person to whom an Option has been
granted ceases to be a director of the Corporation for any cause other than
death or permanent disability, the portion of Option then exercisable shall be
exercisable during the thirty (30) day period following the date such person
ceased to be a director, but, in any event, only to the extent vested pursuant
to Paragraph 7(a) hereof.
(d) Non-Assignability. No Option or right or interest in an
Option shall be assignable or transferable by the holder except by will or the
laws of descent and distribution and during the lifetime of the holder shall be
exercisable only by him or her.
-2-
<PAGE> 3
7. Vesting; Payment.
(a) Options granted under this Plan may be exercised during the
Option Exercise Period at the rate of 27.777% per month, commencing at the end
of the first full month after the date of grant, such that the Option may be
exercised in full from and after three years from the date of grant.
(b) If a person to whom an Option is granted ceases to be an
Eligible Director, then each Option issued to said person shall be exercisable,
during the remainder of the Option Exercise Period or such shorter period as
specified in subparagraph 6(c), only as to the number of Shares as to which the
Option was exercisable immediately prior to said termination of affiliation.
(c) The purchase price of Shares upon exercise of an Option
shall be paid by the Option holder in full upon exercise and may be paid (i) in
cash or, if the Corporation's shares are traded on NASDAQ or a national
securities exchange; (ii) by delivery of Shares having a Fair Market Value on
the date of exercise equal to the purchase price, or (iii) any combination of
cash and Shares.
(d) No Shares shall be issued or transferred upon exercise of
any Option under this Plan unless and until all legal requirements applicable to
the issuance or transfer of such shares and such other requirements as are
consistent with the Plan have been complied with to the satisfaction of the
Board, including without limitation those described in Paragraph 10 hereof.
(e) Notwithstanding any other provisions of this Plan to the
contrary, in the event of a Change of Control, if Options granted under this
Plan are not yet exercisable pursuant to this Section 7, the Options shall
become fully exercisable to the extent of the original grant. For purposes of
this Agreement, "Change of Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of thirty percent (30%) or
more of the then outstanding shares of stock of the Corporation
entitled to vote in the election of directors (the "Outstanding
Corporation Common Stock"), whether in one transaction or in
multiple transactions which in the aggregate equal or exceed
thirty percent (30%) of the Outstanding Corporation Common
Stock; provided, however, that (A) any acquisition by the
Corporation or its subsidiaries, or any employee benefit plan
(or related trust) of the Corporation or its subsidiaries of
thirty percent (30%) or more of Outstanding Corporation Common
Stock shall not constitute a Change of Control; (B) any
acquisition by any individual, entity or group of beneficial
ownership of thirty percent (30%) or more but less than forty
percent (40%) of the Outstanding Corporation Common
-3-
<PAGE> 4
Stock may be deemed unanimously by the Board as it is
constituted as of the effective date of this Plan (the
"Incumbent Board"), excluding any members of the Incumbent
Board affiliated with the acquiror, to not constitute a Change
of Control, in the Incumbent Board's sole and absolute
discretion; and (C) any acquisition by a corporation with
respect to which, following such acquisition, more than fifty
percent (50%) of the then outstanding shares of common stock of
such corporation, is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding
Corporation Common Stock immediately prior to such acquisition
in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the Outstanding
Corporation Common Stock, shall not constitute a Change of
Control; or
(ii) Individuals who, as of the effective date of this
Plan, constitute the members of the Incumbent Board cease for
any reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent to
the effective date of this Plan whose election or nomination
for election by the Corporation's stockholders, was approved by
a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption
of office was or is in connection with any solicitation,
subject to Rules 14a-3 to 14a-15 of the Exchange Act, by any
person or group of persons for the purpose of opposing a
solicitation, subject to Rules 14a-3 to 14a-15 of the Exchange
Act, by any other person or group of persons with respect to
the election or removal of directors at any annual or special
meeting of stockholders; or
(iii) Approval by the stockholders of the Corporation
of (A) a reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding Corporation Common Stock immediately prior to such
reorganization, merger or consolidation will not, following
such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of the then outstanding
shares of common stock of the corporation resulting from such a
reorganization, merger or consolidation, other than a merger or
consolidation effected to implement a recapitalization of the
Corporation (or similar transaction) in which no "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange
Act) acquires 30% or more of Outstanding Corporation Common
Stock; or (B) the sale or other disposition of all or
substantially all of the assets of the Corporation, excluding a
sale or other disposition of assets to a subsidiary of the
Corporation and excluding a sale or license of a portion of the
business of the Corporation which is deemed by the Incumbent
Board,
-4-
<PAGE> 5
acting in its sole and absolute discretion, to not constitute a Change
of Control.
8. Stock Adjustments.
(a) If the Corporation is a party to any merger or
consolidation, any purchase or acquisition of property or stock, or any
separation, reorganization or liquidation, the Board (or, if the Corporation is
not the surviving corporation, the board of directors of the surviving
corporation) shall have the power to make arrangements, which shall be binding
upon the holders of unexpired Options, for the substitution of new options for,
or the assumption by another corporation of, any unexpired Options then
outstanding hereunder.
(b) If by reason of recapitalization, reclassification, stock
split-up, combination of shares, separation (including a spin-off) or dividend
on the Common Stock payable in Shares, the outstanding Shares of the Corporation
are increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Corporation, the Board shall
conclusively determine the appropriate adjustment in the exercise prices of
outstanding Options and in the number and kind of shares as to which outstanding
Options shall be exercisable.
(c) In the event of a transaction of the type described in
Paragraphs (a) and (b) above, the total number of Shares on which Options may be
granted under this Plan shall be appropriately adjusted by the Board.
9. No Rights Other Than Those Expressly Created. No person
affiliated with the Corporation or other person shall have any claim or right to
be granted an Option hereunder. Neither this Plan nor any action taken hereunder
shall be construed as (i) giving any Option holder any right to continue to be
affiliated with the Corporation, (ii) giving any Option holder any equity or
interest of any kind in any assets of the Corporation, or (iii) creating a trust
of any kind or a fiduciary relationship of any kind between the Corporation and
any such person. No Option holder shall have any of the rights of a stockholder
with respect to Shares covered by an Option until such time as the Option has
been exercised and Shares have been issued to such person.
10. Miscellaneous.
(a) Withholding of Taxes. Pursuant to applicable federal, state,
local or foreign laws, the Corporation may be required to collect income or
other taxes upon the grant of an Option to, or exercise of an Option by, a
holder. The Corporation may require, as a condition to the exercise of an
Option, that the recipient pay the Corporation, at such time as the Board
determines, the amount of any taxes which the Board may determine is required to
be withheld.
(b) Securities Law Compliance. Upon exercise of an Option, the
holder shall be required to make such representations and furnish such
information as may, in the opinion of counsel for the Corporation, be
appropriate to permit the Corporation to issue or transfer the
-5-
<PAGE> 6
Shares in compliance with the provisions of applicable federal or state
securities laws. The Corporation, in its discretion, may postpone the issuance
and delivery of Shares upon any exercise of an Option until completion of such
registration or other qualification of such Shares under any federal or state
laws, or stock exchange listing, as the Corporation may consider appropriate.
The Corporation is not obligated to register or qualify the Shares under federal
or state securities laws and may refuse to issue such Shares if neither
registration nor exemption therefrom is practical. The Board may require that
prior to the issuance or transfer of any Shares upon exercise of an Option, the
recipient enter into a written agreement to comply with any restrictions on
subsequent disposition that the Board or the Corporation deems necessary or
advisable under any applicable federal and state securities laws. Certificates
representing the Shares issued hereunder may be legended to reflect such
restrictions.
(c) Indemnity. The Board shall not be liable for any act,
omission, interpretation, construction or determination made in good faith in
connection with its responsibilities with respect to the Plan, and the
Corporation hereby agrees to indemnify the members of the Board, in respect of
any claim, loss, damage, or expense (including counsel fees) arising from any
such act, omission, interpretation, construction or determination to the full
extent permitted by law.
11. Effective Date; Amendment; Termination.
(a) The effective date of this Plan shall be the date on which
approved by written consent of the holders of a majority of the shares of
outstanding voting stock of the Corporation or by the holders of a majority of
the shares of voting stock of the Corporation present and entitled to vote at a
duly held meeting of such stockholders.
(b) The date of grant of any Option granted hereunder shall be
the date upon which the Eligible Director to whom the Option is granted becomes
a director of the Company.
(c) The Board, or any Committee who has been delegated the
authority to do so, may at any time, and from time to time, amend, suspend or
terminate this Plan in whole or in part. Provided however, that so long as there
is a requirement under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, for stockholder approval of a Plan and certain amendments thereto, any
such amendment which (i) materially increases the number of Shares which may be
subject to Options granted under the Plan, (ii) materially increases the
benefits accruing to participants in the Plan, or (iii) materially modifies the
requirement for eligibility to participate in the Plan, shall be subject to
stockholder approval, to the extent so required under said Rule; and provided
further that the Plan may not be modified more often than once every six months
to materially modify (i) the requirements for eligibility under the Plan, (ii)
the timing of the grants of Options under the Plan or (iii) the number of Shares
subject to Options to be granted under the Plan. Except as provided herein, no
amendment, suspension or termination of this Plan may adversely affect the
rights of any person under an Option that has been granted to such person
without such person's consent.
-6-
<PAGE> 7
(d) This Plan shall terminate ten years from its effective date,
and no Option shall be granted under this Plan thereafter, but such termination
shall not affect the validity of Options granted prior to the date of
termination.
Date of Board of Director Adoption: March __, 2000.
Date of Stockholder Adoption:
-7-
<PAGE> 1
Exhibit 10.8
October 1, 1998
Mr. Norman B. Meisner
15 Hampden Terrace
Newton, MA 02159
Dear Norm,
I am very pleased to make you the following offer to become our Vice President,
Sales, reporting to me. Your salary will be $4807.70, payable every two weeks.
In addition, for Q4 of 1998, you will be paid a bonus at the end of the quarter
of $31,250, prorated for the period of time that you are actually employed by
Connected during the quarter.
For 1999, you will receive a quarterly bonus, based on a percentage of the
sales department bookings each quarter. The percentage will be set so that if
the sales department achieves the plan, the amount will be $25,000 per quarter.
There is no cap on this bonus. The bonus will be paid based on a mixture of
bookings and revenue collected, the mix to be mutually agreed upon by the two
of us. The overall plan for 1999 will be mutually agreed upon by the two of us
by the end of 1998, as part of our yearly planning process.
In addition to the quarterly bookings bonuses, you will be eligible for a
$25,000 yearly bonus, based entirely on whether or not the company makes its
1999 revenue goal.
You will be offered an Incentive Stock Option for 100,000 shares. Your right to
Purchase shares under this option vests monthly over four years with a six month
period from the date of the grant before the first 6/48 of the grant is vested.
This grant is subject to the approval of the Board of Directors. The price will
be set by the Board at what they determine to be fair market value at the time
of the grant. Your rights to sell the stock prior to the company's IPO are also
restricted by a co-sale agreement with the preferred shareholders. A copy of our
ISO agreement is enclosed with this offer.
The company offers a variety of benefits, which are documented in the enclosed
materials.
You will be required to sign a proprietary information agreement, which
basically states that information developed in the course of employment with the
company belongs to company. You will be an "employee at will" under the laws of
the State of Massachusetts.
This offer expires after October 18, 1998.
Norm, I am extremely excited about having you join our team. I think the
opportunities at Connected are very exciting and I think that you can make a
significant contribution to our success.
Best Regards,
David Cane
CEO
<PAGE> 1
Exhibit 10.9
[CONNECTED CORPORATION LETTERHEAD]
March 9, 1999
Mr. James M. Priest
1321 Dexter Place
Escondido CA 92029
Dear Jim:
I am pleased to make you the following offer to become our Vice President,
Sales, reporting to me. Your salary will be $4,807.70, payable every two weeks.
You will also receive a $400 per month flat rate car plan. For Q2 through Q4
1999, you will receive a quarterly bonus, based on a percentage of the revenue
each quarter. The percentage will be set so that if the sales department
achieves the revenue plan, the amount will be $20,000 per quarter. There is no
cap on this bonus. The revenue plan is $1.8 million for Q2, $2.9 million for
Q3, and $4.5 million for Q4.* This bonus will be guaranteed for Q2 1999.
In addition to the quarterly revenue bonuses, you will be eligible for a
$20,000 yearly bonus, based entirely on whether or not the company makes its
1999 Q2 to Q4 revenue goal.*
You will offered an Incentive Stock Option for 100,000 shares. Your right to
purchase shares under this option vests monthly over four years with a twelve
month period from the date of the grant before the first 12/48 of the grant is
vested. This grant is subject to the approval of the Board of Directors. The
price will be set by the Board at what they determine to be fair market value
at the time of the grant. Your rights to sell the stock prior to the company's
IPO are also restricted by a co-sale agreement with the preferred shareholders.
The company offers a variety of benefits including health insurance, life
insurance, 401K and paid time-off with up to three weeks of vacation per year.
You will be given a relocation reimbursement not to exceed $30,000 for moving
your personal goods from California to Massachusetts. This will be recoverable
on a pro-rata basis if you are employed by the company for less than twelve
(12) months after the moving expense is incurred.
You will be required to sign a proprietary information agreement, which
basically states that information developed in the course of employment with
the company belongs to the company. You will be an "employee at will" under the
laws of the State of Massachusetts.
<PAGE> 2
This offer expires March 10, 1999 unless accepted. Please indicate your
acceptance of this offer and your intended start date by signing and dating
this letter. Please return your signed letter to the Human Resources Department
prior to your start date.
Jim, Dave and I are extremely excited about having you join our team. We think
the opportunities at Connected are very exciting and we think that you can make
a significant contribution to our success.
Best regards,
/s/ Norman B. Meisner
- ---------------------
Norman B. Meisner
Executive Vice President
*For the purpose of this bonus plan, revenue is defined as our formally reported
revenue each quarter with the exception that one time sales of our technology
without ongoing royalty streams will be treated specially. Fifty percent (50%)
of the reported revenue from such technology sales will be backed out of the
formally reported revenue in computing each quarter's bonus. You must be
employed by the company at the end of a quarter to qualify for that quarter's
bonus.
/s/ James M. Priest 3-15-99
- ------------------------- -------------------------
Signature Start Date
NBM:kjb
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
The registrant has only one subsidiary: Connected Security Corporation, a
Massachusetts corporation. The subsidiary does not conduct business under any
other name.
<PAGE> 1
Exhibit 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 28, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF WEINGARTEN, SCHURGIN, GAGNEBIN & HAYES LLP
We hereby consent to the reference to our firm as it appears in this
Registration Statement, including the prospectus constituting a part hereof and
any amendments thereof.
/s/ Weingarten, Schurgin, Gagnebin & Hayes LLP
------------------------------------------
Weingarten, Schurgin, Gagnebin & Hayes LLP
Dated: March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001005002
<NAME> CONNECTED CORPORATION
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 20,356,564
<SECURITIES> 0
<RECEIVABLES> 2,004,822
<ALLOWANCES> (85,000)
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<CURRENT-ASSETS> 22,529,598
<PP&E> 1,735,836
<DEPRECIATION> (732,630)
<TOTAL-ASSETS> 23,639,014
<CURRENT-LIABILITIES> 3,513,855
<BONDS> 0
23,582,222
3,475
<COMMON> 6,639
<OTHER-SE> (3,467,177)
<TOTAL-LIABILITY-AND-EQUITY> 23,639,014
<SALES> 5,939,170
<TOTAL-REVENUES> 5,939,170
<CGS> 928,407
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<INTEREST-EXPENSE> 674,651
<INCOME-PRETAX> 4,910,450
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,910,450
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,910,450
<EPS-BASIC> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
