<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CONNECTSOFT COMMUNICATIONS CORPORATION
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 91-1845906
(State or other (Primary standard industrial (I.R.S. employer identification no.)
jurisdiction of classification code number)
incorporation)
</TABLE>
11130 N.E. 33RD PLACE, SUITE 250
BELLEVUE, WASHINGTON 98004
TELEPHONE: (206) 827-6467; FACSIMILE: (206) 822-9095
(Address and telephone number
of principal executive offices and principal place of business)
ROBERT MARCUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONNECTSOFT COMMUNICATIONS CORPORATION
11130 N.E. 33RD PLACE, SUITE 250
BELLEVUE, WASHINGTON 98004
TELEPHONE: (206) 827-6467; FACSIMILE: (206) 822-9095
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. WEISS, ESQ. KENNETH R. KOCH, ESQ.
SPENCER G. FELDMAN, ESQ. SQUADRON, ELLENOFF,
GREENBERG, TRAURIG, HOFFMAN, PLESENT & SHEINFELD, LLP
LIPOFF, ROSEN & QUENTEL 551 FIFTH AVENUE
153 EAST 53RD STREET NEW YORK, NEW YORK 10176
NEW YORK, NEW YORK 10022 TELEPHONE: (212) 661-6500
TELEPHONE: (212) 801-9200 FACSIMILE: (212) 697-6686
FACSIMILE: (212) 223-7161
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the 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
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING PRICE REGISTRATION FEE
SECURITIES TO BE REGISTERED (1)(2) (3)
<S> <C> <C>
Common Stock, $.001 par value........................................................... $30,480,240 $9,236.44
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase to cover
over-allotments, if any, and shares issuable upon exercise of the
Representative's Warrants.
(2) Estimated solely for the purpose of computing the registration fee.
(3) Calculated pursuant to Rule 457(o).
--------------------------
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>
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1997
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
------------------
Connectsoft Communications Corporation (the "Company") is offering hereby
shares (the "Shares") of Common Stock, par value $.001 per share (the
"Common Stock"). Prior to this offering, there has been no public market for the
Shares and there can be no assurance that any such market will develop. The
Company has applied to have the Shares approved for listing on The Nasdaq
National Market ("Nasdaq") under the symbol "CSFT." It is currently estimated
that the initial public offering price of the Shares will be $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
After completion of this offering, American United Global, Inc. ("AUGI"), a
publicly-traded diversified technology company whose shares of common stock are
listed on Nasdaq, will continue to own approximately % of the outstanding
Common Stock of the Company. The Company intends to use approximately $2,500,000
of the net proceeds of this offering for the repayment of indebtedness to AUGI.
See "Use of Proceeds."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" ON PAGE 7 AND "DILUTION" ON PAGE 19.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total (3).............................. $ $ $
</TABLE>
(1) Does not include additional consideration to be received by Hampshire
Securities Corporation as the representative (the "Representative") of the
several underwriters (the "Underwriters") in the form of a 3%
non-accountable expense allowance and five-year warrants (the
"Representative's Warrants") entitling the Representative to purchase up to
shares of Common Stock at an exercise price of $12.00 per share. The
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of this offering payable by the Company
of $1,320,000, including the Representative's non-accountable expense
allowance, assuming no exercise of the Underwriters' over-allotment option.
(3) The Company has granted the Underwriters an option, exercisable within 45
days of the date of this Prospectus, to purchase up to an aggregate of
shares of Common Stock solely to cover over-allotments, if any. See
"Underwriting." If the Representative exercises such option in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively.
------------------------------
The Shares are being offered by the Underwriters named herein, subject to
prior sale, when, as and if delivered to, and accepted by them, and subject to
their right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of certificates will be made against
payment therefor at the offices of the Representative at 640 Fifth Avenue, New
York, New York 10019 on or about , 1997.
------------------------
HAMPSHIRE SECURITIES CORPORATION
----------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[ILLUSTRATION TO BE FILED BY AMENDMENT]
"Connectsoft," "FreeAgent" and the crystal-shaped logo
appearing on the cover page of this Prospectus are trademarks of
the Company. This Prospectus also contains trademarks of
companies other than the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS, PENALTY BIDS OR
SHORT SALES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS, INCLUDING INFORMATION UNDER "RISK FACTORS." THE SHARES OF
COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND INVESTORS SHOULD
CAREFULLY CONSIDER INFORMATION SET FORTH IN "RISK FACTORS." UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION AS DESCRIBED IN "UNDERWRITING" IS NOT EXERCISED.
THE COMPANY
Connectsoft Communications Corporation (the "Company"), a development stage
company, is developing a unified, intelligent communications system which it is
marketing under the name "FreeAgent." FreeAgent is designed to unify
communications into a single message box, allow access to that message box
through any telephone or online computer and apply advanced autonomous software
processes (known as intelligent agentry) to the data flowing in and out of the
message box for the purpose of automating communications and assisting the user
in managing communications. FreeAgent is being developed to integrate e-mail,
voice mail, facsimile, paging, content from the World Wide Web (the "Web") and
potentially any other digital data from the Internet, enterprise intranets,
private branch exchange ("PBX") telephone systems and the public switched
telephone network ("PSTN").
FreeAgent is capable of applying advanced media transformation processes
(such as text-to-speech conversion), advanced user interface technologies (such
as limited speech recognition) and specified agentry processes (such as
automated message and information monitoring), so that a person can send or
receive a message between most currently used communications media, using any
wireline or wireless telephone on PBX or PSTN systems or any personal computer
("PC") on the Internet or an intranet. For example, e-mail sent from a PC can be
heard as voice mail on a telephone and voice mail sent by telephone can be
received and listened to on a computer. Similarly, content on Web pages can be
listened to on a telephone, as well as read on a computer. FreeAgent was
previewed at the Internet World Summer trade show in July 1997 and is expected
to be commercially released in December 1997. As part of the continuing
development of FreeAgent, the Company intends to incorporate natural language
understanding (the ability to convert the spoken word to computer commands) and
additional agentry functions (such as automated notification of urgent messages
or of changes in stock market prices, or the ability to complete simple
transactions such as making airline reservations) into the system. Such changes
are being designed to further facilitate the command and control of the
FreeAgent system by telephone and to further enhance FreeAgent's functionality
and services.
The Company has developed a customized PC-based component of FreeAgent for
the Inkjet Printer Division of Hewlett-Packard Company ("Hewlett Packard").
Pursuant to a software license agreement entered into in April 1997 and modified
in August 1997, the Company delivered a beta version of its software to
Hewlett-Packard in May 1997, and expects to deliver a commercial production
version of such software in an initial Japanese language version in September
1997, followed by an English language version by November 1997. This product is
being branded as Hewlett-Packard Instant Delivery ("HP Instant Delivery") and is
expected to be delivered with new Hewlett-Packard inkjet printers, printer
driver software and Hewlett-Packard's Pavilion line of PCs. It is also expected
that HP Instant Delivery will be available to download, as freeware, from
Hewlett-Packard's Web site. With HP Instant Delivery, users will be able to
configure their PCs to automatically go on-line, download and print priority
e-mail, and then go off-line. To date, the Company has received from
Hewlett-Packard $750,000 in license fees and expects to receive an additional
$550,000 based on timely delivery and acceptance of the commercial production
version of the software, as well as ongoing support services.
The Company intends to license FreeAgent to telecommunications companies,
large Internet service providers ("ISPs") and multinational vendors of
telecommunications technologies to large enterprises. To meet the needs of these
potential customers, FreeAgent has been designed as an open, scalable and
extensible system that can be readily integrated with existing systems, scaled
to serve tens of thousands of
3
<PAGE>
potential customers and readily modified in the future to accommodate and
incorporate new subsystems and technologies. The Company believes that these
functions can be achieved through FreeAgent's system architecture, which
comprises three key subsystems. The first subsystem, a unified messaging
platform, provides for sending and receiving most forms of digital data from a
single user interface (such as a telephone or PC). The second subsystem, enabled
by a proprietary technology licensed exclusively for telecommunications
applications from Data Connection Limited ("DCL"), provides for real time access
by telephone to Internet data, such as textual e-mail and Web content. Agents in
the current version of the FreeAgent system are capable of performing tasks such
as message and information monitoring, conversion (such as text-to-speech),
message forwarding and foldering (the organization of data into easily
accessible files). The first two subsystems will be incorporated into the
FreeAgent product expected to be released in December 1997.
Open Agent Architecture ("OAA"), the FreeAgent architecture's third
subsystem, is being co-developed with the Artificial Intelligence Center of SRI
International, formerly Stanford Research Institute ("SRI"). The Company
believes that, if successful, the OAA system would represent an innovative
method of integrating new software functions with existing programs and would
permit FreeAgent to easily incorporate new agentry functions designed by the
Company and/or third parties. The Company believes that technological advances
will permit the development of agents which would be able to search a variety of
digital networks for pre-specified data, execute transactions in accordance with
pre-specified directions and notify the user that these objectives have been
accomplished. The Company believes that the successful development of OAA
technology, together with additional agentry functions, will enable FreeAgent to
operate as a "virtual executive assistant" in processing, managing and
automating a user's communications. OAA, if successful, will be incorporated
into future FreeAgent products.
The Company's objective is to become a leader in the development of unified,
intelligent communications systems. The Company's primary marketing strategy is
to establish strategic and licensing relationships with telecommunications
companies and large ISPs in the United States, Europe and the Pacific Rim that
can offer their customers a range of FreeAgent's basic and optional
communications features as premium monthly fee services. To assist in this
effort, the Company recently entered into a non-binding memorandum of
understanding with Bell Communications Research, Inc. ("Bellcore"), a leading
provider of communications software, engineering and consulting services
originally formed by the seven regional Bell operating companies. The memorandum
contemplates that the Company and Bellcore will jointly market, support and
implement FreeAgent worldwide. The Company is also targeting computer and
printer manufacturers, which could incorporate a customized PC-based component
of FreeAgent, similar to the one developed for Hewlett-Packard, into their own
proprietary products. Through these potential marketing channels, the Company
will generally seek to enter into arrangements pursuant to which it would
install, upgrade and maintain FreeAgent in exchange for license fees and/or a
share of monthly premium and usage fees. To date, other than Hewlett-Packard,
the Company has not entered into any software development, license or joint
marketing agreement for FreeAgent with any original equipment manufacturer
("OEM"), ISP or other distributor of telecommunication or internet products or
services, and there can be no assurance that any of these contemplated
arrangements will be achieved or, if achieved, that they will be on commercially
attractive terms for the Company.
The Company was incorporated in the State of Delaware in June 1997. On July
31, 1997, the Company acquired all assets, technologies and contract rights
relating to FreeAgent, including the software license agreement with
Hewlett-Packard, from AUGI in exchange for 3,000,000 shares of Common Stock of
the Company. See "The Company" and "Certain Transactions." The Company's
principal executive offices are located at 11130 N.E. 33rd Place, Suite 250,
Bellevue, Washington 98004, and its telephone number is (206) 827-6467. The
Company's home page is located on the Web at http:// www.connectsoft.com.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................... shares of Common Stock
Common Stock Outstanding After the
Offering(1).......................... shares of Common Stock
Use of Proceeds........................ To expand marketing and sales activities of
FreeAgent in the United States and abroad, to
enhance the Company's ongoing FreeAgent research
and development program, including licensing of
complementary third-party software, to repay
indebtedness to AUGI, the Company's sole
shareholder, and for additional general corporate
purposes, including potential acquisitions of
complementary businesses and technologies. See "Use
of Proceeds."
Risk Factors........................... The Company is in its early development stage and
there can be no assurance that any of the
technology being developed by or for the Company
will function as intended, or that the Company will
be able to commercially market its products
profitably. Accordingly, based on these and other
factors, an investment in the shares of Common
Stock offered hereby involves a high degree of risk
and should be made only by investors who can afford
the loss of their entire investment. See "Risk
Factors."
Proposed Nasdaq National Market
Symbol............................... CSFT
</TABLE>
- ------------------------
(1) Does not include (i) shares of Common Stock issuable upon exercise of
the Representative's Warrants and (ii) 1,362,000 shares of Common Stock
intended to be reserved for issuance upon exercise of outstanding options,
and 188,000 additional shares of Common Stock reserved for issuance upon
exercise of options available for future grant, under the Company's 1997
Stock Option Plan (the "1997 Plan"). See "Management--Stock Option Plan,"
"Underwriting" and Note 1 of Notes to Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SEPTEMBER 1, 1996
(DATE OF
INCEPTION)
TO JULY 31, 1997
-----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenue......................................................................... $ --
-----------------
Costs and expenses:
Research and development...................................................... 899,000
Selling, general and administrative........................................... 1,816,000
-----------------
Operating loss.................................................................. (2,715,000)
Interest expense................................................................ (118,000)
-----------------
Loss before provision for income taxes.......................................... (2,833,000)
Provision for income taxes...................................................... --
-----------------
Net loss........................................................................ $ (2,833,000)
-----------------
-----------------
Pro forma net loss per share(2)................................................. $ (0.94)
Pro forma weighted average number of shares outstanding(2)...................... 3,000,000
Supplemental pro forma net loss per share(3).................................... $ (0.88)
Supplemental pro forma weighted average number of shares outstanding(3)......... 3,132,000
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
------------- --------------
BALANCE SHEET DATA:
Working capital (deficit).......................................................... $ (2,215,000) $ 18,545,000
Total assets....................................................................... 382,000 20,002,000
Total current liabilities.......................................................... 2,215,000 1,075,000
Deficit accumulated during development stage....................................... (2,833,000) (2,833,000)
Shareholder's (deficit) equity..................................................... $ (1,833,000) $ 18,927,000
</TABLE>
- ------------------------
(1) The Company is a development stage enterprise. On September 1, 1996, the
Company (as a division of Connectsoft, Inc., a Washington corporation) began
to dedicate resources to the development of its FreeAgent software system.
See "The Company" and Note 1 of Notes to Financial Statements.
(2) Pro forma net loss per share is calculated on the basis of 3,000,000 shares
of Common Stock being outstanding for the period presented, representing the
3,000,000 shares of Common Stock issued to AUGI effective as of July 31,
1997. See Note 1 of Notes to Financial Statements.
(3) Supplemental pro forma net loss per share and supplemental pro forma
weighted average number of shares outstanding have been adjusted to give
effect to the use of $1,140,000 of net proceeds from the sale of 132,000
shares of Common Stock to repay indebtedness as of September 1, 1996 (date
of inception). Net loss for the period decreased by $91,000, representing
interest expense on such debt.
(4) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at an assumed initial public offering price of $
per share, after deduction of underwriting discounts and commissions and
estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
RISKS AND UNCERTAINTIES SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN
CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
DEVELOPMENT STAGE BUSINESS
The Company is at an early stage of development and is subject to all of the
risks inherent in the establishment of a new high technology business
enterprise. To address these risks, the Company must, among other things,
establish technological feasibility and complete development of its software
technology, enter into and maintain key strategic alliances, respond to
competitive developments and attract, retain and motivate qualified personnel.
The Company's decision to focus its efforts on its unified, intelligent
communications system is predicated on the assumption that, in the future, the
number of users of the Company's system will be large enough to permit the
Company to operate profitably. There can be no assurance that the Company's
assumption will be correct, that the Company will be able to successfully
compete as a provider, or that its technology will be scalable to satisfy the
number of potential users of its system. Any failure to achieve these goals
could have a material adverse effect upon the Company's business, operating
results and financial condition.
NO REVENUE; HISTORY AND ANTICIPATION OF LOSSES
From September 1, 1996 (date of inception) to July 31, 1997, the Company had
not generated any revenue, had incurred significant losses and had substantial
negative cash flow from operations. As of July 31, 1997, the Company had an
accumulated deficit of $2,833,000, with a net loss of $2,833,000 for the period
from September 1, 1996 (date of inception) to July 31, 1997. The Company did not
recognize any revenue in the fiscal year ended July 31, 1997 ("Fiscal 1997") due
to the deferral at July 31, 1997 of all initial license fee revenue under its
software license agreement with Hewlett-Packard. The Company also expects to
continue to incur substantial losses at least through the fiscal year ending
July 31, 1998. There can be no assurance that the Company will achieve or
sustain significant revenue or become cash flow positive or profitable at any
time in the future.
DEPENDENCE ON DCL AND SRI LICENSES
The Company has entered into software license agreements with DCL and SRI to
incorporate their proprietary technologies into the Company's FreeAgent system.
These license agreements require the Company to make advance payments, pay
minimum royalties and satisfy other conditions. There can be no assurance that
sales of products incorporating such technologies will be sufficient to recover
the amount of such payments or that sales of products will occur. Failure by the
Company to satisfy its obligations under these agreements may result in
modification of the terms or termination of the respective agreement, which
would have a material adverse effect on the Company. The Company expects that it
will be dependent on DCL and SRI for the foreseeable future. See "--Lack of
Patent Protection; Possible Infringement" and "Business--Technology Licenses."
NEED FOR STRATEGIC ALLIANCES
The Company's primary marketing strategy is to establish strategic and
licensing relationships with telecommunications companies and large ISPs. No
assurance can be given that the Company will be successful in entering into any
strategic alliances on acceptable terms or, if any such strategic alliance is
7
<PAGE>
entered into, that the Company will realize the anticipated benefits from such
strategic alliance. See "Business--Growth Strategy."
DEPENDENCE ON SINGLE PRODUCT
The Company's future profitability initially depends on the successful
development and commercialization of FreeAgent. In the event the introduction of
FreeAgent is unsuccessful for any reason, the Company's business, operating
results and financial condition will be materially adversely affected. See
"Business--The FreeAgent System."
NO ASSURANCE OF TECHNOLOGICAL SUCCESS
The Company's future success is based substantially upon its ability to
develop, license or acquire new technology to enable it to provide unified,
intelligent communications systems, and to enhance its existing technologies.
Software product development schedules are difficult to predict because they
involve creative processes, use of new development tools and the learning
processes associated with development for new technologies, as well as other
factors. Moreover, because of its complexity, software frequently contains
undetected errors, failures or "bugs," especially when first introduced or when
new versions or enhancements are released. There can be no assurance that
despite testing by the Company, errors will not be found in new software
developed by the Company. The failure to timely develop the software technology,
or the occurrence of errors in such technology, could prevent or delay market
acceptance of the Company's unified, intelligent communications system and
damage the Company's reputation, which could have a material adverse effect on
the Company's business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE
The communications technology market is characterized by rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
the emergence of new industry standards could render the Company's products and
services obsolete and unmarketable. The Company's future success will depend
upon its ability to develop and introduce new products and services (including
its unified, intelligent communications system) on a timely basis that keep pace
with technological developments and emerging industry standards and address the
increasingly sophisticated needs of the user. There can be no assurance that the
Company will be successful in developing and marketing new products and services
that respond to technological changes or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and services,
or that its new products and services will adequately meet the requirements of
the marketplace and achieve market acceptance. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or consumer
requirements, the Company's business, operating results and financial condition
will be materially adversely affected.
DEPENDENCE ON THE TECHNOLOGY OF THIRD PARTIES
To provide a unified, intelligent communications system, FreeAgent must
operate in conjunction with technology and infrastructure developed by third
parties. The hardware architecture within which FreeAgent operates is based upon
readily available third-party hardware. In addition, Free Agent is designed to
function with the infrastructures currently used with, and most existing
versions of, e-mail, voice mail, facsimile, paging, Web content, enterprise
intranets, PBX telephone systems and PSTN. There is substantial risk, however,
that these hardware components will have or could develop certain errors,
omissions or "bugs" or that future versions of technology or infrastructure may
be incompatible with FreeAgent. Any such event may adversely affect the
operation of FreeAgent. While the Company is not aware of any errors, omissions
or bugs inherent in any such third-party hardware and believes it is compatible
with most
8
<PAGE>
widely used communication infrastructures, there can be no assurance that such
errors, omissions or bugs or incompatability do not currently exist or will not
develop. The existence of any such error, omission or bug, or any change in
technology or infrastructure, that decreases the operating efficiency, capacity
or efficacy of the FreeAgent system could have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON THIRD PARTIES TO PROVIDE THE FULL FUNCTIONALITY OF FREEAGENT
The Company expects to license FreeAgent to telecommunications companies,
large ISPs and multinational vendors of telecommunications technologies to large
enterprises. In order for end-users to have the full range of FreeAgent
functionality available, the Company's customers must operate communications
networks that are able to offer the full range of FreeAgent's potential
functions and such customers may need to switch from one or more providers they
currently use. For example, if the Company enters into a contract with a
telephone company in order to receive the full benefits of FreeAgent, the end
user may need to switch from the paging service provider currently used by such
end user to the paging service, if any, offered by such telephone company
(unless the telephone company enters into an arrangement with the end-user's
current paging service company to offer such paging services). Even if the
telephone company offers paging services, such services may not be equal in
cost, quality, name recognition or otherwise, to the services currently used by
the end user, thus reducing the attractiveness of FreeAgent to the end user. In
the event the Company's customers are unable to offer the full range of
FreeAgent's functions, either because they operate limited communications
networks and/or they are unable to enter into satisfactory arrangements with
third parties that provide the necessary additional communications services, the
full potential and usefulness of FreeAgent may not be realized. In addition,
consumer acceptance may be limited by the need to switch from one or more
service providers with whom they are satisfied to the comparable services, if
any, offered by the Company's customer for FreeAgent. As a result, the Company
may not generate revenues sufficient for future profitable operations.
LACK OF ESTABLISHED DISTRIBUTION CHANNELS
The Company must establish and maintain relationships with new distribution
channels that will deliver access to the Company's unified, intelligent
communications system. There is intense competition in establishing such
relationships. There can be no assurance that the Company will succeed in
establishing such relationships, or if established, that the Company will be
able to maintain these relationships. The failure of the Company to establish
and then maintain these relationships could have a material adverse effect on
the Company's business, operating results and financial condition.
DEPENDENCE ON EMERGING MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future financial performance will depend on the growth in
demand for a unified, intelligent communications system by mobile business
professionals and other consumers. This market is new and emerging, is rapidly
evolving, is characterized by an increasing number of market entrants and will
be subject to frequent and continuing changes in customer preferences and
technology. As is typical in new and evolving markets, demand and market
acceptance for the Company's technologies are subject to a high level of
uncertainty. In addition, because the markets for the Company's technologies are
new and evolving, it is difficult to assess or predict with any assurance the
size or growth rate, if any, of these markets. There can be no assurance that
the markets for the Company's technologies will develop, or that they will not
develop more slowly than expected or attract new competitors. If the Company's
technologies do not achieve market acceptance, the Company's business, operating
results and financial condition could be materially adversely affected.
LIMITED RESOURCES
Building a unified, intelligent communications system based on software
technology is a complex process that requires significant engineering and
financial resources. To implement its system, the
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Company must develop certain technology and license other technologies from
third parties, establish distribution channels and find strategic partners. The
Company currently has limited technical and sales staff. There can be no
assurance that the Company will be able to establish and maintain adequate
marketing and sales capabilities. Furthermore, because the Company has not
generated any revenues since inception, and is not assured that it will generate
significant additional revenues in calendar year 1997, if at all, the Company
must conserve its remaining sources of cash. There can be no assurance that
given the limited resources of the Company it will be able to develop or
implement its unified, intelligent communications system. Failure to do so would
have a material adverse effect on the Company's business, operating results and
financial condition.
POTENTIAL NEED FOR ADDITIONAL FINANCING
The Company's future capital requirements could vary significantly and will
depend on certain factors, many of which are not within the Company's control.
These include the existence and terms of any joint technology development or
licensing arrangements; the ongoing development and testing of FreeAgent; the
nature and timing of developing and commercializing products; and the
availability of financing. The expansion of the Company's business will require
the commitment of significant capital resources toward the hiring of technical,
sales and operational support personnel to be used both for (i) the development
and enhancement of the FreeAgent technology and related products incorporating
those developments and (ii) the sales and marketing of such products. The
Company may require additional capital to take advantage of development and
marketing opportunities as they arise. In addition, in order to complete its
development activities and bring a proposed product to market, the Company may
be required to obtain financing to support significant capital outlays either
for the purchase or license of necessary technology. There can be no assurance
that such financing will be available or, if available, that it will be on
favorable terms. If adequate financing is not available, the Company may be
required to delay, scale back or eliminate certain of its research and
development programs or product releases, relinquish rights to certain of its
technologies, or license third parties to commercialize technologies that the
Company otherwise would seek to develop itself. To the extent the Company raises
additional capital by issuing equity securities, investors in this offering may
be diluted. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company must continue to attract, retain and motivate qualified
personnel. The metropolitan Seattle area is a highly competitive job market, and
there can be no assurance that key management and engineering personnel will
remain employed by the Company, or that the Company will be able to attract
sufficient additional personnel to execute its business plan. There can be no
assurance that the Company's current employees will continue to work for the
Company or that the Company will be able to obtain the services of additional
personnel necessary for the Company's growth. Failure to attract or retain
qualified personnel could have a material adverse effect on the Company's
business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
The business of the Company is dependent upon the active participation and
technical expertise of its executive officers and key personnel including Robert
Marcus, Daniel Boerner, Alan Mitchell, David Dolson, Stephen Oroszlan, Robert M.
Rubin and Howard B. Katz. The loss of the services of one or more of such
persons would have a material adverse effect on the Company. The Company does
not possess any key-man life insurance policies with respect to such persons,
but the Company is seeking to obtain $1,000,000 key-man life insurance policies
on the lives of Messrs. Marcus and Boerner. The Company has employment
agreements with Messrs. Marcus, Katz and Rubin and intends to enter into
employment agreements with its other executive officers. In addition, the
Company's ability to maintain a competitive
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position depends, in part, on its ability to attract additional qualified
personnel. There is no assurance that the Company will be able to attract or
retain such persons in the future. See "Management."
DEPENDENCE ON THE INTERNET
The Company believes that its future success is in part dependent upon
continued growth in the use of the Internet. Rapid growth in the use of and
interest in the Internet is a recent phenomenon. The Internet may not prove to
be a viable means of conducting commerce or communications for a number of
reasons, including, but not limited to, potentially unreliable network
infrastructure or the failure to timely develop performance improvements,
including high speed modems. In addition, to the extent that the Internet
continues to experience significant growth in the number of users and level of
use, there can be no assurance that the Internet infrastructure will continue to
be able to support the demands placed on it by any such growth. Failure of the
Internet as a mode of conducting commerce and communications could have a
material adverse effect on the Company's business, operating results and
financial condition.
POTENTIAL SECURITY ISSUES
The implementation of a unified, intelligent communications system poses
several security issues, including the possibility of break-ins and other
similar disruptions. The Company intends to incorporate authentication
technology into its unified, intelligent communications systems. However, there
can be no assurance that such technology will be adequate to prevent break-ins.
In addition, weaknesses in the medium by which users may access the Company's
unified intelligent, communications system, including the Internet, telephones,
cellular phones and other wireless devices, may compromise the security of the
confidential electronic information accessed from the Company's network service.
There can be no assurance that the Company will be able to provide a safe and
secure network service. The Company's failure to provide a secure network
service may result in significant liability to the Company and may deter
potential users of the service. The Company intends to limit its liability to
users, including liability arising from failure of the authentication technology
intended to be incorporated into the network service, through contractual
provisions. However, there can be no assurance that such limitations will be
effective or that they will be accepted by consumers. The Company currently does
not have liability insurance to protect against risks associated with break-ins
or disruptions. There can be no assurance that security problems will not occur
in the Company's network service or licensed technology incorporated into such
service or in the mediums by which subscribers access the network service. Any
security problems in the network service or the licensed technology incorporated
in such service may require significant expenditures of capital and resources by
the Company to alleviate such problems, may result in lawsuits against the
Company, may limit the number of users of the network service and may cause
interruptions or delays in the development and completion of, or the cessation
of the Company's network service. Any such expenditures, lawsuits, reduction of
users, interruptions or delays in the development and completion of the network
service, or the cessation of such service by the Company, would likely have a
material adverse effect on the Company's business, operating results and
financial condition. Certain critical issues concerning the security of the
Internet remain unresolved at this time. If the Internet proves to be unreliable
with respect to the information distributed on or the transactions conducted
over it, the rapid growth in the use of and interest in the Internet may cease,
which could have a material adverse effect on the Company's business, operating
results and financial condition. See "--Dependence on the Internet."
COMPETITION
Many of the companies with which the Company competes, or which are expected
to offer products or services based on alternatives to the Company's
technologies, have substantially greater financial resources, research and
development capabilities, sales and marketing staffs and distribution channels
than the Company. There can be no assurance that products incorporating the
Company's technologies will achieve sufficient quality, functionality or
cost-effectiveness to compete with existing or future alternatives. Furthermore,
there can be no assurance that the Company's competitors will not succeed in
developing
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products or services which are more effective and cost less than those based on
the Company's or its licensors' technologies, or which render the Company's or
its licensors' technologies obsolete. The Company believes that its ability to
compete depends on factors both within and outside its control. The principal
competitive factors affecting the market for the Company's services and
technologies are the availability of the Company's or its licensors'
technologies and the products and services of the Company, its licensees and
their competitors; the quality, ease of use, performance, architecture and
functionality of the products and services developed and marketed by the Company
and its licensees; the effectiveness of the Company and its licensees in
marketing and distributing their products and services and price. There can be
no assurance that the Company will be successful in the face of increasing
competition from new technologies or products introduced by existing competitors
or by new companies entering the market. See "Business--Competition."
LACK OF PATENT PROTECTION; POSSIBLE INFRINGEMENT
The Company's ability to compete with other companies will depend to a great
extent on the Company maintaining the proprietary nature of its technologies.
The Company currently does not hold patents for its technology, but it does
license technology from third parties whose technology is, and in the future
will be, incorporated into its products. In addition, there can be no assurance
that any patents that may be applied for by the Company in the future will
ultimately be issued in its favor, or that any patent so issued, or any patent
rights assigned or licensed to the Company, will afford necessary protection or
will be upheld in the event of a challenge. There is also no assurance that the
Company's products will not infringe the patents of third parties. Problems with
patents could potentially increase the cost of the Company's products, or delay
or preclude new product development and commercialization by the Company. If
infringement claims against the Company are deemed valid, the Company may seek
licenses which might not be available on acceptable terms, if at all. Litigation
could be costly and time-consuming but may be necessary to protect the Company's
future patent and/or technology license positions, or to defend against
infringement claims. A successful challenge to the Company's technology could
have a materially adverse effect on the Company and its business prospects.
There can be no assurance that any application of the Company's or its
licensors' technology will not infringe upon the proprietary rights of others or
that licenses required by the Company from others will be available on
commercially reasonable terms, if at all.
Under the terms of the license agreement between SRI and the Company, SRI is
not obligated to indemnify or defend the Company from any patent infringement
claims brought by third parties against the Company, as the Company only
received representations from the inventors of SRI's core OAA software,
enhancements and port, in both source code and object code form, that, to their
best current actual knowledge, such "Licensed Software" does not infringe the
patent rights of any third party. In the event the Licensed Software received
from SRI infringes the patent rights of third parties, the Company would
nevertheless continue to be required to pay a one percent royalty to SRI in
addition to any royalties or other amounts it might be obligated to pay a third
party in order to settle such infringement claim. Although the Company does not
believe that, based upon its due diligence to date, the SRI Licensed Software
infringes the patent rights of any third party, there can be no assurance that
such infringement claim may not be asserted in the future and upheld as
meritorious.
The Company relies heavily upon trade secrets and other unpatented
proprietary technology. No assurance exists that other persons will not
independently develop or acquire technology substantially equivalent to the
Company's, or that the Company will successfully protect its unpatented
technology and trade secrets from misappropriation by others. Additionally, in
the Pacific Rim and third world countries, in which the Company may do business,
the unauthorized use of technology, whether protected legally or not, is
widespread and it is possible that the Company's technology will be subject to
theft and infringement. Furthermore, pursuant to the Company's current business
plan, it will be necessary for the Company to make its intellectual property
available to vendors, customers and other companies in the industry, making it
even more difficult to protect its technology. See "Business--Technology,
Research and Development" and "-- Protection of Intellectual Property."
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RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
One of the Company's strategies is to increase its revenue and expand the
markets it serves through strategic acquisitions. There can be no assurance,
however, that the Company will be able to identify, acquire or profitably manage
suitable acquisition candidates or successfully integrate such businesses, if
acquired, into its operations without substantial costs, delays or other
problems. In addition, there can be no assurance that any acquired businesses
will be profitable at the time of their acquisition or will achieve or maintain
profitability levels that justify its investment or that the Company will be
able to realize expected operating and economic efficiencies following such
acquisitions. Acquisitions may involve a number of special risks, including
adverse effects on the Company's reported operating results, diversion of
management's attention, increased burdens on the Company's management resources
and financial controls, dependence on the retention and hiring of key personnel,
risks associated with unanticipated problems or legal liabilities and
amortization of acquired intangible assets. Any such risks could have an adverse
effect on the Company's business, operating results and financial condition. See
"Business-- Growth Strategy."
GOVERNMENT REGULATION
The Federal Communications Commission and certain state agencies regulate
certain of the Company's potential customers, such as telecommunications
companies. In addition, regulatory authorities in foreign countries in which the
Company may sell its products may impose similar or more extensive governmental
regulations. Although the Company contemplates that it will rely upon its
partners or customers to comply with applicable regulatory requirements, there
can be no assurance that such regulations will not materially adversely affect
the Company by imposing burdensome regulations on the Company's partners or
customers, or otherwise. Changes in the regulatory environment relating to the
Internet or the telecommunications industry could have an adverse effect on the
Company. The Company cannot predict the impact that future regulation or
regulatory changes may have on its business. See "Business--Government
Regulation."
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The manufacture and sale of FreeAgent entails risk of product liability
claims. In addition, many of the telecommunications companies, ISPs and other
large companies with which the Company may do business may require financial
assurances of product reliability. The Company has product liability insurance
but may be required to pay higher premiums associated with new product
development. Product liability insurance is expensive and there can be no
assurance that such insurance will be available on acceptable terms, if at all,
or that it will provide adequate coverage against product liability claims and
liabilities. The inability to obtain product liability insurance at an
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of FreeAgent. A successful
claim brought against the Company in excess of its insurance coverage could have
a material adverse effect on the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results could occur from
time to time as a result of a number factors, such as the completion of the
Company's development efforts and its ability to generate revenue from sales of
products. The timing of revenue is difficult to forecast because the Company has
limited FreeAgent sales experience. Sales and product development cycles for the
Company's products can be relatively long, and revenues may depend on factors
such as the size and scope of future projects, all of which are difficult to
predict.
CONTROL BY EXISTING STOCKHOLDER; ANTI-TAKEOVER EFFECTS
Immediately following this offering, AUGI will continue to own approximately
% of the outstanding shares of the Company's Common Stock, assuming no
exercise of the Underwriters' over-
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allotment option. As a result, AUGI will have the ability to exercise
significant influence over matters regarding the Company and to determine the
outcome of all matters submitted to a vote of stockholders. Such influence may
have a significant effect in delaying, deferring or preventing a change in
control of the Company. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which will
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. In addition, certain provisions of the Company's
Certificate of Incorporation and By-laws, as well as other provisions of
Delaware law, could have the effect of delaying, deferring or preventing a
change in control of the Company. These provisions include the Company's ability
to issue, without further stockholder approval, preferred stock in one or more
series which could have rights and preferences senior to the Common Stock. Such
rights and privileges could adversely affect the voting power of the holders of
Common Stock, or could result in one or more classes of outstanding securities
that would have dividend, liquidation or other rights superior to those of the
Common Stock. Issuance of such preferred stock may have an adverse effect on the
then prevailing market price of the Common Stock. See "Principal Stockholders"
and "Description of Capital Stock."
BENEFITS TO RELATED PARTY
The Company intends to use approximately $2,500,000 of the net proceeds of
this offering for the repayment of indebtedness to AUGI, the Company's sole
stockholder. See "Certain Transactions."
POTENTIAL CONFLICTS OF INTEREST
It is expected that Robert Marcus, the President and Chief Executive Officer
of the Company, and other executive officers of the Company will devote
substantially all of their working time to the Company. However, it is expected
that Robert M. Rubin, the Company's Chairman of the Board, and Howard B. Katz,
the Company's Executive Vice President and Treasurer, will devote only
approximately 10% of their working time to the Company, and that the balance of
their working time may be devoted to other business and investment activities,
including their duties as Chief Executive Officer and Executive Vice President
of AUGI, respectively, and an officer or director of other AUGI subsidiaries. In
addition, certain members of the Company's Board of Directors are involved in
other endeavors. Accordingly, these individuals will be able to devote only a
portion of their time to the Company's business. See "Management."
BROAD DISCRETION IN ALLOCATION OF NET PROCEEDS
The Company intends to use approximately 59.1% of the net proceeds of this
offering primarily for general corporate purposes, including working capital and
possible acquisitions of businesses, technologies and products complementary to
the Company's business, although the Company has not identified any such
acquisition to date. The Company expects that, at the completion of this
offering, a total of approximately $2,500,000 in indebtedness will be
outstanding under (i) a promissory note payable to AUGI in the principal amount
of approximately $1,140,000 issued in connection with the capitalization of the
Company and (ii) a line of credit agreement with AUGI providing for advances of
up to $2,750,000 (of which in excess of $1,360,000 is expected to be outstanding
at such date). Other than the repayment of such outstanding indebtedness plus
accrued interest, as well as net proceeds allocated to research and development
and marketing and sales, the Company has no other specific plans to use the net
proceeds of this offering. Accordingly, management will retain broad discretion
to allocate a significant portion of the net proceeds of this offering. See "The
Company," "Use of Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The
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initial public offering price will be determined through negotiations between
the Company and the Representative and may not be indicative of the market price
of the Common Stock after this offering. The trading price of the Common Stock
is likely to be volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results;
announcements of technological innovations, new products or new contracts by the
Company or its competitors; developments with respect to intellectual or other
proprietary rights; conditions and trends in the Company's markets; changes in
financial estimates by securities analysts; general market conditions and other
factors. In addition, the public equity markets have from time to time
experienced significant price and volume fluctuations that have particularly
affected the market prices for the stocks of technology companies. These broad
market fluctuations, as well as shortfalls in sales or earnings as compared with
public market analysts' expectations, changes in such analysts' recommendations
or projections and general economic and market conditions, may adversely affect
the market price of the Company's Common Stock. See "Underwriting."
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate
substantial dilution in pro forma net tangible book value per share from the
assumed initial public offering price of $ per share in the amount of $ .
See "Dilution."
NO DIVIDENDS
The Company has never paid any dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after this
offering, or the possibility of such sales occurring, could adversely affect
prevailing market prices of the Common Stock or the future ability of the
Company to raise capital through an offering of equity securities. After this
offering, the Company will have outstanding shares of Common Stock. Of
such shares, the shares of Common Stock offered hereby will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by "affiliates" of the Company, as defined in Rule
144 under the Securities Act. The remaining 3,000,000 shares of Common Stock
which are issued and outstanding, as well as all of the 1,362,000 shares
issuable upon exercise of outstanding stock options under the 1997 Plan, will be
"restricted securities," as defined in Rule 144. Pursuant to certain "lock-up"
agreements, all of the executive officers, employees and directors of the
Company holding stock options, and AUGI as the sole owner of the 3,000,000
outstanding shares, have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any such shares for a period of 18
months after the date of this Prospectus. Such agreements provide that the
Representative may, in its sole discretion and at any time without notice,
release all or a portion of the shares subject to these lockup agreements;
although it has no present intention of doing so. See "Shares Eligible for
Future Sale" and "Underwriting."
POTENTIAL ADVERSE EFFECT ON MARKET PRICE OF COMMON STOCK AS A RESULT OF AUGI
COMMON STOCK PRICE
As of August 19, 1997, there were approximately 10,478,000 shares of common
stock of AUGI issued and outstanding, of which approximately 7,591,000 shares
were publicly held. AUGI's common stock is listed on Nasdaq. On September 2,
1997, the closing price of such AUGI common stock was $6.44 per share. The
prevailing per share trading price of AUGI common stock may have a direct impact
on the future trading price of the Common Stock. In addition, potential negative
developments affecting AUGI which may be unrelated to the Company's business may
adversely affect the market value of the Common Stock.
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THE COMPANY
In July 1996, AUGI acquired, through a merger transaction, 100% of the
capital stock of Connectsoft, Inc., a Washington corporation ("Old Connectsoft")
in exchange for 1,000,000 shares of AUGI convertible preferred stock having a
$3,500,000 aggregate liquidation preference and convertible under certain
conditions into a minimum of 1,000,000 shares and a maximum of 3,000,000 shares
of AUGI common stock. At the time of the acquisition, Old Connectsoft was
engaged in (a) providing computer software consulting and related services to
third parties; (b) developing and marketing computer software products sold at
retail known as EMAIL CONNECTION and EMAIL FOR KIDS; and (c) developing a
proprietary software product (the "Application Server Software") that allows
users to run WINDOWS application server software programs designed for the
Microsoft Windows NT operating system on (i) users' existing Unix workstations,
X-terminals and other X-windows devices, Macintosh terminals and Java-enabled
network computers, which would otherwise not be WINDOWS compatible, and (ii) on
older versions of WINDOWS compatible workstations which are otherwise incapable
of running newer versions of Microsoft compatible software. Immediately
following the acquisition of Old Connectsoft, AUGI transferred certain assets
relating to the Application Server Software to Exodus Technologies, Inc., a
majority-owned subsidiary of AUGI.
Effective as of July 31, 1997, Old Connectsoft transferred to AUGI all of
its technology, assets and business relating exclusively to the development of
FreeAgent, including the assignment of the Hewlett-Packard software license
agreement, subject to related liabilities (the "FreeAgent Assets").
Contemporaneously with the transfer of the FreeAgent Assets, AUGI agreed to (i)
forgive certain indebtedness and obligations owed by Old Connectsoft (other than
in respect of costs related to the development of the Application Server
Software), and (ii) indemnify and hold harmless Old Connectsoft from and against
any and all liabilities and debts related to claims which arise out of the
business or operations of Old Connectsoft prior to the date of such transfer
other than liability, debt, loss, cost or claims arising out of the business and
operations of the Application Server Software now held by another AUGI
subsidiary.
Additionally, effective as of July 31, 1997, AUGI transferred to the Company
all of the FreeAgent Assets. Pursuant to the terms of such transfer, the Company
executed a promissory note payable to AUGI in the principal amount of
approximately $1,140,000 (the "Asset Transfer Note"), representing the cash
advances in excess of $1,000,000 (which amount was satisfied by issuance of the
Common Stock to AUGI) made by AUGI to Old Connectsoft in connection with the
FreeAgent Assets. Contemporaneously with the transfer of the FreeAgent Assets,
AUGI agreed to indemnify and hold harmless the Company from and against any and
all liabilities and debts related to claims which arise out of the business or
operations of Old Connectsoft prior to the date of such transfer, other than (i)
the indebtedness under the Asset Transfer Note, (ii) matters arising after
September 1, 1996 which are related solely to the FreeAgent Assets, (iii) the
activities of Old Connectsoft related to the development and utilization of the
FreeAgent Assets and (iv) the obligations which have been directly incurred by
Old Connectsoft in connection with the development and utilization of the
FreeAgent Assets. In consideration for the transfer of assets and such
indemnification, the Company issued to AUGI 3,000,000 shares of Common Stock of
the Company and executed and delivered the Asset Transfer Note . See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Transactions."
FreeAgent, and all of the technology developed and acquired by the Company
in connection with such software system, were developed and acquired by the
FreeAgent division of Old Connectsoft commencing on September 1, 1996 (the
"FreeAgent Division"). Unless the context otherwise indicates, the "Company"
includes the FreeAgent Division.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby by the Company are estimated to be approximately $20,760,000 ($23,964,000
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share, and after deducting
underwriting discounts and commissions and estimated offering expenses.
The Company intends to use the net proceeds of this offering as follows: (i)
approximately $4,000,000, or 19.3% of the net proceeds, to expand marketing and
sales activities of FreeAgent in the United States and abroad, (ii)
approximately $2,000,000, or 9.6% of the net proceeds, primarily to enhance the
Company's ongoing FreeAgent research and development program, including
licensing of complementary third-party software, (iii) approximately $2,500,000,
or 12.0% of the net proceeds, to pay the $1,140,000 Asset Transfer Note, plus
accrued interest, in its entirety and the balance of the $2,500,000 to repay all
or a portion of the outstanding principal balance, plus accrued interest, under
a line of credit agreement with AUGI, as described below, and (iv) the remaining
net proceeds, estimated at approximately $12,260,000, or 59.1% of the net
proceeds, for additional working capital and general corporate purposes,
including potential acquisitions of complementary businesses and technologies.
Under a line of credit agreement with AUGI entered into as of July 31, 1997
(the "AUGI Line of Credit"), the Company may borrow from time to time, prior to
the earlier of the completion of this offering or January 31, 1999, up to
$2,750,000 from AUGI to be used by the Company to fund its working capital
needs, including research and development and marketing and sales activities
related to FreeAgent. Borrowings under the agreement will be unsecured and will
bear interest at 8% per annum, with annual interest added to the outstanding
principal amount. As of August 31, 1997, AUGI had advanced approximately
$275,000 to the Company under such agreement. The Company expects that
outstanding advances under such agreement will be in excess of $1,360,000 at the
completion of this offering. The Company intends to use the net proceeds of this
offering to repay all or a portion of the AUGI Line of Credit at the completion
of this offering. In the event outstanding balances under the AUGI Line of
Credit are less than $1,360,000, the excess proceeds will be added to working
capital. If advances under the AUGI Line of Credit at the completion of this
offering exceed $1,360,000, such excess, if any, will bear interest at 10% per
annum, with annual interest added to the outstanding principal amount, and will
be due on July 31, 2000. AUGI has informed the Company that this agreement is
not in conflict with the covenants of any other of its financing arrangements
currently in effect. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The Company may also use a portion of the balance of the net proceeds to
acquire or invest in businesses, technologies and products complementary to the
Company's business. While from time to time the Company evaluates potential
acquisitions of such businesses, technologies and products, there are no present
understandings, commitments or agreements with respect to any such transaction.
The Company believes that the proceeds of this offering, together with license
fees or other income, will be sufficient to meet the Company's projected
requirements for working capital and capital requirements through at least the
next 18 months. Pending such uses, the Company intends to invest the net
proceeds from the offering in investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. The Company
intends to retain future earnings, if any, to finance the development and
expansion of its business and, therefore, does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of July 31, 1997, the short-term debt and
capitalization of the Company on an actual and as adjusted basis to give effect
to the sale and issuance of the Shares offered by the Company hereby
(after deducting the estimated underwriting discounts and commissions and
estimated offering expenses) at an assumed public offering price of $ per
share, and the application of the net proceeds therefrom as described in "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ -------------
Note payable to AUGI................................................................. $ 1,140,000 $ --
Shareholder's (deficit) equity:
Preferred stock, par value $.001; 5,000,000 shares authorized; no shares issued and
outstanding...................................................................... -- --
Common stock, par value $.001; 30,000,000 shares authorized; 3,000,000 (actual) and
shares (as adjusted) issued and outstanding(1)........................... 3,000
Additional paid in capital......................................................... 997,000 21,760,000
Deficit accumulated during the development stage................................... (2,833,000) (2,833,000)
------------ -------------
Total shareholder's (deficit) equity......................................... (1,833,000) 18,927,000
------------ -------------
Total capitalization............................................................... $ (693,000) $ 18,927,000
------------ -------------
------------ -------------
</TABLE>
- ------------------------
(1) Does not include (i) shares of Common Stock issuable upon exercise of
the Representative's Warrants and (ii) 1,362,000 shares of Common Stock
intended to be reserved for issuance upon exercise of outstanding options,
and 188,000 additional shares of Common Stock reserved for issuance upon
exercise of options available for future grant, under the Company's 1997
Plan. See "Management -- Stock Option Plan," "Underwriting" and Note 1 of
Notes to Financial Statements.
18
<PAGE>
DILUTION
As of July 31, 1997, the Company had a net tangible book value deficit of
$(1,833,000) or $(0.61) per share of Common Stock. Net tangible book value
deficit per share represents the amount of net tangible assets, less total
liabilities as of July 31, 1997, divided by the number of shares of Common Stock
issued to AUGI as of July 31, 1997. After giving effect to the sale by the
Company of the Shares offered hereby at an assumed initial public
offering price of $ per share (after deducting the estimated offering
expenses and underwriting discounts and commissions), the net tangible book
value of the Company as of July 31, 1997 would have been $ or $ per
share. This represents an immediate increase in such net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $
Net tangible book value per share at July 31, 1997........................ $ (0.61)
Increase in net tangible book value per share attributable to new
investors...............................................................
---------
Net tangible book value per share after this offering.......................
---------
Dilution per share to new investors......................................... $
---------
---------
</TABLE>
The following table summarizes, as of July 31, 1997, the differences in the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing and new investors:
<TABLE>
<CAPTION>
TOTAL AVERAGE
SHARES PURCHASED CONSIDERATION PRICE
----------------------- -------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholder..................................... 3,000,000 % $ 1,000,000 4.0% $ 0.33
New investors............................................ % $ 24,000,000 96.0% $
---------- ----- ------------- -----
Total.................................................... 100.0% $ 25,000,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The above table assumes no exercise of the Underwriters' over-allotment
option. If the Underwriters' over-allotment option is exercised in full, new
investors will have paid $27,600,000 for shares of Common Stock,
representing approximately 96.5% of the total consideration for % of the
total number of shares of Common Stock outstanding. See "Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of operations for the period from September 1, 1996 (date of
inception) to July 31, 1997 are derived from the financial statements audited by
Price Waterhouse LLP, independent accountants, which are included elsewhere in
this Prospectus. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes included herein.
<TABLE>
<CAPTION>
SEPTEMBER 1, 1996
(DATE OF
INCEPTION)
TO JULY 31, 1997
-----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenue........................................................................ $ --
-----------------
Costs and expenses:
Research and development..................................................... 899,000
Selling, general and administrative.......................................... 1,816,000
-----------------
Operating loss................................................................. (2,715,000)
Interest expense............................................................... (118,000)
-----------------
Loss before provision for income taxes......................................... (2,833,000)
Provision for income taxes..................................................... --
-----------------
Net loss....................................................................... $ (2,833,000)
-----------------
-----------------
Pro forma net loss per share(2)................................................ $ (0.94)
Pro forma weighted average number of shares outstanding(2)..................... 3,000,000
Supplemental pro forma net loss per share(3)................................... $ (0.88)
Supplemental pro forma weighted average number of shares outstanding(3)........ 3,132,000
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
----------------- --------------
BALANCE SHEET DATA:
Working capital (deficit)...................................................... $ (2,215,000) $ 18,545,000
Total assets................................................................... 382,000 20,002,000
Total current liabilities...................................................... 2,215,000 1,075,000
Deficit accumulated during development stage................................... (2,833,000) (2,833,000)
Shareholder's (deficit) equity................................................. $ (1,833,000) $ 18,927,000
</TABLE>
- ------------------------
(1) The Company is a development stage enterprise. On September 1, 1996, the
Company (as a division of Old Connectsoft) began to dedicate resources to
the development of its FreeAgent software system. See "The Company" and Note
1 of Notes to Financial Statements.
(2) Pro forma net loss per share is calculated on the basis of 3,000,000 shares
of Common Stock being outstanding for the period presented, representing the
3,000,000 shares of Common Stock issued to AUGI effective as of July 31,
1997. See Note 1 of Notes to Financial Statements.
(3) Supplemental pro forma net loss per share and supplemental pro forma
weighted average number of shares outstanding have been adjusted to give
effect to the use of $1,140,000 of net proceeds from the sale of 132,000
shares of Common Stock to repay indebtedness as of September 1, 1996 (date
of inception). Net loss for the period decreased by $91,000 representing
interest expense on such debt.
(4) Adjusted to give effect to the sale by the Company of shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share, after deduction of underwriting discounts and commissions
and estimated offering expenses and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY
ANTICIPATED.
OVERVIEW
The Company commenced operations in September 1996 to develop a unified,
intelligent communications system which it is marketing under the name
FreeAgent. FreeAgent is designed to unify communications into a single message
box, allow access to that message box through any telephone or online computer,
and apply advanced autonomous software processes (known as intelligent agentry)
to the data flowing in and out of the message box for the purpose of automating
communications and assisting the user in managing communications. Since its
formation, the Company has been in the development stage, with its principal
activities to date consisting of the development and marketing of FreeAgent and
its related technology. From September 1, 1996 (date of inception) to July 31,
1997, the Company had not generated any revenue from the development of its
product, had incurred significant losses since inception and had substantial
negative cash flow from operations. For that period, the Company had a net loss
and a deficit accumulated during the development stage of $2,833,000. The
Company expects to continue to incur substantial losses at least through the
fiscal year ending July 31, 1998.
A PC-based component of FreeAgent has been recently developed for the Inkjet
Printer Division of Hewlett-Packard. Pursuant to a software license agreement
executed in April 1997 and modified in August 1997, the Company delivered a beta
version of its software to Hewlett-Packard in May 1997 and expects to deliver a
commercial production version of such software in an initial Japanese language
version in September 1997, followed by an English language version by November
1997. In accordance with the modified agreement, in the event the Company fails
to deliver such software by September 22, 1997, outstanding license fees payable
by Hewlett-Packard are subject to reduction on a daily basis from $1,000 to
$10,000, depending on the length of the delay, until the software is delivered.
The Company believes that, based on its efforts to date, it will deliver the
commercial production version of such software on a timely basis, although there
can be no assurance of such timely delivery. Performance of this agreement,
which is the Company's only customer contract to date, is expected, assuming
timely delivery and acceptance, to result in $1,000,000 in initial license fees
and $300,000 in royalty payments, payable in four quarterly installments of
$75,000 following the delivery of the software. To date, $750,000 in license
fees has been received by the Company under the agreement. In accordance with
the Company's revenue recognition policy, fees from this agreement will be
recognized as revenue upon the timely delivery and acceptance of such software
by Hewlett-Packard.
The Company will generally seek to enter into future customer contracts
pursuant to which it would install, upgrade and maintain FreeAgent in exchange
for license fees and/or a share of monthly premium and usage fees.
RESULTS OF OPERATIONS
The Company is in the development stage and has not generated any revenue to
date. As of July 31, 1997, the Company had an accumulated deficit during the
development stage of $2,833,000. Following this offering, the Company expects to
increase the amounts spent on its research and development and sales and
marketing efforts to further develop FreeAgent and its related technology and to
expand its business. Expanding such efforts will increase the rate of losses
until such time as the Company begins to generate offsetting revenue.
21
<PAGE>
PERIOD FROM SEPTEMBER 1, 1996 (DATE OF INCEPTION) TO JULY 31, 1997
The Company commenced operations in September 1996 and did not generate any
revenue during the period from September 1, 1996 (date of inception) to July 31,
1997. The $750,000 in initial license fees received and recorded under the
Hewlett-Packard software license agreement has been classified as deferred
revenue as of July 31, 1997, pursuant to the Company's revenue recognition
policy. These amounts will be recognized as revenue when the commercial
production version of this software is delivered to and accepted by
Hewlett-Packard. The Company believes that delivery of such software will occur
on or prior to September 8, 1997.
Research and development expenses are comprised largely of costs associated
with payroll and contract personnel engaged in development activities and
purchased software as discussed in the following paragraph. During the period
from September 1, 1996 (date of inception) to July 31, 1997, research and
development expenses were $899,000. Since the product has not yet achieved
technological feasibility, all of these costs have been expensed in accordance
with the Company's policy for software development costs. The Company
anticipates increasing the amounts spent on research and development activities
in the foreseeable future and intends to use approximately $2,000,000 of the net
proceeds of this offering for research and development. Prior to the completion
of this offering, such funds may be advanced to the Company by AUGI. See
"--Liquidity and Capital Resources."
In July 1997, the Company entered into a software license agreement with
DCL. Under the terms of this agreement, the Company paid DCL an initial license
fee of $100,000 in July 1997 and agreed to pay an additional $200,000 upon the
achievement of certain milestones in DCL's software development effort. The DCL
agreement also provides for the payment of a royalty equal to five percent of
the net revenues of the Company derived from the licensing of products
incorporating DCL's technology. These royalties will be offset against minimum
royalty commitments of $200,000, $587,500 and $362,500 for the fiscal years
ending July 31, 1998, 1999 and 2000, respectively. In August 1997, the Company
entered into a software development agreement and a license agreement with SRI.
Under the software development agreement, the Company agreed to pay for SRI's
consulting and development services in connection with the completion of SRI's
OAA system, estimated to be $126,000. Such amount is payable upon the completion
of certain milestones. The Company paid SRI $30,000 upon the execution of the
agreement and agreed to pay SRI an additional $20,000 on September 21, 1997,
with the balance payable on a monthly basis thereafter against the receipt of
invoices for work performed. In addition, under the license agreement, the
Company agreed to pay SRI a one percent royalty on net sales of the Company's
products utilizing SRI's computer code. See "Business - Technology Licenses."
Selling, general and administrative expenses are comprised largely of
payroll and associated costs relating to the Company's executive management
team, its sales and marketing personnel and related office overhead and
administrative costs allocated from AUGI. Selling, general and administrative
expenses for the period from September 1, 1996 (date of inception) to July 31,
1997 were $1,816,000. The Company expects selling, general and administrative
expenses to increase significantly as it funds its sales and marketing
activities for FreeAgent and as it increases the number of employees and level
of corporate and administrative activity. The Company intends to use
approximately $4,000,000 of the net proceeds of this offering for marketing and
sales.
Interest expense is comprised of interest allocated on actual intercompany
borrowings accruing interest at 8% per annum. Interest expense for the period
from September 1, 1996 (date of inception) to July 31, 1997 was $118,000.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has been financed solely through funding from AUGI, its
sole stockholder. The Company had no cash or cash equivalents as of July 31,
1997.
22
<PAGE>
In connection with the transfer of the FreeAgent Assets, the Company
executed as of July 31, 1997, a promissory note payable to AUGI in the principal
amount of approximately $1,140,000 (the "Asset Transfer Note"). Such
indebtedness is unsecured, due on demand and bears interest at 8% per annum,
with annual interest added to the outstanding principal amount. The Company
intends to use a portion of the net proceeds of this offering to pay the Asset
Transfer Note in its entirety at the completion of the offering. See "Use of
Proceeds."
The Company entered into the AUGI Line of Credit as of July 31, 1997,
pursuant to which the Company may borrow from time to time, prior to the earlier
of the completion of this offering or January 31, 1999, up to $2,750,000 from
AUGI to be used by the Company to fund its working capital needs, including
research and development and marketing and sales activities related to
FreeAgent. Borrowings under the agreement will be unsecured and will bear
interest at 8% per annum, with annual interest added to the outstanding
principal amount. As of August 31, 1997, AUGI had advanced approximately
$275,000 to the Company under such agreement. The Company expects that
outstanding advances under such agreement will be in excess of $1,360,000 at the
completion of this offering. The Company intends to use the net proceeds of this
offering to repay all or a portion of the AUGI Line of Credit, plus accrued
interest, at the completion of this offering. In the event outstanding balances
under the AUGI Line of Credit are less than $1,360,000, the excess proceeds will
be added to working capital. If advances under the AUGI Line of Credit at the
completion of this offering exceed $1,360,000, such excess, if any, will bear
interest at 10% per annum, with annual interest added to the outstanding
principal amount, and will be due on July 31, 2000. AUGI has informed the
Company that this agreement is not in conflict with the covenants of any other
of its financing arrangements currently in effect. See "Certain Transactions."
NET OPERATING LOSS CARRYFORWARDS
The Company has incurred net losses for financial reporting and tax purposes
since inception. As of July 31, 1997, the Company was included in the AUGI
consolidated federal tax return. Net operating loss carryforwards generated
through July 31, 1997, when the Company was a division of Old Connectsoft, will
remain with AUGI. Upon the completion of this offering or any other changes in
ownership that cause the Company to no longer be included in AUGI's consolidated
federal tax return, the Company will have available to it the net operating
losses generated from August 1, 1997 to the date of the change in control to the
extent the net operating losses are not utilized by AUGI. A full valuation
allowance has been recorded against net operating loss carryforwards due to the
Company's limited operating history and therefore uncertainty regarding their
future utilization.
RECENT PRONOUNCEMENT OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which simplifies the
standards for computing earnings per share previously found in APB Opinion No.
15. Statement No. 128 is required to be adopted by the Company in the fiscal
year ending July 31, 1998. The effect of the adoption of Statement No. 128 on
the Company's net loss per share has not been determined.
23
<PAGE>
BUSINESS
OVERVIEW
The Company is developing a unified, intelligent communications system which
it is marketing under the name "FreeAgent." FreeAgent is designed to unify
communications into a single message box, allow access to that message box
through any telephone or online computer and apply advanced autonomous software
processes (known as intelligent agentry) to the data flowing in and out of the
message box for the purpose of automating communications and assisting the user
in managing communications. FreeAgent is being developed to integrate e-mail,
voice mail, facsimile, paging, content from the Web and potentially any other
digital data from the Internet, enterprise intranets, PBX telephone systems and
PSTN.
FreeAgent is capable of applying advanced media transformation processes
(such as text-to-speech conversion), advanced user interface technologies (such
as limited speech recognition) and specified agentry processes (such as
automated message and information monitoring), so that a person can send or
receive a message between most currently used communications media, using any
wireline or wireless telephone on PBX or PSTN systems or any PC on the Internet
or an intranet. For example, e-mail sent from a PC can be heard as voice mail on
a telephone and voice mail sent by telephone can be received and listened to on
a computer. Similarly, content on Web pages can be listened to on a telephone,
as well as read on a computer. FreeAgent was previewed at the Internet World
Summer trade show in July 1997 and is expected to be commercially released in
December 1997. The Company has developed a customized PC-based component of
FreeAgent for Hewlett-Packard, which is expected to be delivered in an initial
Japanese language version in September 1997. As part of the continuing
development of FreeAgent, the Company intends to incorporate natural language
understanding (the ability to convert the spoken word to computer commands) and
additional agentry functions (such as automated notification of urgent messages
or of changes in stock market prices, or the ability to complete simple
transactions such as making airline reservations) into the system. Such changes
are being designed to further facilitate the command and control of the
FreeAgent system by telephone and to further enhance FreeAgent's functionality
and services.
Following the acquisition of the Company by AUGI, and after evaluating the
Company's existing technology base and expertise, the Company determined, in
September 1996, to begin to focus its efforts on the development of FreeAgent.
FreeAgent was originally conceived by a research group comprising part of the
Company's management team, and extensive product engineering and development
work has been performed since September 1996 in connection with this system. See
"--The FreeAgent System."
INDUSTRY BACKGROUND
In the recent past, routine electronic communication between individuals was
typically accomplished by means of fixed-site telephones, requiring both parties
to be available at the same time and at set locations. Today, the fixed-site
telephone remains an important communications tool, but individuals also
communicate via wireless networks such as cellular telephone networks and paging
services and by voice mail, e-mail and facsimile. Wireless networks allow an
increasingly mobile work force to communicate free from the limitations of the
fixed-site telephone. Paging services, e-mail and voice mail are not restricted
to real time communications and allow automated delivery and retrieval of
electronic messages.
Availability of electronic information has undergone similarly dramatic
changes, evolving from primarily mainframe-based systems, often located on
limited access networks at corporations, to publicly available sources such as
online services (E.G., America Online ("AOL"), the Microsoft Network and
CompuServe), the Internet (including the Web) and interactive telephone
information systems. These services enable individuals to locate and retrieve
vast amounts of information remotely using standard devices such as PCs. PCs are
now widely used in businesses and homes, and many are equipped with a fax modem
that allows transmission and receipt of facsimiles and remote communications
with computer networks.
24
<PAGE>
These changes in the communications marketplace are evidenced by the
multitude of communications devices and information services available today.
Industry observers estimate that, as of the end of 1996, in the United States
there were approximately 150 million telephone access lines, 14 million
facsimile machines and an installed base of approximately 38 million PCs in
homes. In addition, industry sources estimate that, in the United States as of
the end of 1996, there were approximately 19 million cellular telephone
subscribers and approximately 18 million pager subscribers. The growth in the
number and types of communications devices has spawned a large market in
communications and information exchange. Industry sources estimate that, during
1996, revenues of the United States communications industry from cellular
telephone subscribers were approximately $18 billion and paging service revenues
in North America were approximately $3 billion. During 1996, there were more
than 5 million subscribers to commercial online networks worldwide, and the
Internet had an estimated 38 million users worldwide.
While communications services have proliferated, these services are
generally provided in a discrete and unbundled manner by service-specific
companies. For example, an individual may have local telephone service provided
by NYNEX, long distance telephone service provided by AT&T, online service
provided by AOL, and paging, voice mail, facsimile and e-mail services provided
by several other service companies. These services, typically, are not well
integrated. For instance, currently it is generally not possible to access
e-mail without a computer or to access voice mail through the various online
services. Users face an environment in which paging messages travel through
discrete networks to paging devices, voice mail is provided through a fixed-site
switch, online services are accessed through PCs and facsimiles are sent and
received through devices which are numerous but generally not portable. In
addition, many individuals do not have access to dedicated information
management systems or to administrative support to process and manage all of the
information available. An individual requiring access to all of these services
must use a multitude of access devices, work across a number of interface
protocols and manage a large number of service providers, which is generally
cumbersome and expensive.
THE FREEAGENT SOLUTION
FreeAgent has been designed as a solution to information overload, lack of
message integration and insufficient human assistance. To address information
overload and the lack of message integration, FreeAgent is designed to unify
into a single message box e-mail, voice mail, facsimile, page messaging, Web
content and potentially any other digital data found on the Internet, corporate
intranets, PBX telephone systems and the PSTN and to allow access to the message
box from any telephone or online computer. To address problems experienced by
individuals who do not have access to dedicated information management systems
or to administrative support to process and manage available information, the
Company intends to develop future versions of the FreeAgent system to
incorporate natural language understanding (the ability to convert the spoken
word to computer commands) and additional agentry functions (such as automated
notification of urgent messages or of changes in stock market prices or the
ability to complete simple transactions such as making airline reservations).
The Company believes no other company is currently marketing a network-based
system with the potential functionality of FreeAgent, which is being designed to
possess the following features:
- communications integrated in a universal message box;
- universal access to the message box through either an online PC or a
telephone on a PBX or PSTN system;
- application of advanced autonomous software processes (intelligent
agentry) to the data flowing in and out of the message box;
- open, modular system architecture to facilitate integration with the
existing systems of its potential customers and to permit the use of
readily available third-party hardware and software ("best of breed"
components);
25
<PAGE>
- scalability to enable the system to be used by tens of thousands of
potential users concurrently; and
- open systems design to allow for future enhancement of the system without
requiring system redesign, reintegration of existing hardware or software
or interruption of service.
The Company intends to enhance the FreeAgent system in 1998 with natural
language processing (to further facilitate command and control of the system by
telephone) and more advanced agentry.
GROWTH STRATEGY
The Company's objective is to become a leader in the development of unified,
intelligent communications systems. The Company intends to pursue this objective
by:
ACCELERATING ITS MARKETING AND SALES ACTIVITIES, IN BOTH THE UNITED STATES
AND ABROAD. The Company plans to accelerate its marketing and sales activities,
in both the United States and abroad, by targeting and forming strategic
relationships with telecommunications companies, large ISPs, multinational
vendors of telecommunications technologies to large enterprises, and large
enterprises operating internal communications themselves, representing channels
into millions of potential end-users. FreeAgent would provide these customers
with a range of basic and optional communications features to offer to their own
subscribers as premium monthly fee services. The Company will seek to structure
relationships with its customers so that it will receive an initial fee and a
portion of the recurring monthly fees and usage fees that such customers
receive. The Company has also targeted computer and printer manufacturers, such
as Hewlett-Packard.
LICENSING ADDITIONAL THIRD-PARTY SOFTWARE. The Company will seek to license
additional third-party software to enhance its system. These new agent services
may include foreign language translation and other services. If the Company's
OAA system is successfully developed, the extensible architecture of FreeAgent
will enable services to be added without redesigning the system.
BROADENING THE COMPANY'S ENGINEERING EFFORTS TO DEVELOP ADDITIONAL
CAPABILITIES. FreeAgent's architecture and software are being designed to
permit easy incorporation of newly developed capabilities. The Company intends
to broaden its engineering efforts to develop additional capabilities of
FreeAgent, such as the development and acquisition of various discrete software
agents.
PURSUING STRATEGIC ACQUISITIONS OF SELECTED BUSINESSES AND TECHNOLOGIES TO
ADD VALUE. The Company intends to seek strategic acquisitions of selected
businesses, technologies and products to add value to the Company's
communications system, particularly in the telecommunications, Internet service
or communications network vendor industries.
THE FREEAGENT SYSTEM
THE FREEAGENT PRODUCT
FreeAgent is designed to unify communications into a single message box,
allow access to that message box through any telephone or online computer and
apply advanced autonomous software processes (known as intelligent agentry) to
the data flowing in and out of the message box for the purpose of automating
communications and assisting the user in managing communications. FreeAgent is
being developed to integrate e-mail, voice mail, facsimile, paging, content from
the Web and potentially any other digital data from the Internet, enterprise
intranets, PBX telephone systems and the PSTN. The Company believes that
FreeAgent is capable of applying advanced media transformation processes (such
as text-to-speech conversion), advanced user interface technologies (such as
limited speech recognition) and specified agentry processes (such as automated
message and information monitoring), so that a person can send or receive a
message between most currently used communications media, using any wireline or
wireless telephone on PBX or PSTN systems or any PC on the Internet or an
intranet. For example, e-mail sent from a PC can be heard as voice mail on a
telephone and voice mail sent by a telephone can be
26
<PAGE>
received and listened to on a computer. Similarly, content on Web pages can be
listened to on a telephone, as well as read on a computer.
FreeAgent is intended to allow users to control their communications through
either a PC connected to the Internet or a telephone, according to their own
preferences, independent of how a communication was originally sent. When
accessing FreeAgent from a PC, the user is presented with the user interface of
the Hyper Text Markup Language ("HTML") client application. An on-screen
interface for command and control of FreeAgent functionality is accessible from
within this application. All voice mail, facsimile, page and e-mail messages are
displayed separately on the user's PC. As currently designed, messages in the
universal message box can be viewed and/or listened to (depending upon the type
of message), forwarded to individuals or broadcast to groups. Messages will be
delivered over the Internet. FreeAgent enables access to its universal message
box from any Microsoft Windows or Apple Macintosh computer by working with
Internet-based messaging programs such as Microsoft Outlook Express, Netscape
Navigator and NovitaMail.
With FreeAgent's telephone interface, a user can access its universal
message box through a telephone. Using telephone keypad commands (and
potentially in future versions of FreeAgent, natural voice commands), a user can
send, forward and broadcast messages to individuals or groups. An individual may
also retrieve e-mail or access up to 98 personal Web page addresses that have
been assigned numbers from 1 to 98, called bookmarks. One of these bookmarks can
be a Web search engine, to allow the user to look for information on additional
Web sites. When a user selects an e-mail message or Web page, FreeAgent's agents
will "strip out" irrelevant information, such as HTML coding and graphics, and
translate the text to speech. The message or Web page is then read to the user.
The user has the ability to listen to an e-mail or Web page and has access to
full, standard voice mail usage functionality (E.G., to save, delete and forward
the content).
Descriptions of the current capabilities of FreeAgent are illustrated below:
- A SALESPERSON HAS 15 MINUTES BEFORE BOARDING HER PLANE. SHE DIALS HER
FREEAGENT NUMBER, LISTENS TO THE LATEST NEWS RELEASE FROM THE WEB SITE OF
THE CLIENT SHE IS TRAVELING TO MEET, USES A WEB SEARCH ENGINE TO LOCATE A
RESTAURANT APPROPRIATE FOR HER DINNER MEETING AND HAS FREEAGENT DIAL
THROUGH TO THE RESTAURANT SO SHE CAN MAKE A RESERVATION. SHE LISTENS TO
HER E-MAIL AND DICTATES ANSWERS. NEXT TELEPHONE BREAK, SHE WILL CHECK THE
WEB FOR NEWS ON HER INDUSTRY AND HER INVESTMENTS. IN HER HOTEL ROOM
TONIGHT, SHE WILL LOG IN WITH HER LAPTOP COMPUTER, GO TO HER FREEAGENT
MESSAGE BOX AND HANDLE ANY NEW COMMUNICATIONS.
- A SUCCESSFUL, NON-COMPUTER LITERATE ENTREPRENEUR TRIED BRIEFLY TO LEARN TO
TYPE BUT ABANDONED COMPUTING TO HIS ASSISTANT. WITH FREEAGENT, INSTEAD OF
HAVING TO RELY ON HIS ASSISTANT TO HELP HIM WITH HIS E-MAIL, HE LISTENS TO
IT ON A TELEPHONE AND CAN RESPOND IMMEDIATELY WITH THE RESPONSE APPEARING
AS A VOICE ATTACHMENT TO THE SENDER'S E-MAIL. HE CAN FORWARD CERTAIN
MESSAGES TO PRINT OUT ON HIS FACSIMILE MACHINE. HE IS ALSO ABLE TO CHECK A
SERIES OF KEY WEB SITES THAT TRACK HIS INDUSTRY DAY TO DAY AND EVEN HOUR
TO HOUR. WHEN HE'S OUT OF THE OFFICE, HIS ASSISTANT USES A COMPUTER TO
SEND COMMUNICATIONS TO HIS MESSAGE BOX, SO HE CAN HANDLE THEM OVERNIGHT.
- A SALESMAN IS DRIVING BETWEEN APPOINTMENTS. PREVIOUSLY HE WOULD OBTAIN NEW
PRODUCT AND PRICING INFORMATION BY CALLING IN TO HIS COMPANY'S SWITCHBOARD
AND ATTEMPTING TO REACH THE APPROPRIATE PERSON. WITH FREEAGENT, HE USES
HIS CAR PHONE TO DIAL IN DIRECTLY TO HIS COMPANY'S INTRANET, FROM WHICH
ALL SALES INFORMATION IS READ TO HIM INSTANTLY. HE CAN SELECT WEB DATA TO
BE FORWARDED TO HIM BY FACSIMILE OR E-MAIL. HE USED TO HANDLE ALL HIS
E-MAIL AT NIGHT IN HIS HOTEL ROOM. NOW HE LISTENS TO IT AND RESPONDS WHILE
TRAVELING BETWEEN APPOINTMENTS, CUTTING DOWN THE TIME HE SPENDS ONLINE AT
NIGHT.
- A COMPANY INSTALLS FREEAGENT FOR CUSTOMER SUPPORT. IT NO LONGER HAS TO
MAINTAIN SEPARATE VOICE MAIL, FACSIMILE, E-MAIL AND WEB-BASED HELP
SYSTEMS. IT MAINTAINS ONLY THE WEB SITE. CUSTOMERS WHO PHONE IN ARE ABLE
TO HEAR THE INFORMATION READ TO THEM OFF THE WEB SITE AND EVEN HAVE IT
FAXED OR E-MAILED TO THEM. THE COMPANY SAVES TIME AND MONEY AND PROVIDES
MORE ACCURATE, TIMELY CUSTOMER SUPPORT. THE
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COMPANY ALSO HAS ESTABLISHED ITS PERSONNEL SYSTEMS (HEALTH INSURANCE,
VACATIONS, ATTENDANCE AND COMPANY NEWS) ON ITS INTRANET. MOST OF ITS
EMPLOYEES DO NOT HAVE COMPUTERS AT HOME, BUT STILL HAVE FULL ACCESS TO
COMPANY INFORMATION THROUGH THEIR TELEPHONES. THOSE WITH COMPUTERS CAN USE
THEIR BROWSERS TO ACCESS THE SAME INFORMATION.
The Company expects to commercially release FreeAgent in December 1997. A
customized PC-based component of FreeAgent has been developed for
Hewlett-Packard and is to be released in an initial Japanese language version in
September 1997, followed by an English language version by November 1997.
PRODUCT DEVELOPMENT
An agent is an intelligent software component that works autonomously, but
in cooperation with a larger software system which defines tasks for the agent
to perform. Currently, FreeAgent agents can intelligently process incoming
communications. For example, a user can assign an agent the task of scanning all
e-mail and facsimiles for reference to "widgets" and file them all in the widget
folder, direct the agent to forward a copy of all messages regarding "blue
widgets" to a colleague, or dictate an e-mail for the agent to send.
As part of the continuing development of FreeAgent, the Company intends to
enhance its system with natural language understanding and advanced OAA
functionality. These enhancements are being co-developed with the Artificial
Intelligence Center of SRI. The OAA system, if successful, would represent an
innovative method of integrating new software functions with existing programs
and would permit FreeAgent to easily incorporate new agentry functions designed
by the Company and/or third parties. The Company believes that technological
advances will permit the development of agents which would be able to search a
variety of digital networks for pre-specified data, execute transactions in
accordance with pre-specified directions and notify the user that these
objectives have been accomplished. The Company believes that the successful
development of OAA technology will enable FreeAgent to operate as a "virtual
executive assistant" in processing, managing and automating a user's
communications. The Company believes FreeAgent will be available for release
with certain of these and other advanced features during 1998.
FREEAGENT ARCHITECTURE
SOFTWARE SYSTEM ARCHITECTURE
The Company is developing a software architecture designed to provide
unified, intelligent communications by linking existing messaging and content
servers with a set of intelligent services provided by the FreeAgent system.
This software is comprised of three servers: the Internet/Intranet Access
Server, the Telephony Server and, in future generations, the Agent Server. The
Internet/Intranet Access Server connects to external messaging and content
servers and provides a unified messaging platform for virtually any form of
digital data, including voice mail and e-mail. It also provides for unified
access to messaging data from an online PC. The Telephony Server provides real
time telephone access to the subset of Internet, intranet or extranet digital
data that can be converted into audio form, including e-mail, voice mail and Web
content. The Agent Server, if successfully developed, is intended to provide a
dynamic set of agent-based services, such as monitoring, notification,
forwarding and summarization of messages.
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The diagram illustrates the relationships between the Internet/Intranet
Access Server, the Telephony Server and the Agent Server, the open agent
community and systems access devices including computers and telephones.
INTERNET/INTRANET ACCESS SERVER. This server is capable of communicating
with many different e-mail, voice mail, facsimile and other servers. Where
necessary, the Internet/Intranet Access Server utilizes custom-designed
interfaces to integrate proprietary messaging servers with Microsoft Exchange,
an off-the-shelf commercially available e-mail application. By building upon the
unified messaging, centralized storage and management features of Microsoft's
Exchange Server, the Company believes that FreeAgent provides a simpler and more
powerful method of accessing, translating and managing user communications than
is available in proprietary messaging servers.
In addition, the OAA technology underlying the Agent Server is being
designed to provide a means of integrating the Internet and Telephony Access
Servers into the entire FreeAgent system, creating a compatible and synergistic
system.
TELEPHONY SERVER. Another key subsystem of the FreeAgent software
architecture is the Telephony Server. Based upon technology licensed by DCL to
the Company, this server provides real time telephone access to information
provided by the Internet/Intranet Access Server. The fundamental features of
this server are as follows:
DYNAMIC VOICE MENU CREATION. A key element of the Telephony Server's
design is its innovative use of HTML as a means of dynamically creating a voice
user interface out of most data sources. All messaging or content information,
regardless of its source, is filtered and converted from its original format
into an HTML-based document. The system then dynamically constructs a touch-tone
menu from the hyperlinks found within the document. Once created, the textual
portions of the document are converted into speech with the help of a
text-to-speech engine. Embedded sound data found in Web content or messages is
simply played through the telephone. Users can interact with the touch-tone menu
much as they would a Web hyperlink, but instead of clicking on the link as they
would with a mouse, they use touch-tones (press "one" for e-mail) or, in the
future, limited speech recognition (say "one" for e-mail). Through the
conversion of HTML to speech, users can browse Web pages and access many other
types of information by telephone.
FAX BACK. At any time while the user is accessing messages and/or
content, the user can request that a facsimile containing the current message or
Web page be sent to a pre-specified facsimile number.
NOTIFICATION. The Telephony Server can be instructed by the user to call
the user at a pre-specified location when it notices that an important event has
occurred. For example, a user can be notified at a pre-specified pager number if
a Web page changes or if a particular e-mail has arrived. Once notified, the
user can access the appropriate Web information or e-mail through FreeAgent.
AGENT SERVER. Information can be thought of as data combined with
interpretation. Within the FreeAgent system, a distributed community of
intelligent software processes, or agents, perform that interpretation. To work
together effectively, these agents must collaborate. Traditional distributed
systems enable this collaboration by allowing software modules to communicate
directly with one another. However, when both software modules must work
directly with each other or through Application Programming Interfaces ("APIs"),
the software modules tend to become "hard-wired" together. Accordingly, changes
made to either software module can adversely affect the other. This approach
only allows software modules to communicate with software modules they expect to
find and does not allow new software modules to be
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easily added to the system. If OAA is successfully developed, the Agent Server
will allow agents to describe their needs and capabilities to an expert agent,
known as the Facilitator. The Facilitator will be designed to contain an expert
system and use its knowledge of both agent capabilities and problem-solving
techniques to reduce complex user problems into simple requests that can be
handled by individual agents within the community. This approach is being
designed to allow individual agents to work together to solve problems that they
could not solve on their own and to do this without communicating directly with
one another. As a result, the Agent Server will be designed to allow new agents,
with new capabilities, to be introduced into the proposed system without
reengineering the entire system.
HARDWARE SYSTEM ARCHITECTURE
The Company does not design or market the hardware on which FreeAgent
operates. However, FreeAgent has been designed to operate on readily available
third-party hardware, and does not depend upon any custom-designed or
proprietary hardware. The system created by this hardware can be tailored to the
specific requirements of each individual installation. The hardware components
used by the Company, as described below, are available from a variety of
third-party vendors.
CHASSIS. The FreeAgent server chassis is a Pentium Pro-based system running
Microsoft Windows NT with the following cards: one for interfacing to the local
area network, one for interfacing to the telephone network (PSTN or PBX), and
one or more digital signal processing ("DSP") cards, described below.
MULTIFUNCTION DIGITAL SIGNAL PROCESSING CARDS. Due to the high
computational demands inherent in voice-related processes such as text-to-speech
and speech recognition, each server incorporates one or more cards dedicated to
such DSP tasks. This removes much of the computational burden from the main CPU
(central processing unit), and allows each server to be custom configured for a
specific workload simply by varying the number of DSP cards installed.
TELEPHONY SERVICES BUS. The DSP cards are installed in the chassis and send
and receive command and control information, and the FreeAgent product is
connected to the telephone network through a dedicated "telephony services" bus
to send and receive voice information.
TELEPHONE NETWORK INTERFACE. For telecommunications company and ISP
installations, the telephony services bus described above is connected to the
PSTN through an interface device provided by the same manufacturer as the
telephony services bus and DSP cards, typically in the form of another card. For
corporate intranet installations, the telephone network interface will depend
upon the existing PBX system.
EXTERNAL DATA NETWORK INTERFACE. In telecommunications company and ISP
installations, the local area network ("LAN") will typically be connected to the
Internet through a common router and one or more high bandwidth network
connections. Data network interfaces for corporate intranet installations will
vary, but Ethernet (a 10 megabits per second data network technology) is widely
supported and gateways (network technology and protocol translators) are
available from a range of different vendors.
FreeAgent server installations would be required to serve from hundreds to
hundreds of thousands of potential users for many years with consistent
reliability. In order to meet these requirements, the FreeAgent architecture has
been developed to allow for high degrees of scalability, fault tolerance, fault
recovery and overall reliability. For each installation, the Company intends to
work with its customer closely to select individual components and/or vendors
that have proven themselves under similar demands in the past. FreeAgent's
hardware architecture has been designed to integrate the components as
effectively as possible to create a system that will meet high standards of
performance and reliability.
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MARKETING STRATEGY AND PLAN
MARKETING STRATEGY
The Company has adopted the following marketing strategies:
- The Company seeks to "partner" with service companies having large
customer bases, including large telecommunications companies, ISPs and
Internet online services ("IOSs"), such as AOL, to gain mass distribution
and market share. The Internet and wireless operations of these potential
partners have been specifically targeted.
- The Company seeks to license the FreeAgent system with a revenue model
primarily based on a share of the monthly revenues companies generate with
FreeAgent services, to create steady and growing revenue streams.
- The Company seeks to employ FreeAgent's open, extensible architecture as a
platform for new service development with existing customers and as the
basis for long-term relationships in which the Company continually
updates, improves and maintains installed systems, as opposed to having to
create and sell new products to new customers. The Company believes that
this strategy should reduce ongoing marketing, sales and product
development costs.
- The Company seeks to develop distribution channels consisting of companies
providing enterprises with data and/or voice-networked services to address
the market for sales to such customers. These companies include
telecommunications companies, independent ISPs, systems integrators and
value-added resellers ("VARs").
MARKETING PLAN
The Company's domestic and international marketing program has several
components. The primary target of the program is to establish strategic and
licensing relationships with telecommunications companies and ISPs, as well as
on-line service providers, on-line content providers and direct Internet
marketing companies, that can offer to their customers a range of FreeAgent's
basic and optional communications features as premium monthly fee services. The
Company has the potential to integrate FreeAgent into (i) the switching
operations of telecommunications companies, where so-called intelligent network
service switching points, service control points and intelligent peripherals are
found, and (ii) the LAN of an ISP's access operations, where access servers,
routers and various messaging and content servers are found. The Company
believes that both telecommunications companies and ISPs are increasingly
seeking sources of additional premium revenue, as well as a competitive
advantage through value-added services for attracting and retaining customers.
The Company's marketing efforts are directed to respond to these needs by
offering applications of FreeAgent as the solution.
To assist the Company's marketing efforts to these companies, the Company
recently entered into a non-binding memorandum of understanding with Bellcore to
jointly market FreeAgent worldwide, with Bellcore to provide marketing, support
and systems integration services in connection with future installations.
Bellcore is a leading provider of communications software, engineering and
consulting services originally formed by the seven regional Bell operating
companies. Under the terms of this memorandum, which does not provide for any
funding from or for the Company, the parties intend to jointly market FreeAgent
to major telecommunications companies providing both local and long distance
communications access through wireline, wireless and Internet service
connections. These joint marketing efforts are expected to include, among other
activities, sharing booth space at exhibitions, trade shows and conferences,
sharing sales leads and prospects, cooperation in the completion of requests for
proposals, and production of joint marketing materials with both of the
companies' logos. In addition, the parties agreed in the memorandum that
Bellcore would provide software support, such as onsite maintenance,
implementation of software upgrades and help desk support, and systems
integration services, such as design of customer implementations, installation
management and technical training. The parties have agreed to use
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their best efforts to enter into a definitive joint marketing agreement on or
before November 21, 1997. Final operating and financial terms of the proposed
joint marketing effort have not been finalized to date and there can be no
assurance that the Company will consummate any definitive agreement with
Bellcore or that any such agreement, if entered into, will result in any sales
of the FreeAgent system or otherwise prove profitable for the Company.
A further component of the Company's marketing program includes targeting
computer and printer manufacturers who could incorporate a customized PC-based
component of FreeAgent into their own branded proprietary products. The first
step in this program was the establishment of a relationship with a major
computer and printer channel, which the Company accomplished in April 1997 when
it entered into a software license agreement with Hewlett-Packard. See
"--Hewlett-Packard Agreement" below. The Company believes that additional
opportunities are available to package and market commercially branded versions
of FreeAgent in connection with the development of strategic alliances with
partners which are computer and printer manufacturers, retail advertisers,
direct marketers, online content providers and organizations employing intranets
and extranets. These entities can benefit from providing their customers,
business partners or employees the ability to automatically download, filter,
process and print messages or other data.
Another component of the Company's marketing program includes targeting
large enterprises. FreeAgent is designed to integrate the PBXs and intranets of
enterprises to provide the same unified, intelligent communications systems that
will be offered to end-users by telecommunications companies and ISPs.
Through these potential marketing channels, the Company will generally seek
to enter into arrangements pursuant to which it would install, upgrade and
maintain FreeAgent in exchange for license fees and/or a share of monthly
premium and usage fees.
Currently, the Company's principal means of conducting its marketing efforts
is by attending trade shows to demonstrate FreeAgent to potential customers. The
Company is also involved in directly contacting and demonstrating the FreeAgent
system to representatives of potential telecommunications service company
customers who are assigned responsibility for obtaining messaging products for
their service networks. The Company initiated an exhibition program, beginning
with the preview of FreeAgent at the Internet World Summer trade show in Chicago
in July 1997. The Company plans to participate at the Internet World Winter
exhibition in New York City in December 1997 and at telecommunications shows,
for both wireless service providers and telephone companies, scheduled for 1998.
Following the completion of this offering, the Company plans to continue to
focus its marketing efforts on holding customer presentations and attending
trade shows (including international trade shows) as the primary methods to
create market awareness of the Company and the FreeAgent system. These
activities are expected to be augmented by a publicity campaign in selected
trade publications, timed to coincide with the anticipated initial commercial
release of FreeAgent.
SALES STRATEGY AND PLAN
SALES STRATEGY
The Company has adopted the following sales strategies:
- The Company intends to create a small, direct sales force capable of
calling upon large telecommunications companies, ISPs and IOSs, both in
the domestic and international market.
- The Company's senior sales personnel will also develop and manage
distributor networks in the United States and abroad, consisting of
systems integrators and VARs, as well as persons responsible for similar
functions (including such functions within telecommunications companies).
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SALES PLAN
The Company plans to use its internal direct sales force to support its
relationships with telecommunications companies and ISPs, as well as to take
advantage of independent direct sales opportunities with industry vendors and
large enterprises themselves. The Company currently has a direct sales force of
three individuals, one of whom is focused on international markets. Certain
members of the Company's sales force are eligible to receive commissions based
on sales of its products.
As part of its sales program, the Company is attempting to develop
relationships with other product vendor "partners" that are capable of
encouraging their customers to purchase FreeAgent in conjunction with their own
products. The Company intends to assist these partner-vendors by determining the
configuration of FreeAgent that will deliver optimal service performance along
with the partner-vendor's products. As part of its sales program, the Company
seeks to illustrate to potential customers that, through FreeAgent, the Company
or its strategic partner can easily and inexpensively inform end-users of new or
enhanced services by means of voice mail, facsimile or other media.
Following the completion of this offering, the Company plans to increase its
internal sales force. The Company anticipates that, in the future, it may
augment its internal sales force with the services of independent sales
representatives. The Company also intends to distribute FreeAgent through OEM
agreements with hardware manufacturers in the future. The Company's sales plan
is being executed by directly contacting and demonstrating the FreeAgent system
to potential customers in parallel with its marketing program.
CUSTOMER SUPPORT
The Company believes that customer service and support is a significant
competitive factor in the market for network communications systems, which will
become increasingly important as such systems become more complex. The Company
is developing a support system for its direct customers (as compared with
end-users generally) to provide rapid problem resolution both during and after
the system installation process. The Company intends to maintain a technical
support organization which will assist customers in troubleshooting system
problems, permanently place a Company technical employee on-site to provide
system management services for each communications network customer and provide
a 24-hour, seven days a week toll-free hotline to help identify and correct
system interruptions if they should occur. Bellcore may provide these services
in connection with the implementation of FreeAgent in the event the Company and
Bellcore enter into a definitive marketing agreement. See "--Marketing Strategy
and Plan." The Company also intends to provide training and certain installation
services to its customers.
The Company will provide a limited warranty of FreeAgent against defects in
materials and workmanship. The Company's product warranty will not materially
differ from those generally available in the software industry.
HEWLETT-PACKARD AGREEMENT
In April 1997, the Company entered into a software license agreement with
Hewlett-Packard, pursuant to which the Company granted to Hewlett-Packard the
worldwide rights to incorporate a customized PC-based component of FreeAgent
into its HP Instant Delivery product and to distribute such product with new
Hewlett-Packard inkjet printers, printer driver software and Hewlett-Packard's
line of Pavilion PCs. This product is being targeted to the small office, home
office market. As part of the agreement, the Company agreed not to license such
component of FreeAgent to certain named competitive printer manufacturers,
including among others, Lexmark, Canon and Epson. In May 1997, the Company
delivered a beta version of the software to Hewlett-Packard and expects to
deliver a commercial production version (known as a gold master) of such
software in an initial Japanese language version in September 1997, followed by
an English language version by November 1997. The parties had previously
extended the targeted delivery date of the commercial version of the software
from July 8, 1997 to
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September 8, 1997, as a result of changes to the specifications of the project.
In accordance with the modified agreement, in the event the Company fails to
deliver such software by September 8, 1997, outstanding license fees payable by
Hewlett-Packard are subject to reduction on a daily basis from $1,000 to
$10,000, depending on the length of the delay, until the software is delivered.
The Company believes that, based on its efforts to date, it will deliver the
commercial production version of such software on a timely basis.
In June 1997, Hewlett-Packard paid the Company $500,000 as an initial
license fee and agreed to pay an additional $500,000 as a license fee, of which
$250,000 was paid in July 1997 and $250,000 is due 35 days after delivery of the
commercial production version of the software. In addition, Hewlett-Packard
agreed to pay an additional $300,000 in quarterly royalty payments of $75,000,
commencing with the first calendar quarter following delivery of the commercial
production version. The license agreement has an 18-month term with a right to
renew for two successive six-month extensions, at a reduced royalty rate. Future
modifications may be requested by Hewlett-Packard, if technically feasible,
subject to reimbursement by Hewlett-Packard for substantial projects conducted
by the Company. The performance of the Company under this agreement has been
guaranteed by AUGI until 30 days after Hewlett-Packard's acceptance of the
commercial production version of the software.
TECHNOLOGY LICENSES
DATA CONNECTION LIMITED
In July 1997, the Company entered into a software license agreement with
DCL. Under the terms of this agreement, the Company has received a worldwide
license to incorporate DCL's proprietary technology into the Company's FreeAgent
products and to distribute the DCL technology as a part of such products. The
license is exclusive as to FreeAgent products sold to telephone network or
service providers, but is otherwise non-exclusive. DCL's technology is still in
development. The Company paid DCL an initial license fee of $100,000 in July
1997, and has agreed to pay an additional $200,000 upon the achievement of
certain milestones in DCL's software development effort. Subsequent to the
milestones being met the agreement also provides for the payment of a royalty
equal to five percent of the Company's net revenues derived from the licensing
of products incorporating DCL's technology. These royalties will be offset
against minimum royalty commitments of $200,000, $587,500 and $362,500 for the
fiscal years ending July 31, 1998, 1999 and 2000, respectively. The term of the
agreement is perpetual but may be terminated by either party upon the other
party's material breach, bankruptcy or insolvency.
SRI INTERNATIONAL
In August 1997, the Company entered into a software development agreement
and a license agreement with SRI, pursuant to which the Company has received the
non-exclusive worldwide rights to use, copy, reproduce, modify, create derivate
works of, market and distribute the prototype computer code (in both source code
and object code form) of SRI's OAA Facilitator and libraries. Under the software
development agreement, the Company agreed to pay for SRI's consulting and
development services in connection with the completion of SRI's OAA system,
estimated to be in the total amount of $126,000. This amount is payable upon the
achievement of certain milestones. The Company paid SRI $30,000 upon the
execution of the agreement and agreed to pay SRI an additional $20,000 on
September 21, 1997, with the balance payable on a monthly basis thereafter
against the receipt of invoices for work performed. In addition, under the
license agreement, the Company agreed to pay SRI a one percent royalty on net
sales (the invoiced sales price less credits, allowances, discounts and rebates,
freight and insurance costs and sales, use and other taxes) of products
utilizing SRI's computer code. SRI is obligated under the agreement to provide,
at no additional cost, modifications and enhancements to its OAA software for a
three-year period. The software development agreement expires upon the delivery
by SRI of its OAA port, while the term of the license agreement is perpetual
subject to the performance by each party of its material obligations thereunder.
All intellectual property rights relating to OAA are retained by SRI.
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Under the terms of the SRI license agreement, SRI is not obligated to
indemnify or defend the Company from any patent infringement claims brought by
third parties against the Company, as the Company only received representations
from the inventors of SRI's core OAA software, enhancements and port, in both
source code and object code form, that, to their best current actual knowledge,
such "Licensed Software" does not infringe the patent rights of any third party.
The Company has received, however, unlimited representations from SRI as to the
absence of any copyright or trade secret infringement concerning OAA. In the
event the Licensed Software received from SRI infringes the patent rights of
third parties, the Company would nevertheless continue to be required to pay a
one percent royalty to SRI in addition to any royalties or other amounts it
might be obligated to pay a third party in order to settle such infringement
claim. Although the Company does not believe that, based upon its due diligence
to date, the SRI Licensed Software infringes the patent rights of any third
party, there can be no assurance that such infringement claim may not be
asserted in the future and upheld as meritorious.
TECHNOLOGY, RESEARCH AND DEVELOPMENT
The Company's primary technology is its proprietary unified, intelligent
communications system developed by the Company's engineering team. The Company
has in place a research and development program to add new agentry services to
its unified, intelligent communications system. The Company also has a product
development program to enhance its user interfaces. The Company's product
development and engineering teams monitor developments in related fields such as
computer-telephony, speech and natural language technologies to determine if
software or hardware modifications to the system design are necessary or
desired. For example, the implementation of a unified, intelligent
communications system poses several security issues, including the possibility
of break-ins and other similar disruptions. The Company intends to attempt to
incorporate authentication technology into its unified, intelligent
communications systems. However, there can be no assurance that such technology
will be adequate to prevent break-ins. As of August 31, 1997, these teams
consisted of 15 individuals, three of whom hold advanced computer or scientific
degrees.
Research and development expenses were $899,000 for the period from
September 1, 1996 (date of inception) to July 31, 1997.
PROTECTION OF INTELLECTUAL PROPERTY
The Company regards its software as proprietary and relies primarily on a
combination of copyright, trademark and trade secret laws of general
applicability, employee confidentiality and invention assignment agreements,
third-party and OEM non-disclosure agreements and other intellectual property
protection methods to safeguard its technology and software system. The Company
has not applied for patents on any of its technology. The Company also relies
upon its efforts to enhance its technology, particularly with respect to
intelligent user interfaces and agentry services, to maintain a competitive
position in the marketplace.
The Company has obtained a registered trademark for the Company's
crystal-shaped logo. In June 1997, the Company submitted trademark applications
for its common law marks "Connectsoft" and "FreeAgent," which are currently
pending approval. The Company is not aware of any reason why such trademark
applications will not be granted, although there can be no assurance thereof.
COMPETITION
The information and communications industries are intensely competitive,
rapidly evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's current and
potential competitors have longer operating histories, greater name recognition,
larger customer bases and substantially greater financial, personnel, marketing,
engineering,
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technical and other resources than the Company. Such competition could
materially adversely affect the Company's business, operating results and
financial condition.
The Company's competitive strategy is to seek to gain a competitive
advantage by being among the first companies to offer a unified, intelligent
communications system, by being an innovator in the unified, intelligent
communications market and by offering unique and innovative services to its
customers. The Company intends to capitalize on strategic relationships with
Hewlett-Packard and others in order to build its customer base. The Company
believes that the principal competitive factors affecting the market for
unified, intelligent communications systems will be price, quality of service,
reliability of service, degree of systems integration, ease of use, features,
security and name recognition.
As noted, the Company attempts to differentiate itself from its competitors
in part by offering a unified, intelligent communications system. Other
providers currently offer each of the individual services and certain
combinations of such services offered by the Company. The Company is aware of a
number of companies offering "unified messaging." For example, Octel
Communications Corporation recently announced "Unified Messenger," which places
all voice mail, e-mail and facsimile messages in a single mailbox accessible by
telephone and computer. Unlike FreeAgent, which is a network-based solution,
many of these companies offer a solution in which vendors integrate equipment
with LANs and PBX equipment that have a specific site.
Although the Company is not aware of any major competitor that is marketing
a unified, intelligent communications system having features similar to the
system marketed by the Company, many of the Company's competitors have
substantial resources and technical expertise and could likely develop such a
system if they chose to expend sufficient resources. The Company believes that
existing competitors are likely to expand their service offerings and that new
competitors are likely to enter the information and communications market. Such
companies attempt to integrate information and communications services,
resulting in greater competition for the Company.
GOVERNMENT REGULATION
The Company's activities currently are subject to no particular regulation
by governmental agencies other than that routinely imposed on corporate
businesses. However, a number of the Company's potential customers, such as
telephone companies, are in highly regulated industries. The Company cannot
predict the impact of future regulations on either the Company or its potential
customers.
EMPLOYEES
The Company had 21 employees as of August 31, 1997, of whom 15 were in
product development and engineering, four in sales and marketing, and two in
general, administrative and executive management. None of these employees is
covered by a collective bargaining agreement and management of the Company
considers relations with employees to be good.
FACILITY
The Company subleases approximately 7,000 square feet of office space in
Bellevue, Washington from Old Connectsoft to house its administrative, marketing
and product development operations. The Company pays $11,000 per month in rent
to Old Connectsoft, which is equal to the proportionate share of the monthly
rent paid by Old Connectsoft to an unaffiliated lessor of such space in terms of
the square footage of such space occupied by the Company. The sublease expires
in September 2001; however, the Company may terminate the sublease upon 90 days'
prior notice in the event it finds alternative office space.
LEGAL PROCEEDINGS
The Company is not involved in any pending or threatened legal proceedings.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names and ages of the directors and executive officers of the Company,
and their positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------ -----------
<S> <C> <C>
Robert Marcus....................... 35 President, Chief Executive Officer and Director
Daniel Boerner...................... 32 Vice President of Product Development
Alan Mitchell, Ph.D................. 53 Vice President of Business Development
David Dolson........................ 58 Vice President of Marketing
Stephen Oroszlan.................... 35 Vice President of Sales
Robert M. Rubin..................... 57 Chairman of the Board of Directors
Howard B. Katz...................... 54 Executive Vice President, Treasurer and Director
</TABLE>
ROBERT MARCUS served as President and Chief Executive Officer of Old
Connectsoft from July 1996 to June 1997 when the Company was formed. In June
1997, he became President, Chief Executive Officer and a director of the
Company. Mr. Marcus has devoted his career to developing globally focused
technology businesses. From April 1994 to July 1996, as General Manager and
director of PICIS, he led the worldwide launch of the first critical care
software system for Windows NT. From April 1992 to March 1994, Mr. Marcus served
as President of Integrated Medical Technologies, Inc., a company he launched and
developed, and he remains a director of such company. From October 1989 to April
1992, Mr. Marcus led the European division of American Dental Laser, a developer
of advanced laser systems.
DANIEL BOERNER was appointed Vice President of Product Development of the
Company in June 1997 when the Company was formed. He joined Old Connectsoft as a
Senior Software Engineer in April 1995, and worked in such capacity until June
1997. From June 1991 to April 1995, he was Team Lead and chief architect of a
10-member group at Attachmate Corporation, a software company, developing
EXTRA!, an object-oriented terminal emulation application. Prior to that, while
completing his graduate studies in computer science, he worked as a Team Lead at
Oregon State University, researching development environments for graphical user
interface applications. He began his career in April 1986 as a programmer/
analyst at Software Planning and Support, Inc., a software company, developing
and supporting commercial terminal emulation applications.
ALAN MITCHELL, PH.D. was appointed Vice President of Business Development in
August 1997. He joined Old Connectsoft in September 1996. Dr. Mitchell has
extensive experience in interactive, networked and real time software systems.
From February 1992 to September 1996, Dr. Mitchell operated the ARMAK Company, a
consulting practice serving government and industry in the area of networked
simulation training. From October 1989 to February 1992, he was the Director of
Visual Systems Software Engineering at Bolt Beranek and Newman, Inc., a computer
consulting company, where he was involved in developing the first global
networked training system.
DAVID DOLSON served as Vice President of Marketing of Old Connectsoft from
September 1996 to June 1997 when the Company was formed. In June 1997, he became
Vice President of Marketing of the Company. From September 1987 to January 1995,
Mr. Dolson was a founder, director, Vice President of Marketing and a consultant
at American Dental Laser, Inc., a developer of advanced laser systems. He began
his career as a reporter and editor, and has held a number of senior positions
at the Detroit Free Press and Chicago Tribune, and he shares a Pulitzer Prize
for reporting.
STEPHEN OROSZLAN joined the Company in August 1997 as Vice President of
Sales. He has spent his entire career within the global telecommunications
industry, exclusively at Bell Atlantic, which he joined in 1984 and served until
July 1997. Since 1989, he has focused particularly on high-level strategic sales
and business development initiatives in the United States and internationally.
From September 1995 to July 1997, he
38
<PAGE>
served as Director of Business Development for Bell Atlantic Internet Solutions,
responsible for the launch and development of that company's Internet services.
From January 1990 to August 1995, he served as Director of Business Development
at Bell Atlantic International, responsible for leading corporate development
initiatives in Eastern Europe.
ROBERT M. RUBIN has served as the Chairman of the Board of Directors of Old
Connectsoft since August 1996, and became Chairman of the Company when the
Company was formed in June 1997. Mr. Rubin has also served as Chairman of the
Board of Directors of AUGI since May 1991 and was its Chief Executive Officer
from May 1991 to January 1994. Since January 1996, Mr. Rubin has also served as
President and Chief Executive Officer of AUGI. Mr. Rubin was the founder,
President, Chief Executive Officer and a director of Superior Care, Inc. ("SCI")
from its inception in 1976 until May 1986. Mr. Rubin continued as a director of
SCI (now known as Olsten Corporation ("Olsten")) until late 1987. Olsten, a New
York Stock Exchange listed company, is engaged in providing home care and
institutional staffing services and health care management services. Mr. Rubin
is Chairman of the Board and a minority stockholder of ERD Waste Technology,
Inc., a diversified waste management public company specializing in the
management and disposal of municipal solid waste, industrial and commercial
non-hazardous waste and hazardous waste. Mr. Rubin is a former director and Vice
Chairman, and currently a minority stockholder, of American Complex Care,
Incorporated ("ACCI"), a public company formerly engaged in providing on-site
health care services, including intra-dermal infusion therapies. In April 1995,
ACCI's operating subsidiaries made assignments of their assets for the benefit
of creditors without resort to bankruptcy proceedings. Mr. Rubin is also the
Chairman of the Board of Western Power & Equipment Corp. ("Western") and
Chairman of the Board of IDF International, Inc. ("IDF"), both public companies
to which Mr. Rubin devotes approximately 10% of his active business time.
Western, a 56.6%-owned subsidiary of AUGI, is engaged in the distribution of
construction equipment, principally manufactured by Case Corporation. IDF, a
58%-owned subsidiary of AUGI, is engaged in providing construction consulting
services to businesses and municipalities and site acquisition, architectural
and engineering services for the cellular communications industry. Mr. Rubin is
also a director and a minority stockholder of Response USA, Inc., a public
company engaged in the sale and distribution of personal emergency response
systems; Diplomat Corporation, a public company engaged in the manufacture and
distribution of baby products; and Arzan International (1991) Ltd., a public
company engaged in the food distribution business.
HOWARD B. KATZ has been a member of the Board of Directors of Old
Connectsoft since August 1996, and became a director of the Company in June 1997
and its Executive Vice President and Treasurer in August 1997. Mr. Katz has been
the Executive Vice President of AUGI since April 1996. From December 1995 to
April 1996, Mr. Katz was a consultant for, and from January 1994 through
December 1995, he held various executive positions, including Chief Financial
Officer from December 1994 to December 1995, with Metromedia Fiber Network,
Inc., a fiber optics telecommunications company. From January 1991 through
December 1993, Mr. Katz was the President of Katlaw Construction Corp., a
company that provides general contractor services to foreign embassies and
foreign missions located in the United States. Prior to joining Katlaw
Construction Corp., Mr. Katz was employed as a management consultant by Coopers
& Lybrand, LLP and as a divisional controller for several public companies,
including The Hertz Corp., a car and truck rental company, as well as serving as
Vice President of APA Transport Corp., a common carrier.
The Company's By-laws provide that the Board of Directors will consist of
between three and nine members, and the number of directors is currently set at
five. There are currently two vacancies on the Board. The Company expects that,
prior to the completion of this offering, the Board will appoint two independent
directors to fill such vacancies. The Board is currently in the process of
identifying potential director candidates.
All directors hold office until the next annual meeting of the stockholders
of the Company and until their successors have been duly elected and qualified.
Officers are elected by and serve at the discretion of
39
<PAGE>
the Board of Directors. There are no family relationships among the directors
and officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company intends to establish an Audit Committee and a Compensation
Committee of the Board of Directors prior to the completion of this offering,
each of which will be comprised of at least two independent directors. The Board
of Directors does not have and does not intend to establish a Nominating
Committee, and such functions are to be performed by the entire Board of
Directors.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company currently receive no cash compensation
for serving on the Board of Directors other than reimbursement of reasonable
expenses incurred in attending meetings. Following the effectiveness of the
Company's 1997 Stock Option Plan, non-employee directors of the Company may
receive grants of options to purchase shares of Common Stock under such plan.
See
"-- Stock Option Plan."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law, and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company intends
to enter into indemnification agreements with its directors and officers which
may, in some cases, be broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements may require the Company, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
during the period from September 1, 1996 (date of inception) to July 31, 1997 to
its Chief Executive Officer (the "Named Executive Officer"). No other executive
officer earned compensation exceeding $100,000 during such period.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------------
<S> <C> <C> <C> <C>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1)
- ------------------------------------------------------------------ --------- ----------- --------------- ---------------------
Robert Marcus..................................................... 1997 114,600 0 0
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the named executive officer.
EMPLOYMENT AGREEMENTS
In May 1996, Robert Marcus entered into an employment agreement with Old
Connectsoft to serve as the President and Chief Executive Officer of Old
Connectsoft through July 1999. Upon the completion of this offering, the Company
will assume such agreement. Mr. Marcus is entitled under his employment
agreement to receive an annual base salary of $125,000, as well as certain
fringe benefits generally provided to other executive officers of the Company.
Mr. Marcus has agreed to devote all of his business and professional time to the
Company and its business development. Mr. Marcus has also agreed to certain
covenants (i) restricting him from engaging in any activities competitive with
the business of the Company during the term of his employment agreement and for
one year thereafter, (ii) prohibiting him from disclosure of confidential
information regarding the Company at any time and (iii) confirming that all
intellectual property developed by him and relating to the business of the
Company constitutes the sole property of the Company.
In August 1997, the Company entered into employment agreements with each of
Robert M. Rubin and Howard B. Katz to serve as the Chairman of the Board and the
Executive Vice President and Treasurer of the Company, respectively. Pursuant to
such agreements, Messrs. Rubin and Katz will receive annual base salaries of
$75,000. The employment agreements will commence at the completion of this
offering and extend through the third anniversary of such date, subject to
earlier termination by the Company in the event of a material breach by such
individual of their respective agreement. Each of Messrs. Rubin and Katz has
agreed to devote not less than 10% of his business time to the Company. In
addition, each of such individuals has agreed not to disclose confidential
information regarding the Company at any time.
The Company also intends to enter into employment agreements with each of
Daniel Boerner, Alan Mitchell, David Dolson and Stephen Oroszlan to continue in
the positions listed above for three-year terms, commencing September 1, 1997,
under which each individual will devote his full business and professional time
to the Company. Pursuant to such agreements, the Company contemplates paying
base annual salaries of approximately $400,000 in total to such individuals. The
agreements will additionally provide for covenants (i) restricting the
individual from engaging in any activities competitive with the business of the
Company during the term of his employment agreement and for one year thereafter,
(ii) prohibiting him from disclosure of confidential information regarding the
Company at any time and (iii) confirming that all intellectual property
developed by him and relating to the business of the Company constitutes the
sole property of the Company. Other than for Mr. Boerner, each employment
agreement is expected to provide for the termination of the individual by the
Company without "cause" upon 90 days' prior written notice and a lump sum
severance payment equal to one month's base salary.
STOCK OPTION PLAN
Under the Company's 1997 Stock Option Plan (the "1997 Plan"), an aggregate
of 1,550,000 shares of Common Stock are reserved for issuance upon exercise of
stock options. The 1997 Plan is designed as a
41
<PAGE>
means to retain and motivate key employees and directors. After this offering,
the Compensation Committee of the Board of Directors will administer and
interpret the 1997 Plan and be authorized to grant options thereunder to all
eligible employees of the Company (approximately 20 persons), including officers
and directors who are employees of the Company. Non-employee directors and
consultants are also eligible to receive options under the 1997 Plan.
The 1997 Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code) and nonqualified stock
options. Options are granted under the 1997 Plan on such terms and at such
prices as determined by the Compensation Committee, except that the per share
exercise price of incentive stock options cannot be less than the fair market
value of the Common Stock on the date of grant. Each option is exercisable after
the period or periods specified in the option agreement, but no option may be
exercisable after the expiration of ten years from the date of grant. Options
granted under the 1997 Plan are not transferable other than by will or by the
laws of descent and distribution. The 1997 Plan also authorizes the Company to
make loans to optionees to enable them to exercise their options. Such loans
must (i) provide for recourse to the optionee, (ii) bear interest at a rate no
less than the prime rate of interest, and (iii) be secured by the shares of
Common Stock purchased. The Compensation Committee has the authority to amend or
terminate the 1997 Plan, provided that no such action may impair the rights of
the holder of any outstanding option without the written consent of such holder,
and provided further that certain amendments of the 1997 Plan are subject to
shareholder approval. Unless terminated sooner, the 1997 Plan will terminate in
July 2007.
The Board of Directors of the Company intends to grant, subject to the
completion of this offering, nonqualified stock options to purchase an aggregate
of 1,185,000 shares of Common Stock to approximately 20 employees and
non-employee directors, including options to purchase an aggregate of 980,000
shares intended to be granted to the Company's executive officers and directors
as a group. Such options are intended to be issued to the following persons:
Robert M. Rubin (300,000 options), Howard B. Katz (200,000 options), Robert
Marcus (200,000 options), Daniel Boerner (100,000 options), Alan Mitchell
(80,000 options), David Dolson (80,000 options) and Stephen Oroszlan (20,000
options). All of such options will have a per share exercise price equal to the
initial public offering price, a term of ten years, be exercisable with respect
to 33 1/3% of the covered shares commencing on the effective date of this
offering, and be exercisable with respect to an additional 33 1/3% of the
covered shares on the first and second anniversaries of the effective date of
this offering.
The Board of Directors of the Company also intends to grant under the 1997
Plan prior to the effective date of this offering additional performance-based
options to purchase an aggregate of 177,000 shares of Common Stock to the
Company's employees, including options to purchase 110,000 shares of Common
Stock granted to the Company's executive officers as a group. Such options will
be issued to the following persons: Robert Marcus (40,000 options), Daniel
Boerner (10,000 options), Alan Mitchell (5,000 options), David Dolson (5,000
options) and Stephen Oroszlan (50,000 options). All of such options will have a
per share exercise price equal to the initial public offering price, a term of
ten years and be exercisable upon the Company's attainment of certain financial
goals (measured by its pre-tax income) as determined by the Board of Directors
of the Company in its sole discretion.
It is the Company's intention to utilize the remaining 188,000 stock options
reserved for future grant to attract and retain a number of highly qualified
prospective employees. The Company intends to register the shares of Common
Stock issuable pursuant to the 1997 Plan following the second anniversary of the
consummation of this offering.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 31, 1997, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by: (i) the
Named Executive Officer, (ii) each of the Company's directors, (iii) all
directors and executive officers of the Company as a group, and (iv) each other
person known by the Company to own beneficially more than 5% of the Company's
Common Stock. Except as otherwise noted, the persons in this table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES COMMON STOCK
OF COMMON STOCK BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED (2) BEFORE OFFERING AFTER OFFERING
- ---------------------------------------------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
American United Global, Inc..................................... 3,000,000 100.0% %
Robert M. Rubin................................................. 100,000(3) 3.2% %
Robert Marcus................................................... 66,667(4) 2.2% %
Howard B. Katz.................................................. 66,667(5) 2.2% %
All directors and executive officers as a group
(7 persons)................................................... 326,667(6) 8.7% %
</TABLE>
- ------------------------
* Represents less than 1% of outstanding Common Stock or voting power.
(1) Unless otherwise indicated, the address of each beneficial owner is 11130
N.E. 33rd Place, Suite 250, Bellevue, Washington 98004.
(2) Shares beneficially owned and percentage of ownership are based on 3,000,000
shares of Common Stock outstanding before this offering and shares
of Common Stock to be outstanding after the consummation of this offering,
and assuming no exercise of the Underwriters' over-allotment option.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
dispositive power with respect to such shares.
(3) Represents currently exercisable stock options to purchase shares of Common
Stock granted to Mr. Rubin under the 1997 Plan. Does not include shares of
Common Stock owned by AUGI, of which Mr. Rubin is a director and executive
officer, and as to which he disclaims beneficial ownership.
(4) Represents currently exercisable stock options to purchase shares of Common
Stock granted to Mr. Marcus under the 1997 Plan.
(5) Represents currently exercisable stock options to purchase shares of Common
Stock granted to Mr. Katz under the 1997 Plan. Does not include shares of
Common Stock owned by AUGI, of which Mr. Katz is a director and executive
officer, and as to which he disclaims beneficial ownership.
(6) Includes (a) the shares of Common Stock held beneficially by Messrs. Rubin,
Marcus and Katz described in footnotes (3), (4) and (5) above, and (b)
currently exercisable stock options to purchase an aggregate of 280,000
shares of Common Stock granted to Daniel Boerner, Alan Mitchell, David
Dolson and Stephen Oroszlan under the 1997 Plan.
43
<PAGE>
CERTAIN TRANSACTIONS
CAPITALIZATION OF THE COMPANY
Effective as of July 31, 1997, Old Connectsoft transferred to AUGI all of
its technology, assets and business relating exclusively to the development of
FreeAgent, including the assignment of the Hewlett-Packard software license
agreement subject to related liabilities (the "FreeAgent Assets").
Contemporaneously with the transfer of the FreeAgent Assets, AUGI agreed to (i)
forgive certain indebtedness and obligations owed by Old Connectsoft (other than
in respect of costs related to the development of the Application Server
Software), and (ii) indemnify and hold harmless Old Connectsoft from and against
any and all liabilities and debts related to claims which arise out of the
business or operations of Old Connectsoft prior to the date of such transfer.
See "The Company."
Additionally, effective as of such date, AUGI transferred to the Company all
of the FreeAgent Assets. Pursuant to the terms of such transfer, the Company
executed a promissory note payable to AUGI in the principal amount of
approximately $1,140,000 (the "Asset Transfer Note"), representing the cash
advances in excess of $1,000,000 (such amount represents the amount of advances
from AUGI satisfied by issuance of the Common Stock) made by AUGI to Old
Connectsoft in connection with the FreeAgent Assets. The Asset Transfer Note is
unsecured, due on demand and bears interest at 8% per annum, with annual
interest added to the outstanding principal amount. The Company intends to use a
portion of the net proceeds of this offering to pay the Asset Transfer Note in
its entirety at the completion of the offering. Contemporaneously with the
transfer of the FreeAgent Assets, AUGI agreed to indemnify and hold harmless the
Company from and against any and all liabilities and debts related to claims
which arise out of the business or operations of Old Connectsoft prior to the
date of such transfer, other than the indebtedness under the Asset Transfer
Note, matters arising after September 1, 1996 which are related to the FreeAgent
Assets, the activities of Old Connectsoft related to the development and
utilization of the FreeAgent Assets and the obligations which may have been
incurred by Old Connectsoft in connection with the development and utilization
of the FreeAgent Assets. In consideration for the transfer of assets and such
indemnification, the Company issued to AUGI 3,000,000 shares of Common Stock of
the Company and executed and delivered the Asset Transfer Note. See "The
Company" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
AUGI LINE OF CREDIT
The Company entered into the AUGI Line of Credit as of July 31, 1997,
pursuant to which the Company may borrow from time to time, prior to the earlier
of the completion of this offering or January 31, 1999, up to $2,750,000 from
AUGI to be used by the Company to fund its working capital needs, including
research and development and marketing and sales activities related to
FreeAgent. Borrowings under the agreement will be unsecured and will bear
interest at 8% per annum, with annual interest added to the outstanding
principal amount. As of August 31, 1997, AUGI had advanced approximately
$275,000 to the Company under such agreement. The Company expects that
outstanding advances under such agreement will be in excess of $1,360,000 at the
completion of this offering. The Company intends to use the net proceeds of this
offering to repay all or a portion of the AUGI Line of Credit, plus accrued
interest, at the completion of this offering. In the event outstanding balances
under the AUGI Line of Credit are less than $1,360,000, the excess proceeds will
be added to working capital. If advances under the AUGI Line of Credit at the
completion of this offering exceed $1,360,000, such excess, if any, will bear
interest at 10% per annum, with annual interest added to the outstanding
principal amount, and will be due on July 31, 2000. AUGI has informed the
Company that this agreement is not in conflict with the covenants of any other
of its financing arrangements currently in effect. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
44
<PAGE>
OTHER TRANSACTIONS
AUGI has guaranteed to Hewlett-Packard the Company's performance under the
Company's software license agreement with Hewlett-Packard. See "Business --
Hewlett-Packard Agreement."
The Company subleases approximately 7,000 square feet of space from Old
Connectsoft at a monthly rental of $11,000, which is equal to the proportionate
share of the monthly rent paid by Old Connectsoft to an unaffiliated lessor of
such space based upon the square footage occupied by the Company. The sublease
expires in September 2001; however, the Company may terminate the sublease upon
90 days' prior notice in the event it finds alternative office space. AUGI has
partially guaranteed the prime lease held by Old Connectsoft. See
"Business-Facility."
In February 1996, the Representative of the several Underwriters in this
offering introduced AUGI to Old Connectsoft. In consideration of such
introduction, as of July 31, 1996, AUGI issued an aggregate of 50,000 shares of
its common stock to the Representative.
The Company received significant management, accounting and legal support
from AUGI for the period from September 1, 1996 (inception date) to July 31,
1997. Total fees for such support totaled $758,000.
The Company's Certificate of Incorporation provides for indemnification of
the Company's officers and directors in certain circumstances. The Company
intends to enter into indemnification agreements with each of its directors and
executive officers. See "Management -- Limitation of Liability and
Indemnification."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share. As of the date of this Prospectus, 3,000,000
shares of Common Stock were outstanding and all held by AUGI. No shares of
Preferred Stock have been issued or are outstanding. The following summary of
certain provisions of the capital stock of the Company does not purport to be
complete and is subject to, and qualified in its entirety by, the Certificate of
Incorporation and the By-laws of the Company that are included as exhibits to
the Registration Statement of which this Prospectus forms a part, as well as the
provisions of applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the holders of Common Stock and are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive or subscription rights,
and there are no redemption or conversion rights with respect to such shares.
All outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue 5,000,000 shares of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the stockholders.
The issuance of Preferred Stock by the Board of Directors could affect the
rights of the holders of the Common Stock. For example, such issuance could
result in a class of securities outstanding that would have preferences with
respect to voting rights and dividends, and in liquidation, over the Common
Stock, and could (upon conversion or otherwise) enjoy all of the rights
appurtenant to Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. There are no
agreements for the issuance of Preferred Stock and the Board of Directors has no
present intention to issue Preferred Stock.
REPRESENTATIVE'S WARRANTS
In connection with this offering, the Company has agreed to sell to the
Representative, at the purchase price of $.001 per share, warrants (the
"Representative's Warrants") to purchase shares of Common Stock. The
Representative's Warrants are exercisable for four years, commencing one year
from the date of this Prospectus, at a price per share (the "Exercise Price")
equal to 120% of the public offering price per share. The Representative's
Warrants may not be sold, transferred, assigned, pledged or hypothecated for 12
months from the date of this Prospectus, except to members of the selling group
and to officers of the Representative. The Representative's Warrants contain
anti-dilution provisions providing for adjustment of the Exercise Price and
number of shares issuable on exercise of the Representative's Warrants, upon the
occurrence of certain events, including stock dividends, stock splits and
recapitalizations. The holders of the Representative's Warrants have no voting,
dividend or other rights as shareholders of the Company with respect to the
Shares of Common Stock underlying the Representative's Warrants
46
<PAGE>
(the "Warrant Shares"), except to the extent the Representative's Warrants shall
have been exercised. The Representative's Warrants and the Warrant Shares are
being registered as part of this offering.
The Company has agreed that, at the request of the holders of a majority of
the Representative's Warrants and the Warrant Shares that, on no more than two
occasions, the Company will file a registration statement under the Securities
Act for an offering of the Warrant Shares during the four-year period beginning
on the first anniversary of the date of this Prospectus; and the Company has
agreed to use its best efforts to cause each such registration statement to be
declared effective under the Securities Act. In addition, the Company has agreed
to give advance notice to holders of the Representative's Warrants and Warrant
Shares of its intention to file a registration statement, and in one such case,
holders of the Representative's Warrants and the Warrant Shares will have the
right to require the Company to include the Warrant Shares in such registration
at the Company's expense.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the Delaware law prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined therein)
with a Delaware corporation for three years following the date such person
became an interested stockholder, subject to certain exceptions, such as the
approval of the Board of Directors and of the holders of at least two-thirds of
the outstanding shares of voting stock not owned by such interested stockholder.
The existence of such provision would be expected to have an anti-takeover
effect, including the interference with takeover attempts that might result in a
premium over the market price for the shares of Common Stock held by the
stockholders.
The Company's Certificate of Incorporation does not provide for cumulative
voting in the election of directors. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Co., 72 Reade Street, New York, New York.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock and there can be no assurance that a significant public market for the
Common Stock will be developed or sustained after this offering. Sales of
substantial amounts of Common Stock in the public market after this offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices of the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. The availability for sale of a
substantial number of shares of Common Stock acquired through the exercise of
the options or warrants could also adversely affect prevailing market prices for
the Common Stock.
After this offering, the Company will have outstanding shares of
Common Stock. Of such shares, the shares of Common Stock offered hereby
will be freely tradable in the public market without restriction under the
Securities Act, unless such shares are held by "affiliates" of the Company, as
defined in Rule 144 under the Securities Act.
The remaining 3,000,000 shares of Common Stock owned by AUGI, and the
1,362,000 shares issuable upon exercise of outstanding stock options, will be
"restricted securities," as defined in Rule 144 under the Securities Act (the
"Restricted Shares"). The Restricted Shares were issued and sold, or upon
exercise of options will be issued and sold, by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act. Restricted Shares may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rules 144
or 701 under the Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, AUGI and all of the Company's
officers, directors and other option holders have agreed not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any such
shares for a period of 18 months from the date of this Prospectus. Such
agreements provide that the Representative may, in its sole discretion and at
any time without notice, release all or a portion of the shares subject to these
lock-up agreements; however, it has no current intention to do so.
Up to additional shares of Common Stock may be purchased by the
Representative through the exercise of the Representative's Warrants during the
period commencing one year from the date of the closing of this offering and
terminating on the fourth anniversary of such date. The holders of the
Representative's Warrants have certain demand and "piggyback" registration
rights as to such warrants and the underlying shares of Common Stock. Such
warrants and any and all shares of Common Stock purchased upon the exercise of
the Representative's Warrants may be freely tradable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Representative's Warrants. See "Description of
Capital Stock -- Representative's Warrants."
Under Rule 701 of the Securities Act, certain persons who purchase shares
upon exercise of options granted prior to the date of this Prospectus are
entitled to sell such shares after the 90th day following the date of this
Prospectus in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period requirement, imposed under Rule 144.
In general, under Rule 144, as amended, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares of the Company are aggregated) who
has beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of
Common Stock (approximately shares following this offering), or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the
48
<PAGE>
90 days preceding a sale and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
who is not an affiliate of the Company) is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
The Company intends to register the 1,550,000 shares of Common Stock
underlying the options available for grant under the 1997 Plan following the
second anniversary of the date of this Prospectus. See "Management--Stock Option
Plan."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell an aggregate of
shares of Common Stock to each of the underwriters named below (the
"Underwriters"), for whom Hampshire Securities Corporation is acting as the
representative (the "Representative"), and each of the Underwriters has
severally agreed to purchase the respective number of shares set forth opposite
its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Hampshire Securities Corporation...............................................................
-----------------
Total....................................................................................
-----------------
-----------------
</TABLE>
A copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions. The Underwriters shall be obligated to purchase all of the
shares of Common Stock if any are purchased.
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and that they may allow to
certain dealers who are members of the National Association of Securities
Dealers, Inc. (the "NASD") and to certain foreign dealers, concessions not in
excess of $ per share of which amount a sum not in excess of $
per share may in turn be reallowed by such dealers to other dealers who are
members of the NASD and to certain foreign dealers. After the initial public
offering, the offering price, discount and reallowance may be changed by the
Representative.
The Company has agreed to pay to the Representative a non-accountable
expense allowance, equal to 3% of the gross proceeds derived from the sale of
shares of Common Stock offered hereby (or shares if the
Representative's overallotment option is exercised in full). The Company has
also agreed to pay certain of the Underwriter's expenses in connection with this
offering, including expenses in connection with qualifying the shares of Common
Stock offered hereby for sale under the laws of such states as the
Representative may designate and the placement of a tombstone advertisement. The
Company has also granted to the Representative and its designees, for nominal
consideration, Representative's Warrants to purchase from the Company up to
shares of Common Stock at an exercise price per share equal to 120% of
the public offering price per share. See "Description of Capital Stock --
Representative's Warrants."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this offering, there has been no public trading market for the
shares of Common Stock. Consequently, the initial public offering price for the
shares was determined by negotiation between the Company and the Representative.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalization and stage of development of the Company, estimates of the
business potential of the Company, the present state of the Company's management
team, and other factors deemed relevant. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the offering at or above the
initial public offering price.
50
<PAGE>
The Company has granted the Representative an option, exercisable for the 45
days from the date of this Prospectus, to purchase at the public offering price
per share less the underwriting discounts and commissions, up to shares
of Common Stock for the sole purpose of covering overallotments, if any. After
the commencement of this offering, the Representative may confirm sales of
shares of Common Stock subject to this overallotment option. Purchases of shares
of Common Stock upon exercise of the allotment option will result in the
realization of additional compensation by the Representative.
While the Representative's Warrants are exercisable, the Representative and
any transferee will have the opportunity to profit from a rise in the market
price of the Common Stock, with a resulting dilution in the interest of other
shareholders. In addition, during that period, the terms on which the Company
will be able to obtain additional capital may be adversely affected, since the
Representative is likely to exercise its Representative's Warrants at a time
when the Company would, in all likelihood, be able to obtain capital by a new
offering of securities on terms more favorable than those provided in the
Representative's Warrants.
During and after this offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with this offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in this offering for their
account may be reclaimed by the syndicate if such shares are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued at any time.
OBSERVER OF THE BOARD
The Company has agreed that, for three years following the date of this
Prospectus, the Representative may appoint an observer to attend all meetings of
the Company's Board of Directors. The observer has the right to receive notice
of all meetings of the Board of Directors and to attend such meetings. However,
the Board of Directors may exclude the observer from any meeting at which, in
the opinion of the Board, confidential or sensitive matters are discussed. The
observer will be entitled to receive the same reimbursement for out-of-pocket
expenses for attendance at those meetings as the members of the Board of
Directors. In addition, the observer will be entitled to indemnification, to the
same extent as the Company's directors. A designee of the Representative has not
to date been selected by the Representative.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and the Representative's Warrants, does not purport to be complete and
is qualified in its entirety by reference to the form of Underwriting Agreement
and the form of Representative's Warrant which have been filed as exhibits to
the Company's Registration Statement.
51
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg Traurig Lipoff Rosen & Quentel, New York, New York. Certain
legal matters relating to the offering will be passed upon for the Underwriters
by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
EXPERTS
The financial statements as of July 31, 1997 and for the period from
September 1, 1996 (date of inception) to July 31, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form SB-2 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Commission upon the payment of certain fees prescribed by the Commission.
Such reports and other information may also be inspected without charge at a Web
site maintained by the Commission. The address of such site is
http://www.sec.gov.
The Company will furnish its stockholders with annual reports containing
financial statements audited by independent accountants and make available
quarterly reports for the first three quarters of each year containing unaudited
financial statements.
52
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Balance Sheet as of July 31, 1997.......................................................................... F-3
Statement of Operations for the period from September 1, 1996 (date of inception)
to July 31, 1997......................................................................................... F-4
Statement of Cash Flows for the period from September 1, 1996 (date of inception)
to July 31, 1997......................................................................................... F-5
Statement of Shareholder's Deficit for the period from September 1, 1996 (date of
inception) to July 31, 1997.............................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND SHAREHOLDER OF
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows, and of shareholder's deficit present fairly, in all
material respects, the financial position of Connectsoft Communications
Corporation (a Development Stage Enterprise) at July 31, 1997 and the results of
its operations and cash flows for the period from September 1, 1996 (inception)
to July 31, 1997 in conformity with generally accepted accounting principles.
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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Seattle, Washington
August 27, 1997
F-2
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31,
1997
------------
<S> <C>
ASSETS
Property and equipment, net....................................................................... $ 382,000
------------
Total assets.................................................................................... $ 382,000
------------
------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Accounts payable and accrued liabilities.......................................................... $ 325,000
Deferred revenue.................................................................................. 750,000
Note payable to AUGI.............................................................................. 1,140,000
------------
Total liabilities............................................................................... 2,215,000
------------
Commitments and contingencies (Notes 3 and 8)
Shareholder's deficit
Preferred stock, par value $.001, 5,000,000 shares authorized,
no shares issued and outstanding
Common stock, par value $.001, 30,000,000 shares authorized,
3,000,000 issued and outstanding................................................................ 3,000
Additional paid in capital........................................................................ 997,000
Deficit accumulated during the development stage.................................................. (2,833,000)
------------
Total shareholder's deficit..................................................................... (1,833,000)
------------
Total liabilities and shareholder's deficit..................................................... $ 382,000
------------
------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 1,
1996)
TO
JULY 31, 1997
------------------
<S> <C>
Research and development expenses............................................................. $ 899,000
Selling, general and administrative expenses.................................................. 1,816,000
------------------
Operating loss................................................................................ (2,715,000)
Interest expense.............................................................................. (118,000)
------------------
Net loss before provision for income taxes.................................................... (2,833,000)
Provision for income taxes.................................................................... --
------------------
Net loss...................................................................................... $ (2,833,000)
------------------
------------------
Pro forma net loss per share.................................................................. $ (0.94)
------------------
------------------
Pro forma weighted average number of shares outstanding....................................... 3,000,000
------------------
------------------
Supplemental pro forma net loss per share..................................................... $ (0.88)
------------------
------------------
Supplemental pro forma weighted average number of shares outstanding.......................... 3,132,000
------------------
------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(SEPTEMBER 1,
1996)
TO
JULY 31, 1997
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................................................... $ (2,833,000)
Adjustments to reconcile net loss to net cash used in operating activities
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities................................................ 325,000
Deferred revenue........................................................................ 750,000
------------------
Net cash used in operating activities..................................................... (1,758,000)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................................................ (382,000)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution from Parent............................................................ 1,000,000
Advances from Parent........................................................................ 1,140,000
------------------
Net cash provided by financing activities................................................. 2,140,000
------------------
Net change in cash............................................................................ --
Cash, at beginning of period.................................................................. --
------------------
Cash, at end of period........................................................................ $ --
------------------
------------------
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<S> <C>
Cash paid for interest during the period...................................................... $ --
------------------
------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING TOTAL
----------------------- PAID IN DEVELOPMENT SHAREHOLDER'S
SHARES AMOUNT CAPITAL STAGE DEFICIT
------------ --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Formation of the Company..................... 3,000,000 $ 3,000 $ 997,000 $ 1,000,000
Net loss from September 1, 1996 (inception)
to July 31, 1997........................... -- -- $ (2,833,000) $ (2,833,000)
------------ --------- ------------ ------------- -------------
Balance at July 31, 1997..................... 3,000,000 $ 3,000 $ 997,000 $ (2,833,000) $ (1,833,000)
------------ --------- ------------ ------------- -------------
------------ --------- ------------ ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND INCORPORATION
Connectsoft Communications Corporation ("CCC" or "the Company") is in the
process of developing a unified, intelligent communications system which it is
marketing under the name FreeAgent. FreeAgent is designed to integrate e-mail,
voice mail, facsimile, paging, internet and intranet content, private branch
exchange telephone systems, and the public switched telephone network. FreeAgent
is capable of applying advanced media transformation processes, advanced user
interface technologies and specified agentry processes so that an individual can
send or receive a message between most currently used communications media. CCC
currently has only one business segment and its primary markets are currently
the United States, Europe and Japan.
CCC began operations as a separate division of ConnectSoft, Inc. ("Old
Connectsoft") on September 1, 1996. Old Connectsoft is a wholly owned subsidiary
of American United Global, Inc. ("AUGI"). Prior to this date, no activities had
occurred related to development of the FreeAgent product.
Until July 31, 1997, the CCC business was conducted through a division of
Old Connectsoft and its operations were included in Old Connectsoft's financial
statements. On June 18, 1997, the Company was incorporated in the state of
Delaware as a wholly owned subsidiary of AUGI. On July 31, 1997, the CCC related
net assets were transferred by AUGI to the Company in exchange for a promissory
note of $1,140,000 and 3,000,000 shares of CCC common stock. As described in
Note 3, the accompanying financial statements include the results of operations
of the CCC business of Old Connectsoft which were allocated to the Company on
the basis described below.
The Company is a development stage enterprise and has incurred significant
net losses since inception. The ability of the Company to continue its
operations is dependent upon its ability to obtain financing, which to date has
been principally through advances from AUGI. The Company intends to file a
Registration Statement for an initial public offering ("IPO") of common stock
from which it expects to generate net proceeds of approximately $20.7 million.
Additionally, AUGI has provided an operating line of credit to the Company as
described in Note 3. Management believes proceeds from the IPO or advances from
AUGI along with anticipated future revenues will enable the Company to continue
research and development activities and develop products pursuant to its
long-term growth plan. However, the level of planned development activity may be
curtailed if the IPO does not close as anticipated or product revenues are not
realized as anticipated.
The accompanying statement of operations for the period from inception
(September 1, 1996) to July 31, 1997 reflect expense items incurred by Old
Connectsoft and AUGI which have been allocated on a basis which management
believes represents a reasonable allocation of such costs to present the Company
as a stand-alone entity. These allocations consist of research and development
expense, selling, general and administrative expenses, interest expense on
intercompany borrowings and income taxes. Research and development expenses
represent the costs directly attributable to research and development activities
of the FreeAgent product. Selling, general and administrative expenses have been
allocated based on an estimate of Old Connectsoft and AUGI personnel time
dedicated to the operations of and management of the FreeAgent product. Interest
expense has been allocated at 8% per annum (Note 3) applied to actual
intercompany borrowings and amounted to $118,000 for the period from September
1, 1996 (inception) to July 31, 1997.
F-7
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND INCORPORATION (CONTINUED)
The accompanying financial statements represent the "carve-out" financial
position, results of operations and cash flows for the period presented. The
financial information presented herein does not necessarily reflect what the
financial position and the results of operations of the Company would have been
had it operated as a stand alone entity during the period and may not be
indicative of future results of operations or financial position. The Company's
fiscal year end is July 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred in connection with product development
are charged to research and development expense until technological feasibility
is established. Thereafter, through general release of the product, software
development costs will be capitalized and reported at the lower of unamortized
cost or net realizable value. The establishment of technological feasibility and
the ongoing assessment of the recoverability of costs require considerable
judgment by the Company with respect to certain external factors, including, but
not limited to, anticipated future gross product sales, estimated economic life,
and changes in software and hardware technology. After consideration of the
above factors, the Company will amortize capitalized software costs at the
greater of the amount computed using (a) the ratio of current revenues for a
product to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining economic life of the product. The
Company will consider that technological feasibility has been established when
the completeness of a working model and its consistency with the product design
has been confirmed by testing. Unamortized capitalized software development
costs will be compared to estimated net realizable value of the product at each
balance sheet date and written down, if appropriate.
REVENUE RECOGNITION
The Company will recognize revenue from the sale or license of its
proprietary software in accordance with the provisions of AICPA Statement of
Position 91-1, SOFTWARE REVENUE RECOGNITION (SOP 91-1). Sales and license
revenue will be recognized either upon shipment or at the end of the evaluation
period, net of estimated future returns. Although the Company has entered into a
software licensing agreement under which customer payments are due, the Company
has not recorded any revenues to date as the recognition criteria of SOP 91-1
have not been met. Accordingly, funds from the customer are reported as deferred
revenue.
INCOME TAXES
The Company's operating results are included in the AUGI consolidated
federal income tax return and will be until such time as AUGI's ownership is
reduced below 80%. Under an informal tax allocation agreement with AUGI, the
Company is entitled to receive or obligated to pay its share of the current
federal income tax benefit or expense generated by its operations. If a tax loss
results in a benefit which cannot be currently used by the consolidated tax
group, no reimbursement will be received from AUGI. The current net losses
through July 31, 1997 have not been utilized by AUGI in its consolidated federal
income tax return. Upon completion of this offering or any other changes in
ownership that cause the
F-8
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company to no longer be included in AUGI's consolidated federal tax return, the
Company will have available to it the net operating losses generated from August
1, 1997 to the date of the change in control to the extent the net operating
losses are not utilized by AUGI.
The Company accounts for income taxes using an assets and liabilities
approach, on a separate return basis, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts for financial reporting purposes and
the tax basis of assets and liabilities.
PROPERTY AND EQUIPMENT
Property and equipment is stated at historical cost and is depreciated over
its estimated useful lives of three to five years. The Company assesses the
recoverability of its property and equipment at each balance sheet date to
determine if an asset impairment is appropriate using a cash flow model. No
impairments have been recorded to date.
ADVERTISING AND PROMOTION
All costs associated with advertising and promoting products are expensed in
the period incurred. Advertising and promotion expense was approximately $68,000
for the period from September 1, 1996 (inception) to July 31, 1997.
EMPLOYEE STOCK OPTIONS
The Company anticipates that it will account for stock options using the
intrinsic value method prescribed by Accounting Principles Board No. 25
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES". The disclosure requirements of
Statement of Financial Accounting Standards No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION" will be applied once the Company has issued employee stock
options.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is calculated by dividing net loss for the
period from September 1, 1996 (inception) to July 31, 1997 by the 3,000,000
shares of common stock issued to AUGI in connection with the transfer of assets
to and formation of the Company.
The FASB issued Statement of Financial Accounting Standard No. 128 "EARNINGS
PER SHARE" (SFAS 128) in July 1997. This pronouncement changes the method of
calculating earnings per share and is required to be adopted by the Company for
the year ending July 31, 1998. The impact of the adoption of SFAS 128 on the
Company's net loss per share has not been determined.
SUPPLEMENTAL PRO FORMA NET LOSS PER SHARE
Supplemental pro forma net loss per share and supplemental pro forma
weighted average number of shares outstanding have been adjusted to give effect
to the use of $1,140,000 of net proceeds from the sale of 132,000 shares of
Common Stock to repay indebtedness as of September 1, 1996 (date of inception).
Net loss for the period decreased by $91,000 relating to interest on such debt.
F-9
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period
presented. Actual results could differ from those estimates.
FAIR VALUE
Accounts payable and accrued liabilities and deferred revenue are stated at
their carrying value which approximates fair value at July 31, 1997. A fair
value for the advances from AUGI cannot be determined based on the related party
nature of the transaction.
SIGNIFICANT AGREEMENTS
As discussed in Notes 4 and 8, the Company has significant agreements to
license its product and license software used in its product with third parties.
The termination of any of these agreements could have a materially adverse
impact on the Company's business.
3. FORMATION OF THE COMPANY AND RELATED PARTY TRANSACTIONS
As described in Note 1, on July 31, 1997, the operating assets of the CCC
division of Old Connectsoft were transferred by AUGI to the Company (the "Asset
Transfer"). The purchase price consisted of a $1,140,000 promissory note issued
to AUGI and 3,000,000 shares of common stock issued to AUGI. The value assigned
to the common stock on the date of its issuance was $1,000,000 which represented
the amount of advances from AUGI satisfied by issuance of the common stock.
Assets, liabilities and operating activities were transferred to the Company at
their historical amounts as previously presented in AUGI's consolidated
financial statements.
A summary of the assets and liabilities transferred are as follows:
<TABLE>
<S> <C>
Property and equipment, net..................................... $ 382,000
Deferred revenue................................................ (750,000)
Accounts payable and accrued liabilities........................ (325,000)
Note payable to AUGI............................................ (1,140,000)
Common stock.................................................... (1,000,000)
----------
Deficit accumulated to July 31, 1997............................ $(2,833,000)
----------
----------
</TABLE>
The note payable to AUGI is unsecured, bears interest at 8% per annum and is
due on demand. The note has a mandatory prepayment provision which requires a
payment of $1,140,000, plus accrued interest immediately following an IPO of the
Company's common stock. Subsequent to July 31, 1997, all advances to the Company
by AUGI were made under a separate line of credit facility discussed below.
F-10
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
3. FORMATION OF THE COMPANY AND RELATED PARTY TRANSACTIONS (CONTINUED)
Additionally, under the terms of the Asset Transfer, AUGI has agreed to
indemnify the Company for any remaining liabilities arising out of Old
Connectsoft other than matters which arise after September 1, 1996 and which are
related to the FreeAgent assets or activities.
LINE OF CREDIT FROM AUGI
AUGI has made available to the Company an unsecured line of credit totaling
$2,750,000. Amounts may be drawn on the line from August 1, 1997 through January
31, 1999. Outstanding drawings are due on July 31, 2000. The line of credit
bears interest at 8% per annum. No amounts are outstanding under this line of
credit at July 31, 1997. The note has a mandatory prepayment provision which
requires a payment equal to the lesser of the amount of principal and accrued
interest outstanding or $1,360,000 plus accrued interest immediately following
an IPO of the Company's common stock, resulting in a total maximum payment due
AUGI upon completion of the IPO of $2,500,000 plus accrued interest. After the
mandatory prepayment is made, the interest rate on the line of credit increases
to 10% per annum. The balance of the principal and accrued interest is due on
July 31, 2000. Subsequent to an IPO, AUGI has no further obligation to advance
funds under the line of credit agreement.
MANAGEMENT FEES
The Company received significant management, accounting and legal support
from AUGI for the period from September 1, 1996 (inception date) to July 31,
1997. Total fees for such support totaled $758,000.
SUBLEASE AGREEMENT
Effective July 31, 1997, the Company has subleased office space from Old
Connectsoft on terms identical to those Old Connectsoft has with an unrelated
third party. Under the terms of the sublease agreement, the Company is charged
based on actual square footage used. At present rates of occupancy, the minimum
rental payments for each of the next five fiscal years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JULY 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 142,000
1999.............................................................................. 146,000
2000.............................................................................. 150,000
2001.............................................................................. 155,000
2002.............................................................................. 39,000
----------
$ 632,000
----------
----------
</TABLE>
The Company is not obligated to make rental payments to Old Connectsoft in
the event it finds alternative office space.
F-11
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
4. LICENSE AGREEMENT
The Company has entered into an agreement to license its FreeAgent software.
Pursuant to the agreement and its modification, the Company has agreed to
provide a master version of the FreeAgent software to an OEM customer by
September 8, 1997 in exchange for a $1,000,000 license fee. The agreement
reduces the license fee by certain dollar amounts if timely delivery of the
master version is not made. At July 31, 1997, the OEM had been invoiced for and
paid $750,000 of the license fee, which has been shown as deferred revenues
because the master version has not been delivered and revenue realization is not
assured. Upon delivery of the master version, there are no significant
continuing obligations. The agreement also provides for quarterly royalty
payments by the OEM of $75,000 for each of the four quarters following delivery
of the master version. The OEM has the option of extending the agreement for two
six-month terms. During the extension period, the quarterly royalty payments
would be $45,000. Further, the agreement limits the Company's ability to license
the software to certain companies engaged in the manufacturing of computer
printers. As part of the Asset Transfer, this license agreement was assigned to
the Company. The Company's performance under this agreement is guaranteed by
AUGI.
5. INCOME TAXES
The Company has incurred net losses for financial reporting and tax purposes
since its inception. The Company is currently included in the AUGI consolidated
federal tax return. Net operating loss carryforwards generated prior to July 31,
1997, when the Company was a division of Old Connectsoft, will remain with AUGI.
Upon completion of this offering or any other changes in ownership that cause
the Company to no longer be included in AUGI's consolidated federal tax return,
the Company will have available to it the net operating losses generated from
August 1, 1997 to the date of the change in control to the extent the net
operating losses are not utilized by AUGI. A full valuation allowance has been
provided against these net operating loss carry-forwards due to the Company's
limited operating history and therefore uncertainty regarding their future
utilization. There are no other significant temporary differences between the
carrying amounts of assets and liabilities for financial and tax reporting
purposes.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31,
1997
------------
<S> <C>
Furniture and fixtures.......................................................... $ 113,000
Computer equipment.............................................................. 269,000
------------
382,000
Accumulated depreciation........................................................ - -
------------
$ 382,000
------------
------------
</TABLE>
F-12
<PAGE>
CONNECTSOFT COMMUNICATIONS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
7. SHAREHOLDER'S EQUITY
The Company was incorporated in June 1997. Authorized common and preferred
stock consists of 30,000,000 and 5,000,000 shares, respectively. The preferred
stock can be issued with terms and preferences as determined by the Board of
Directors. The Company issued 3,000,000 shares of common stock to AUGI on July
31, 1997, as described in Note 3.
Effective August 1, 1997, the Company established the 1997 Stock Option Plan
("1997 Plan"). Under the 1997 Plan, the Company may grant nonqualified and
incentive stock options to employees to purchase up to an aggregate of 1,550,000
shares of common stock. The Company intends to grant options to purchase
1,382,000 shares of common stock to certain employees and a non-employee
director. These options will have terms as determined by the Board of Directors.
8. LICENSING AGREEMENTS AND SUBSEQUENT EVENT
In July 1997, the Company entered into a software license agreement with
Data Connection Limited ("DCL"). Under the terms of this agreement, the Company
has been granted a worldwide license to incorporate DCL's proprietary technology
into the Company's FreeAgent products and to distribute the DCL technology as a
part of such products. The license is exclusive as to telephone network or
service providers, but is otherwise non-exclusive. DCL's technology is still in
development. The Company paid DCL an initial license fee of $100,000 in July
1997 and has agreed to pay an additional $200,000 upon the achievement of
certain milestones in DCL's software development effort. The agreement also
provides for the payment of a royalty equal to five percent of the Company's net
revenues derived from the licensing of products incorporating DCL's technology
upon the completion of certain milestones. These royalties will be offset
against minimum royalty commitments of $200,000, $587,500, and $362,500 for the
years ending July 31, 1998, 1999, and 2000, respectively. The term of the
agreement is perpetual but may be terminated by either party upon the other
party's material breach, bankruptcy or insolvency.
In August 1997, the Company entered into license and software development
agreements with SRI International ("SRI") pursuant to which the Company has been
granted the non-exclusive world-wide rights to use, develop, modify, market, and
distribute the prototype computer code of SRI's OAA Facilitators and Libraries.
The Company has agreed to pay SRI an estimated price of $126,000 for consulting
and development services. This amount is payable upon the achievement of certain
milestones. In addition, the Company has agreed to pay SRI a one percent royalty
on net sales (the invoiced sales price less credits, allowances, discounts and
rebates, freight and insurance costs and sales, use and other taxes) of products
utilizing SRI's computer code.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE COMMON STOCK OFFERED HEREBY OR AN OFFER TO
SELL TO OR A SOLICITATION OF AN OFFER TO BUY FROM ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 7
The Company...................................... 16
Use of Proceeds.................................. 17
Dividend Policy.................................. 17
Capitalization................................... 18
Dilution......................................... 19
Selected Financial Data.......................... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 24
Management....................................... 38
Principal Stockholders........................... 43
Certain Transactions............................. 44
Description of Capital Stock..................... 46
Shares Eligible for Future Sale.................. 48
Underwriting..................................... 50
Legal Matters.................................... 52
Experts.......................................... 52
Additional Information........................... 52
Index to Financial Statements.................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
------------------
PROSPECTUS
---------------------
HAMPSHIRE SECURITIES
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 9,236.44
NASD filing fee............................................... 3,548.02
Nasdaq National Market fee.................................... 20,800.00
Accounting fees and expenses.................................. 150,000.00
Legal fees and expenses....................................... 275,000.00
Printing and engraving expenses............................... 65,000.00
Transfer agent and registrar fees............................. 10,000.00
Blue Sky fees and expenses.................................... 35,000.00
Underwriters' expense allowance............................... 720,000.00
Directors' and Officers' Insurance............................ 30,000.00
Miscellaneous expenses........................................ 1,415.56
------------
Total....................................................... $1,320,000.00
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Restated Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including the circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnity agreements with its
directors and executive officers that require the Registrant, among other
things, to indemnify them against certain liabilities which may arise by reason
of their status or service (other than liabilities arising from willful
misconduct of a culpable nature) and to maintain directors' and officers'
liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnity agreements to be entered
into between the Registrant and its directors may be sufficiently broad to
permit indemnification of the Registrant's directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a), (c) Effective July 31, 1997, in consideration of the transfer of
technology, assets, contract rights and other assets relating to FreeAgent and
the business of the Company, the Company issued to AUGI 3,000,000 shares of
Common Stock of the Company.
II-1
<PAGE>
Stock options to purchase an aggregate of 1,118,000 shares of Common Stock
were issued in August 1997 to certain executive officers, directors, consultants
and employees of the Company pursuant to the Company's 1997 Stock Option Plan,
effective upon the completion of the offering.
(b) There were no underwriters employed in connection with any of the
transactions set forth in Item 15(a) and (b).
(d) The issuances described in Items 15(a) and (b) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 15(b) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. 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
issued in such transactions. All recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant.
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Greenberg Traurig Hoffman Lipoff Rosen & Quentel.
10.1 Form of Indemnification Agreement for Directors of the Company.
10.2 1997 Stock Option Plan.
10.3 Employment Agreement, dated as of May 15, 1996, between Connectsoft, Inc. ("Old Connectsoft") and
Robert Marcus, as assigned to the Company.
10.4 Software License Agreement, dated April 1, 1997, between the Company and Hewlett-Packard Company, as
modified.
10.5 Master Software License Agreement, dated July 31, 1997, between the Company and Data Connection
Limited.
10.6 License Agreement and Software Development Agreement, each dated as of August 21, 1997, between the
Company and SRI International
10.7 Employment Agreement, dated as of August 15, 1997, between the Company and Robert M. Rubin.
10.8 Employment Agreement, dated as of August 15, 1997, between the Company and Howard B. Katz.
10.9 Sublease Agreement, dated as of July 31, 1997, between the Company and Old Connectsoft.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.10 Transfer of Certain Assets, dated as of July 31, 1997, between the Company and Old Connectsoft.
10.11 Asset Transfer Promissory Note, dated July 31, 1997, by the Company to AUGI.
10.12 Line of Credit Agreement, dated as of July 31, 1997, between the Company and AUGI.
10.13 Line of Credit Promissory Note, dated July 31, 1997, by the Company to AUGI.
10.14 Memorandum of Understanding, dated August 21, 1997, between the Company and Bell Communications
Research, Inc.
11.1 Statement re Computation of Per Share Earnings.
21.1 Subsidiaries of the Company.
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Greenberg Traurig Hoffman Lipoff Rosen & Quentel (included in the opinion filed as Exhibit
5.1).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
None.
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
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement, 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 hereunder, 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
Acct., the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
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; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements 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 Bellevue, State of
Washington, on the 3rd day of September 1997.
CONNECTSOFT COMMUNICATIONS CORPORATION
By: /s/ ROBERT M. RUBIN
-----------------------------------------
Robert M. Rubin
CHAIRMAN OF THE BOARD
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.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- ------------------
/s/ ROBERT M. RUBIN Chairman of the Board and September 3, 1997
- ------------------------------ Director
Robert M. Rubin (Principal Executive
Officer)
President, Chief Executive September , 1997
- ------------------------------ Officer and Director
Robert Marcus
/s/ HOWARD B. KATZ Executive Vice President, September 3, 1997
- ------------------------------ Treasurer and Director
Howard B. Katz (Principal Financial or
Accounting Officer)
II-4
<PAGE>
Exhibit 1.1
SHARES
CONNECTSOFT COMMUNICATIONS CORPORATION
UNDERWRITING AGREEMENT
__________ ___, 1997
Hampshire Securities Corporation
640 Fifth Avenue
New York, New York 10019
Gentlemen:
The undersigned, Connectsoft Communications Corporation, a Delaware
corporation (the "Company"), hereby confirms its agreement with Hampshire
Securities Corporation, as representative (the "Representative") of the several
underwriters identified in Schedule I hereto (the "Underwriters") as follows:
1. INTRODUCTION. The Company proposes to issue and sell to the
Underwriters an aggregate of shares of common stock, par value $.001
per share, of the Company (the "Common Stock"). Such shares of Common Stock are
hereinafter referred to as the "Stock". In addition, solely for the purpose of
covering over-allotments, the Company proposes to grant to the Underwriters an
option (the "Over-allotment Option") to purchase from it, in the aggregate, up
to an additional shares (the "Additional Stock") of Common Stock. The
Common Stock is more fully described in the prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the
Underwriters that:
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed one or more amendments thereto, on Form SB-2 registration No.
333-_______),
<PAGE>
including in such registration statement and each such amendment a
related preliminary prospectus, for the registration of the Stock, the
Additional Stock, the common stock purchase warrants referred to in
Section 5(a)(17) (the "Representative's Warrants") and the shares of
Common Stock underlying the Representative's Warrants (the "Warrant
Stock") under the Securities Act of 1933, as amended (the "Act"). As
used in this Agreement, the term "Registration Statement" shall refer
to such registration statement, as amended, on file with the
Commission at the time such registration statement becomes effective
under the Act (including the prospectus, financial statements,
exhibits, and all other documents filed as a part thereof, provided,
however, that such registration statement, at the time it becomes
effective, may omit such information as is permitted to be omitted
from such registration statement when it becomes effective under the
Act pursuant to Rule 430A of the General Rules and Regulations of the
Commission under the Act (the "Regulations"), which information (the
"Rule 430A Information") shall be deemed to be included in such
registration statement when a final prospectus is filed with the
Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations); the term "Preliminary Prospectus" shall refer to each
prospectus included in the Registration Statement, or any amendments
thereto, before the Registration Statement becomes effective under the
Act, the form of prospectus omitting Rule 430A Information included in
the Registration Statement when the Registration Statement becomes
effective under the Act, if applicable (the "Rule 430A Prospectus"),
and any prospectus filed by the Company with the Representative's
consent pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" shall refer to the final prospectus in the form first
filed pursuant to Rule 424(b)(1) or (4) of the Regulations or, if no
such filing is required, the form of final prospectus included in the
Registration Statement.
(2) When the Registration Statement becomes effective under
the Act, and at all times subsequent thereto up to and including the
Closing Date (as defined
-2-
<PAGE>
in Section 3) and each Additional Closing Date (as defined in Section
3), and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriters or a dealer,
and during such longer period until any post-effective amendment
thereto shall become effective under the Act, the Registration
Statement (and any post-effective amendment thereto) and the
Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement to the
Registration Statement or the Prospectus), respectively, will contain
all statements which are required to be stated therein in accordance
with the Act and the Regulations, will comply with the Act and the
Regulations, and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and no
event will have occurred which should have been set forth in an
amendment or supplement to the Registration Statement or the
Prospectus which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is included in the Registration
Statement at the time it becomes effective under the Act, the
Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) of the
Regulations will contain all Rule 430A Information and all statements
which are required to be stated therein in accordance with the Act or
the Regulations, will comply with the Act and the Regulations, and
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; and each Preliminary
Prospectus, as of the date filed with the Commission, contained all
statements required to be stated therein in accordance with the Act
and the Regulations, complied with the Act and the Regulations, and
did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; except that no
representation or warranty is made in this Section 2(a)(2) with
respect to statements or omissions made in reliance upon, and in
conformity
-3-
<PAGE>
with, written information furnished to the Company as stated in
Section 8(b) with respect to any Underwriter by or on behalf of such
Underwriter through the Representative expressly for inclusion in the
Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto.
(3) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order")
suspending the effectiveness of, or preventing or suspending the use
of, the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, refusing to permit
the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Stock, the Additional Stock, the
Representative's Warrants or the Warrant Stock, nor has any of such
authorities instituted or threatened to institute any proceedings with
respect to a Stop Order.
(4) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the
Prospectus has been properly described therein. Any contract,
agreement, instrument, lease, or license required to be filed as an
exhibit to the Registration Statement has been filed with the
Commission as an exhibit to the Registration Statement.
(5) The Company has no subsidiary or subsidiaries (as defined
in the Regulations). The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority, and
all necessary consents, authorizations, approvals, orders, licenses,
certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities
and all courts and other tribunals, to own, lease, license, and use
its properties and assets and to conduct its business in the manner
described in the Prospectus. The Company is duly qualified to do
business as a foreign corporation and is in good standing as such in
every jurisdiction in which its ownership, leasing, licensing, or use
of property and assets
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<PAGE>
or the conduct of its business makes such qualification necessary,
except where the failure to be so qualified does not amount to a
material liability or disability to the Company.
(6) The Company has authorized capital stock of 5,000,000
shares of Common Stock. Except as disclosed in the Prospectus, each
outstanding share of Common Stock is validly authorized and issued,
fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, has not been issued and is not
owned or held in violation of any preemptive rights of stockholders.
There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the issuance
of, any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may be
properly described in the Prospectus. There is outstanding no
security or other instrument which by its terms is convertible into,
or exercisable or exchangeable for, capital stock of the Company,
except as may be properly be described in the Prospectus. The
certificates evidencing the Common Stock are in proper form.
(7) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly
present, with respect to the Company, the financial position, the
results of operations, the cash flows, and the other information
purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such financial statements
have been prepared in accordance with generally accepted accounting
principles (except to the extent that certain footnote disclosures
regarding any stub period may have been omitted in accordance with the
applicable rules of the Commission under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) consistently
applied throughout the periods involved, are correct and complete in
all material respects, and are in accordance with the books and
records of the
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Company. Price Waterhouse LLP, the accountants whose report on the
audited financial statements is filed with the Commission as a part of
the Registration Statement, are, and during the periods covered by
their report(s) included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect
to the Company within the meaning of the Act and the Regulations. No
other financial statements are required by Form SB-2 or otherwise to
be included in the Registration Statement or the Prospectus. There
has at no time been a material adverse change in the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company from the latest
information set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
(8) There is no litigation, arbitration, claim, governmental
or other proceeding (formal or informal), or investigation pending,
threatened, or, to the best knowledge of the Company, in prospect (or
any basis therefor) with respect to the Company or any of its
operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the
aggregate do not now have, and will not in the future have, a material
adverse effect upon the operations, business, properties, or assets of
the Company. The Company is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such as in
the aggregate do not now have, and will not in the future have, a
material adverse effect upon the operations, business, properties, or
assets of the Company; nor is the Company currently required to take
any action in order to avoid any such violation or default.
(9) The Company has good title to all properties and assets
which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and
mortgages, except such as to not materially and adversely affect the
value of such property and do not interfere with the use
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<PAGE>
made or proposed to made of such property (or except as may be
properly described in the Prospectus). No real property leased,
licensed, or used by the Company lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use, or building
code restrictions which would prohibit, and no state of facts relating
to the actions or inactions of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal property
exists or will exist which would prevent, the continued effective
leasing, licensing, or use of such real property in the business of
the Company as presently conducted or as the Prospectus indicates it
contemplates conducting, with such exceptions as are not material and
do not interfere with the use made or proposed to be made of such
property and buildings by the Company (or except as may be properly
described in the Prospectus).
(10) Neither the Company nor, to the knowledge of the Company,
any other party, is now, or is expected by the Company to be, in
violation or breach of, or in default with respect to, any material
provision of any contract, agreement, instrument, lease, license,
arrangement, or understanding which is material to the Company, and
each such contract, agreement, instrument, lease, license,
arrangement, and understanding is in full force and effect and is the
legal, valid, and binding obligation of the parties thereto and is
enforceable as to them in accordance with its terms. The Company
enjoys peaceful and undisturbed possession under all leases and
licenses under which it is operating. Except as described in the
Prospectus, the Company is not a party to, or bound by, any contract,
agreement, instrument, lease, license, arrangement, or understanding,
or subject to any charter or other restriction, which has had, or may
in the future have, a material adverse effect on the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company is not
in violation or breach of, or in default with respect to, any term of
its certificate of incorporation (or other charter document) or
by-laws.
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<PAGE>
(11) All United States and foreign patents, patent
applications, trademarks, trademark applications, trade names, service
marks, copyrights, franchises, and other intangible properties and
assets (all of the foregoing being herein called "Intangibles") that
the Company owns or has pending, or under which it is licensed, are in
good standing and uncontested, except as may be properly described in
the Prospectus. There is no right under any Intangible necessary to
the business of the Company as presently conducted or as the
Prospectus indicates it contemplates conducting, except as may be so
designated in the Prospectus. The Company has not infringed, is not
infringing, or has not received notice of (or knows of any basis for)
a third party claim of infringement with respect to asserted
Intangibles of others, except as may be properly described in the
Prospectus. To the knowledge of the Company, there is no infringement
by others of Intangibles of the Company. To the knowledge of the
Company, there is no Intangible of others which has had, or may in the
future have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities or
future prospects of the Company, except as may be properly described
in the Prospectus.
(12) Neither the Company nor any director, officer, agent,
employee, or other person associated with, or acting on behalf of, the
Company has, directly or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated
any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment. The Company's internal
accounting controls and procedures are sufficient to cause the Company
to comply in all respects with the Foreign Corrupt Practices Act of
1977, as amended.
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<PAGE>
(13) The Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representative's
Warrants. All necessary corporate proceedings of the Company have
been duly taken to authorize the execution, delivery, and performance
by the Company of this Agreement and the Representative's Warrants.
This Agreement has been duly authorized, executed, and delivered by
the Company, is the legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance with its
terms. The Representative's Warrants have been duly authorized by the
Company and, when executed and delivered by the Company, will be
legal, valid, and binding obligations of the Company, each enforceable
as to the Company in accordance with its terms. No consent,
authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by
the Company of this Agreement or the Representative's Warrants (except
filings under the Act which have been or will be made before the
Closing Date and filings and consents consisting only of filings and
consents under "blue sky" or securities laws which have been obtained
at or prior to the date of this Agreement). No consent of any party
to any contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Company is a party, or to which any of
their respective properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement and the
Representative's Warrants; and the execution, delivery, and
performance of this Agreement and the Representative's Warrants will
not violate, result in a breach of, conflict with, result in the
creation or imposition of any lien, charge, or encumbrance upon any
properties or assets of the Company pursuant to the terms of, or (with
or without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under, any such
contract, agreement, instrument, lease, license, arrangement, or
understanding, or violate, result in a
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<PAGE>
breach of, or conflict with any term of the certificate of
incorporation (or other charter document) or by-laws of the Company,
or violate, result in a breach of, or conflict with any law, rule,
regulation, order, judgment, or decree binding on the Company or to
which any of its respective operations, businesses, properties, or
assets are subject.
(14) The Stock and the Additional Stock are validly authorized
and, when issued and delivered in accordance with this Agreement, will
be validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued
in violation of any preemptive or similar rights of stockholders, and
the Underwriters will receive good title to the Stock and the
Additional Stock, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Common Stock, the Stock, and the Additional Stock conform
to all statements relating thereto contained in the Registration
Statement or the Prospectus.
(15) The Warrant Stock is validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon
exercise of the Representative's Warrants in accordance with the terms
thereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and
will not be issued in violation of any preemptive rights of
stockholders; and the holders of the Representative's Warrants will
receive good title to the securities purchased by them upon the
exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Representative's
Warrants and the Warrant Stock conform to all statements relating
thereto contained in the Registration Statement or the Prospectus.
(16) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as may otherwise be properly described in the Prospectus, the Company
has not (i) issued any securities
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<PAGE>
or incurred any liability or obligation, primary or contingent, for
borrowed money, (ii) entered into any transaction not in the ordinary
course of business, (iii) declared or paid any dividend on its capital
stock, or (iv) experienced any adverse changes or any development
which may materially adversely effect the condition (financial or
otherwise), net assets or stockholders' equity, results of operations,
business, key personnel, assets, or properties of the Company.
(17) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the offering
contemplated by this Agreement, any action designed to stabilize or
manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale
of any of the Stock or the Additional Stock.
(18) The Company has obtained from each of its directors,
officers, and securityholders, a written agreement, in form and
substance satisfactory to counsel for the Underwriters, that, for a
period of 18 months from the date on which the Registration Statement
shall become effective under the Act, he, she, or it will not, without
the Representative's prior written consent, publicly offer, sell,
contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any
security or other instrument which by its terms is convertible into,
or exercisable or exchangeable for, shares of Common Stock or other
securities of the Company, including, without limitation, any shares
of Common Stock issuable pursuant to the terms of any employee stock
options; provided, however, that such persons may offer, sell,
contract to sell, grant an option for the sale of, or otherwise
dispose of all or any part of his, her, or its shares of Common Stock
or other such security or instrument of the Company during such period
only if such transaction is private in nature and the transferee of
such shares
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<PAGE>
of Common Stock or other securities or instruments agrees, prior to
such transaction, to be bound by all of the provisions of such
agreement.
(19) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company"
as defined in Section 3(a) of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(20) Except for the securities that are being registered
pursuant to the Registration Statement, no person or entity has the
right to require registration of shares of Common Stock or other
securities of the Company because of the filing or effectiveness of
the Registration Statement.
(21) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.
(22) Neither the Company, nor any of its affiliates, is
presently doing business with the government of Cuba or with any
person or affiliate located in Cuba. If, at any time after the date
on which the Registration Statement is declared effective under the
Act or with the Florida Department of Banking and Finance (the
"Florida Department"), whichever is later, and prior to the end of the
period referred to in the first clause of Section 2(a)(2), the Company
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba, the Company will so inform the
Florida Department within 90 days after such commencement of business
in Cuba, and, during the period referred to in Section 2(a)(2), will
inform the Florida Department within 90 days after any change occurs
with respect to previously reported information.
(23) No officer, director, or stockholder of the Company has
any affiliation or association with the National Association of
Securities Dealers, Inc. (the "NASD") or any member thereof.
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(24) Except as disclosed in the Prospectus, the Company has
filed all necessary federal, state, local, and foreign income and
franchise tax returns and other reports required to be filed and has
paid all taxes shown as due thereon; and there is no tax deficiency
which has been, or, to the knowledge of the Company, might be,
asserted against the Company.
(25) To the best knowledge of the Company, none of the
activities or businesses of the Company is in violation of, or will
cause the Company to violate, any law, rule, regulation, or order of
the United States, any state, county, or locality, or of any agency or
body of the United States or of any state, county, or locality, the
violation of which would have a material adverse effect upon the
condition (financial or otherwise), business, property, prospective
results of operations, or net worth of the Company.
(26) The Common Stock has been designated for quotation on the
NASD National Market (the "NASDAQ/NM").
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE ADDITIONAL STOCK.
On the basis of the representations, warranties, covenants, and agreements of
the Company herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the Company, the
numbers of shares of Stock set forth opposite the respective names of the
Underwriters in Schedule I hereto.
The purchase price per share of the Stock to be paid by the Underwriters
shall be $__________. The initial public offering price per share of the Stock
shall be $10.00.
Payment for the Stock by the Underwriters shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company at the offices of Hampshire Securities Corporation, 640 Fifth Avenue,
New York, New York 10019, or at such other place in the New York City
metropolitan area as the Representative shall determine and advise the Company
by at least two full days' notice in writing, upon delivery of the Stock to the
Representative for the respective accounts of the Underwriters. Such delivery
and payment shall
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<PAGE>
be made at 10:00 a.m., New York City local time, on the third business day
following the time of the initial public offering, as defined in Section 11(a)
(unless such time and date is postponed in accordance with the provisions of
Section 9(c)), or at such other time as shall be agreed upon between the
Representative and the Company. The time and date of such delivery and payment
are hereinafter referred to as the "Closing Date."
Certificates for the Stock shall be registered in such name or names and in
such authorized denominations as the Representative may request in writing at
least two full business days prior to the Closing Date. The Company shall
permit the Representative to examine and package such certificates for delivery
at least one full business day prior to the Closing Date.
In addition, the Company hereby grants to the Representative, the
Over-allotment Option to purchase all or a portion of the Additional Stock as
may be necessary to cover over-allotments, at the same purchase price per share
to be paid by the several Underwriters to the Company for the Stock as provided
for in this Section 3. The Over-allotment Option may be exercised only to cover
over-allotments in the sale of shares by the Underwriters. The Over-allotment
Option may be exercised by the Representative on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth day following the date on
which the Registration Statement becomes effective under the Act, by written
notice by the Representative to the Company. Such notice shall set forth the
aggregate number of shares of Additional Stock as to which the Over-allotment
Option is being exercised (which shall be allocated as to the Company and the
Representative deem appropriate) and the time and date, as determined by the
Representative, when such shares of Additional Stock are to be delivered (such
time and date are hereinafter referred to as an "Additional Closing Date");
provided, however, that no Additional Closing Date shall be earlier than the
Closing Date nor earlier than the second business day after the date on which
the notice of the exercise of the Over-allotment Option shall have been given
nor later than the eighth business day after the date on which such notice shall
have been given.
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<PAGE>
In the event the Company declares or pays a dividend or a distribution on
the Common Stock, whether in the form of cash, shares of Common Stock, or other
consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date and the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by the Representative shall be
made by certified or official bank check in New York Clearing House funds
payable to the order of the Company at the offices of Hampshire Securities
Corporation, 640 Fifth Avenue, New York, New York 10019, or at such other place
in the New York City metropolitan area as the Representative shall determine and
advise the Company by at least two full days' notice in writing, upon delivery
of the shares of Additional Stock to the Representative for the account of the
Representative.
Certificates for the shares of Additional Stock shall be registered in such
name or names and in such authorized denominations as the Representative may
request in writing at least two full business days prior to the Additional
Closing Date with respect thereto. The Company shall permit the Representative
to examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date with respect thereto.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all the payments required pursuant to this Section 3 on behalf of
any Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Stock to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder.
4. OFFERING. The Underwriters are to make a public offering of the Stock
as soon, on or after the date on which the Registration Statement becomes
effective under the Act, as the Representative deem it advisable so to do. The
Stock is to be initially offered to the public at the initial public offering
price as provided for in Section 3 (such price being hereinafter referred to as
the "public offering price"). After the initial public offering, the
Representative may from time
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to time increase or decrease the public offering price, in the Representative's
sole discretion, by reason of changes in general market conditions or otherwise.
5. COVENANTS.
(a) The Company covenants that it will:
(1) Use its best efforts to cause the Registration Statement
to become effective under the Act as promptly as possible and notify
the Representative immediately, and confirm such notice in writing,
(i) when the Registration Statement and any post-effective amendment
thereto become effective under the Act, (ii) of the receipt of any
comments from the Commission or the "blue sky" or securities authority
of any jurisdiction regarding the Registration Statement, any
post-effective amendment thereto, the Prospectus, or any amendment or
supplement thereto, (iii) of the filing with the Commission of any
supplement to the Prospectus, and (iv) of the receipt of any
notification with respect to a Stop Order or the initiation or
threatening of any proceeding with respect to a Stop Order. The
Company will use its best efforts to prevent the issuance of any Stop
Order and, if any Stop Order is issued, to obtain the lifting thereof
as promptly as possible. If the Registration Statement has become or
becomes effective under the Act with a form of prospectus omitting
Rule 430A Information, or filing of the Prospectus with the Commission
is otherwise required under Rule 424(b), the Company will file with
the Commission the Prospectus, properly completed, pursuant to Rule
424(b) within the time period prescribed and will provide evidence
satisfactory to the Representative of such timely filing.
(2) During the time when a prospectus relating to the Stock or
the Additional Stock is required to be delivered hereunder or under
the Act or the Regulations, comply with all requirements imposed upon
it by the Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of, or dealings in, the Stock and the
Additional Stock in accordance with the provisions hereof and the
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Prospectus. If, at any time when a prospectus relating to the Stock
or the Additional Stock is required to be delivered hereunder or under
the Act or the Regulations, any event shall have occurred as a result
of which, in the reasonable opinion of counsel for the Company or
counsel for the Underwriters, the Registration Statement or the
Prospectus as then amended or supplemented contains any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, or if, in the opinion of either of such
counsel, it is necessary at any time to amend or supplement the
Registration Statement or the Prospectus to comply with the Act or the
Regulations, the Company will immediately notify the Representative
and promptly prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to the
Representative) which will correct such statement or omission or which
will effect such compliance and will use its best efforts to have any
such amendment declared effective under the Act as soon as possible.
(3) Deliver without charge to each of the Underwriters such
number of copies of each Preliminary Prospectus as Underwriters may
reasonably request and, as soon as the Registration Statement, or any
amendment thereto, becomes effective under the Act or a supplement is
filed with the Commission, deliver without charge to the
Representative two signed copies of the Registration Statement,
including exhibits, or such amendment thereto, as the case may be, and
two copies of any supplement thereto, and deliver without charge to
each of the Underwriters such number of copies of the Prospectus, the
Registration Statement, and amendments and supplements thereto, if
any, without exhibits, as the Representative may request for the
purposes contemplated by the Act.
(4) Endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement
becomes effective under the Act, to qualify the Stock and the
Additional Stock for offering and sale under the "blue
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sky" or securities laws of such jurisdictions as the Representative
may designate; provided, however, that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a
foreign corporation doing business in such jurisdiction to which it is
not then subject. In each jurisdiction where such qualification shall
be effected, the Company will, unless the Representative agree in
writing that such action is not at the time necessary or advisable,
file and make such statements or reports at such times as are or may
be required by the laws of such jurisdiction.
(5) Make generally available (within the meaning of Section
11(a) of the Act and the Regulations) to its securityholders as soon
as practicable, but not later than 45 days afer the end of the fiscal
quarter in which the first anniversary date of the Reigstration
Statement occurs, an earnings statement (which need not be certified
by independent certified public accountants unless required by the Act
or the Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration
Statement.
(6) For a period of 18 months after the date on which the
Registration Statement shall become effective under the Act, not,
without the Representative's prior written consent, offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or
other securities of the Company (or any security or other instrument
which by its terms is convertible into, or exercisable or exchangeable
for, shares of Common Stock), except as provided in Section 3 and
except for (i) the issuance of shares of Common Stock issuable upon
the exercise of stock options to purchase up to a aggregate of 900,000
shares of Common Stock which may be granted pursuant to the Company's
1997 Stock Option Plan (the "Plan"), as properly described in the
Prospectus, (ii) the issuance of shares of Warrant Stock issuable upon
exercise of the Representative's Warrants and (iii) the issuance of
Common Stock upon the
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exercise of currently outstanding warrants to purchase [______] shares
of Common Stock.
(7) For a period of five years after the effective date of the
Registration Statement, furnish the Representative without charge the
following:
(i) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified
public accountants, including a balance sheet, statement of
income, and statement of changes in cash flows of the Company,
with supporting schedules, prepared in accordance with generally
accepted accounting principles, as at the end of such fiscal year
and for the 12 months then ended, which may be on a consolidated
basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the
Commission or the NASD, three copies of each annual and interim
financial, proxy statements and other reports or communications
sent by the Company to its stockholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, two copies of every press
release and every material news item and article in respect of
the Company or its affairs which was released by the Company; and
(iv) such additional documents and information with respect
to the Company and its affairs as the Representative may from
time to time reasonably request; provided, however, that such
additional documents and information shall be received by the
Representative on a confidential basis, unless otherwise
disclosed to the public, and shall not be used in violation of
the Federal Securities laws and the Regulations.
(8) Apply the net proceeds received by it from the offering
contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
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(9) Furnish to the Representative as early as practicable
prior to the Closing Date and any Additional Closing Date, as the case
may be, but no less than two full business days prior thereto, a copy
of the latest available unaudited interim consolidated financial
statements of the Company which have been read by the Company's
independent certified public accountants, as stated in their letters
to be furnished pursuant to Section 7(f).
(10) File no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date
on which the Registration Statement becomes effective under the Act,
unless such filing shall comply with the Act and the Regulations and
unless the Representative shall previously have been advised of such
filing and furnished with a copy thereof, and the Representative and
counsel for the Underwriters shall have approved such filing in
writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine months
after the date on which the Registration Statement shall have become
effective under the Act) and (ii) 25 days after the date on which the
Registration Statement becomes effective under the Act, the Company
will prepare and file with the Commission, promptly upon the
Representative's request, any amendments or supplements to the
Registration Statement or the Prospectus which, in the
Representative's sole opinion, may be necessary or advisable in
connection with the distribution of the Stock.
(11) File timely with the Commission an appropriate form to
register the Common Stock pursuant to Section 12(g) of the Exchange
Act and comply with all registration, filing, and reporting
requirements of the Exchange Act, which may from time to time be
applicable to the Company.
(12) Comply with all provisions of all undertakings contained
in the Registration Statement.
(13) Prior to the Closing Date or any Additional Closing Date,
as the case may be, issue no press release or other communication,
directly or indirectly, and
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hold no press conference with respect to the Company, the financial
condition, results of operations, business, properties, assets,
liabilities of any of them, or this offering, without the
Representative's prior written consent.
(14) File timely and accurate reports on Form SR with the
Commission in accordance with Rule 463 of the Regulations or any
successor provision.
(15) If the principal stockholders, officers, or directors of
the Company are required by the "blue sky" or securities authority of
any jurisdiction selected by the Representative pursuant to Section
5(a)(4) to escrow or agree to restrict the sale of any security of the
Company owned by them for the Company to qualify or register the Stock
or the Additional Stock for sale under the "blue sky" or securities
laws of any such jurisdiction, cause each such person to escrow or
restrict the sale of such security on the terms and conditions and in
the form specified by the securities administrator of such
jurisdiction.
(16) Make all filings required to maintain the inclusion of
the Common Stock on the NASDAQ/NM for a least five years from the date
of this Agreement.
(17) On the Closing Date, sell to the Representative,
individually and not as Representative of the Underwriters, at the
price of $.001 per Warrant, warrants to purchase the Warrant Stock,
which Representative's Warrants shall be substantially in the form set
forth as an exhibit to the Registration Statement.
(18) Until expiration of the Representative's Warrant, keep
reserved sufficient shares of Common Stock for issuance upon exercise
of the Representative's Warrants.
(19) Deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the
expiration of the period during which the Representative may exercise
the Over-allotment Option, four sets of bound volumes of the
Registration Statement and all related materials to the individuals
designated by the Representative or counsel to the Underwriters.
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(20) For a period of three years after the effective date of
the Registration Statement, provide, at its sole expense, to the
Representative copies of the Company's daily transfer sheets, if so
requested by the Representative.
(21) Maintain key-person life insurance from such life
insurance Company as reasonably acceptable to the Representative,
payable to the Company on the life of [__________________], in the
amount of at least $1,000,000 for the period of time equal to the
longer of (i) three years from the date on which the Registration
Statement becomes effective under the Act and (ii) the terms of the
employment agreement between the Company and such officer.
(22) Use its best efforts, for a period of five years following
the date on which the Registration Statement becomes effective under
the Act, to cause two persons to be elected to the Company's Board of
Directors who are deemed by the Representative, in the
Representative's reasonable judgment, to be independent of the
Company's management.
(23) Until the expiration of three years from the date on which
the Registration Statement becomes effective under the Act, not effect
a change in the independent certified public accountants for the
Company unless either the Company has received the prior written
consent of the Representative or such substitute independent certified
public accountant is one of Arthur Andersen & Co., Ernst & Young,
Price Waterhouse, Deloitte & Touche, Coopers & Lybrand, or KPMG Peat
Marwick.
(24) For a period of three years from the date on which the
Registration Statement becomes effective under the Act, the
Representative shall have the right to appoint a designee as an
observer of the Company's Board of Directors. Such observer will have
the right to attend all meetings of the Board of Directors. Such
observer shall be entitled to receive reimbursement for all
out-of-pocket expenses incurred in attending such meetings, including,
but not limited to, food, lodging, transportation, and any fees paid
to directors for attending meetings. The
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Representative shall be given notice of such meetings at the same time
and in the same manner as directors of the Company are informed. The
Representative and such observer shall be indemnified to the same
extent as the other directors. The Company will use its best efforts
to purchase directors and officers insurance in an amount of not less
than $2,000,000, with a deductible of not more than $50,000, provided,
however, that the Company shall not be required to pay more than
$50,000 per year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall
purchase that amount of such insurance which is available at a cost of
$50,000 per year.
(25) For a period of three years from date on which the
Registration Statement becomes effective under the Act, the Company,
at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of
the Company's Quarterly Report on Form 10-QSB, and the mailing of
quarterly financial information to stockholders.
(26) Have in effect on the Closing Date the Plan, which will
provide for the issuance of options to purchase no more than 1,200,000
shares of Common Stock, of which options to purchase not more than
[_______] shares of Common Stock shall be at less than the fair market
value on the date of grant. The Company will not grant, for a period
of three years following the date on which the Registration Statement
becomes effective under the Act, any non-qualified options unless the
exercise price thereof on the date of grant is at least equal to the
fair market value of the Common Stock on such date. No option granted
under such plan shall be exercisable during the first year following
grant, and each option shall vest thereafter at the rate of 25% per
year.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the
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preparation, printing, filing, distribution, and mailing of the Registration
Statement and the Prospectus and the printing, filing, distribution, and mailing
of this Agreement, the Master Agreement Among Underwriters, the Master Selected
Dealer Agreement and related documents, including the cost of all copies thereof
and of the Preliminary Prospectuses and of the Prospectus and any amendments or
supplements thereto supplied to the Underwriters in quantities as hereinabove
stated, (b) the issuance, sale, transfer, and delivery (as applicable) of the
Stock and the Additional Stock, including any transfer or other taxes payable
thereon, (c) the qualification of the Stock and the Additional Stock under state
or foreign "blue sky" or securities laws, including the costs of printing and
mailing the preliminary and final "Blue Sky Survey" and the fees for the
Underwriters' counsel (in the amount of $35,000) and the disbursements in
connection therewith, (d) the filing fees payable to the Commission, the NASD,
and the jurisdictions in which such qualification is sought, (e) any fees
relating to the listing of the Common Stock on the NASDAQ/NM, (f) the cost of
printing certificates representing the shares of Common Stock, (g) the fees of
the transfer agent for the Common Stock, (h) the cost of publication of
"tombstone" advertisements with respect to the offering, which expense shall not
be in excess of $12,000 without the Company's consent, and (i) a non-accountable
expense allowance equal to three percent of the gross proceeds of the sale of
the Stock and, to the extent Additional Stock is sold, on the gross proceeds of
the sale of the Additional Stock (less amounts, if any, previously paid to the
Representative in respect of such non-accountable expense allowance) to the
Representative on the Closing Date.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock and the Additional Stock, as
provided herein, shall be subject, in their discretion, to the continuing
accuracy of the representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to be
delivered to the Representative, as of the date hereof and as of the Closing
Date (or any Additional Closing Date, as the case may be), to the performance by
the Company of its obligations hereunder, and to the following conditions:
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(a) The Registration Statement shall have become effective under the
Act not later than 6:00 p.m., New York City time, on the date of this Agreement
or such later date and time as shall be consented to in writing by the
Representative; on or prior to the Closing Date, or any Additional Closing Date,
as the case may be, no Stop Order shall have been issued and no proceeding shall
have been initiated or threatened with respect to a Stop Order; and any request
by the Commission for additional information shall have been complied with by
the Company to the reasonable satisfaction of counsel for the Underwriters. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Rgulations.
(b)(1) At the Closing Date and any Additional Closing Date, as the
case may be, the Representative shall have received the favorable opinion of
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, counsel for the Company,
dated the date of delivery, addressed to the Underwriters, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of
and from, and declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other tribunals, to own,
lease, license, and use its properties and assets and to conduct its
business in the manner described in the Prospectus. The Company is duly
qualified to do business as a foreign corporation and is in good standing
as such in every jurisdiction in which its ownership, leasing, licensing,
or use of property and assets or the conduct of its business makes such
qualification necessary, except where the failure to be so qualified does
not amount to a material liability or disability to the Company;
(ii) the authorized capital stock of the Company consists of
5,000,000 shares of Common Stock. Except as disclosed in the Prospectus,
each outstanding share of Common Stock is validly authorized and issued,
fully paid, and nonassessable, without any personal
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liability attaching to the ownership thereof, has not been issued and is
not owned or held in violation of any preemptive rights of stockholders.
To the knowledge of such counsel, there is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the Company or
any security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, capital stock of the Company, except as
may be properly described in the Prospectus. There is outstanding no
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, capital stock of the Company. The
certificates evidencing the Common Stock are in proper form;
(iii) to the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or informal),
or investigation pending, threatened, or in prospect (or any basis
therefor) with respect to the Company or any of their respective
operations, businesses, properties, or assets, except as may be properly
described in the Prospectus or such as individually or in the aggregate do
not now have, and will not in the future have, a material adverse effect
upon the operations, business, properties, or assets of the Company. To
the knowledge of such counsel, the Company is not in violation of, or in
default with respect to, any law, rule, regulation, order, judgment, or
decree, except as may be properly described in the Prospectus or such as in
the aggregate do not now have and will not in the future have a material
adverse effect upon the operations, business, properties, or assets of the
Company; nor is the Company required to take any action in order to avoid
any such violation or default;
(iv) to the knowledge of such counsel, neither the Company nor any
other party is now, or is expected by the Company to be in violation or
breach of, or in default with respect to, any material provision of any
contract, agreement, instrument, lease, license, arrangement, or
understanding which is material to the Company, and, to the knowledge of
such counsel, each such contract, agreement, instrument, lease, license,
arrangement, or understanding is in full force and effect and is the valid,
legal, and binding obligation of the parties thereto and is enforceable in
accordance with its terms;
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<PAGE>
(v) The Company is not in violation or breach of, or in default with
respect to, any term of its certificate of incorporation (or other charter
document) or by-laws;
(vi) the Company has all requisite power and authority to execute,
deliver, and perform this Agreement and the Representative's Warrants. All
necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this Agreement
and the Representative's Warrant. This Agreement has been duly authorized,
executed, and delivered by the Company, is the legal, valid, and binding
obligation of the Company, and, subject to applicable bankruptcy,
insolvency, and other laws affecting the enforceability of creditors'
rights generally, is enforceable as to the Company in accordance with its
terms. The Representative's Warrants have been duly authorized by the
Company and, when executed and delivered by the Company, will be legal,
valid, and binding obligations of the Company, each enforceable as to the
Company in accordance with its terms. No consent, authorization, approval,
order, license, certificate, or permit of or from, or declaration or filing
with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by the Company for the execution,
delivery, or performance by the Company of this Agreement or the
Representative's Warrants (except filings under the Act which have been
made or will be made before the Closing Date or Additional Closing Date, as
the case may be, and filings and consents consisting only of filings and
consents under "blue sky" or securities laws. No consent of any party to
any contract, agreement, instrument, lease, license, arrangement, or
understanding known to such counsel to which the Company is a party, or to
which any of its properties or assets are subject, is required for the
execution, delivery, or performance of this Agreement and the
Representative's Warrants; and the execution, delivery, and performance of
this Agreement and the Representative's Warrants will not violate, result
in a breach of, conflict with, result in the creation or imposition of any
lien, charge, or encumbrance upon any properties or assets of the Company
pursuant to the terms of, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a default
under, any such contract, agreement, instrument, lease, license,
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arrangement, or understanding known to such counsel, violate or result in a
breach of, or conflict with any term of the certificate of incorporation
(or other charter document) or by-laws of the Company, or violate, result
in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject;
(vii) each share of Stock to be delivered on the Closing Date is
validly authorized and, when issued and delivered in accordance with the
terms hereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and is
not issued in violation of any preemptive rights of stockholders, and the
Underwriters have received good title to the shares of Stock purchased by
them, from the Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Additional Stock is validly authorized and issued, is fully
paid and nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any preemptive
rights of stockholders, and upon delivery of the Additional Stock in
accordance with the terms of the Over-allotment option, the Underwriters
will receive good title to the shares of Additional Stock purchased by
them, from the Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholder's agreements and voting trusts.
The Common Stock, the Stock, and the Additional Stock conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus;
(viii) the Warrant Stock is validly authorized and has been duly and
validly reserved for issuance pursuant to the terms of the Representative's
Warrants. The Representative's Warrants have been duly and validly issued
and delivered. The Warrant Stock, when issued and delivered in accordance
with the Representative's Warrants, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not have been issued in violation of any preemptive
rights of stockholders. The Representative, and any other holders of the
Representative's Warrants, will receive good title to the securities
purchased by them upon exercise of the
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Representative's Warrants, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts. The Representative's Warrants and the Warrant Stock conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus;
(ix) to the knowledge of such counsel, each contract, agreement,
instrument, lease, or license required to be described in the Registration
Statement or the Prospectus has been properly described therein, and each
contract, agreement, instrument, lease, or license required to be filed as
an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
(x) insofar as statements in the Prospectus purport to summarize
the status of litigation or the provisions of laws, rules, regulations,
orders, judgments, decrees, contracts, agreements, instruments, leases, or
licenses, such statements have been prepared or reviewed by such counsel
and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all respects;
(xi) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act and, if the Company conducts its
business as set forth in the Prospectus, will not become an "investment
company" and will not be required to be registered under the Investment
Company Act;
(xii) to the knowledge of such counsel, no person or entity has the
right to require registration of shares of Common Stock or other securities
of the Company because of the filing or effectiveness of the Registration
Statement; and
(xiii) the Registration Statement has become effective under the Act,
the Prospectus has been filed in accordance with Rule 424(b) of the
Regulations, including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel, no Stop
Order has been issued and no proceeding for that purpose has been
instituted or threatened. On the basis of the participation of such
counsel in conferences at which the contents of the Registration Statement
and the Prospectus and related matters were discussed, but without
independent verification by such counsel of the accuracy,
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completeness, or fairness of the statements contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, such
counsel have no knowledge that (other than financial statements and other
financial data and schedules which are or should be contained therein, as
to which such counsel need express no opinion): (A) the Registration
Statement, any Rule 430A Prospectus, and the Prospectus, and any amendment
or supplement thereto, does not appear on its face to comply as to form in
all material respects with the requirements of the Act and the Regulations;
(B) any of the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains any 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; or (C) since the effective date of the Registration Statement,
any event has occurred which should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus which has not
been set forth in such an amendment or supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, to the extent counsel for the
Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company and that
reliance thereon by counsel for the Company and the Underwriters is reasonable;
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem proper,
upon written statements or certificates of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided that copies of any such opinions,
certificates, or statements shall be annexed as exhibits to the opinion of
counsel for the Company.
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(c) On or prior to the Closing Date and any Additional Closing Date, as
the case may be, the Representative shall have been furnished such information,
documents, certificates, and opinions as it may reasonably require for the
purpose of enabling it to review the matters referred to in Section 7(b), and in
order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as the Representative may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case may
be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Act and the Regulations, and in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) there shall have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus, no
material adverse change, or any development involving a prospective material
adverse change, in the business, properties, or condition (financial or
otherwise), results of operations, capital stock, long-term or short-term debt,
or general affairs of the Company from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the date on which the Registration
Statement becomes effective under the Act, and the Company shall not have
incurred any material liabilities or entered into any agreements not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus, (iii) except as set forth in the Prospectus, no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation shall be pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its respective operations,
businesses, properties, or assets which would be required to be set forth in the
Registration Statement, wherein an unfavorable decision, ruling, or finding
would materially adversely affect the business, property, condition (financial
or otherwise), results of operations, or
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general affairs, of the Company, and (iv) the Stock shall have been approved for
listing on the NASDAQ/NM.
(e) At the Closing Date and any Additional Closing Date, as the case may
be, the Representative shall have received a certificate of the chief executive
officer, the chief financial officer, and the chief accounting officer of the
Company, dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect that among other things (i) the conditions set forth in
Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all materials respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior thereto have
been fully performed.
(f) At the time this Agreement is executed and at the Closing Date and any
Additional Closing Date, as the case may be, the Representative shall have
received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representative, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Price Waterhouse LLP,
independent certified public accountants for the Company, dated the date of
delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the Company
within the meaning of the Act and the published Regulations and stating
that the answer to Item 13 of the Registration Statement is correct insofar
as it relates to them;
(ii) stating that, in their opinion, the consolidated financial
statements and schedules of the Company included in the Registration
Statement examined by them comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest
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available unaudited consolidated interim financial statements of the
Company (with an indication of the date of the latest available unaudited
interim financial statements), a reading of the latest available minutes of
the stockholders and Board of Directors of the Company and committees of
such Board of Directors, inquiries to certain officers and other employees
of the Company responsible for financial and accounting matters, and other
specified procedures and inquiries, nothing has come to their attention
that caused them to believe that: (A) the unaudited consolidated financial
statements and schedules of the Company included in the Registration
Statement and Prospectus do not comply in form in all material respects
with the applicable accounting requirements of the Act and the Exchange Act
and the Regulations or are not fairly presented in conformity with
generally accepted accounting principles (except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the Exchange
Act) applied on a basis consistent with that of the audited financial
statements appearing therein; (B) there was any change in the capital stock
or long-term debt of the Company or any decrease in the net current assets
or stockholders' equity of the Company as of the date of the latest
available consolidated monthly financial statements of the Company or as of
a specified date not more than five business days prior to the date of such
letter, each as compared with the amounts shown in the most recent balance
sheet included in the Registration Statement and Prospectus, other than as
properly described in the Registration Statement and Prospectus or any
change or decrease (which shall be set forth therein) which the
Representative in its sole discretion shall accept, or (C) there was any
decrease in consolidated net sales, net earnings, or net earnings per share
of Common Stock of the Company, during the period from the date of such
balance sheet to the date of the latest available consolidated monthly
financial statements of the Company or to a specified date not more than
five business days prior to the date of such letter, each as compared with
the corresponding period in the preceding fiscal year, other than as
properly described in the Registration Statement and Prospectus
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or any decrease (which shall be set forth therein) which the Representative
in its sole discretion shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the
Registration Statement, which have been specified by the Representative
prior to the date of this Agreement, to the extent that such data and
information may be derived from the general accounting records of the
Company, and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries, and other appropriate procedures (which procedures do
not constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter, and found them to be in
agreement.
(g) All proceedings taken in connection with the issuance, sale, transfer,
and delivery of the Stock and the Additional Stock shall be satisfactory in form
and substance to the Representative and to counsel for the Underwriters, and the
Representative shall have received from such counsel for the Underwriters a
favorable opinion, dated as of the Closing Date and the Additional Closing Date,
as the case may be, with respect to such of the matters set forth under Section
7(b), and with respect to such other related matters, as the Representative may
reasonably request.
(h) The NASD, upon review of the terms of the public offering of the Stock
and the Additional Stock, shall not have objected to the Underwriters'
participation in such offering.
(i) Prior to or on the Closing Date, the Company shall have entered into
the Representative's Warrants with the Representative.
Any certificate or other document signed by any officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representative may, on behalf of the Underwriters, may terminate this
Agreement or, if the Representative so elect, in
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writing waive any such conditions which have not been fulfilled or extends the
time for their fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, and counsel, and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any and all loss, liability, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 8, but not be
limited to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation) as and when incurred arising out of, based upon, or
in connection with (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, any Rule 430A Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or (B) any
application or other document or communication (for purposes of this Section 8,
collectively referred to as an "application") executed by, or on behalf of, the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Stock or the
Additional Stock under the "blue sky" or securities laws thereof or filed with
the Commission or any securities exchange; or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, written information furnished to the
Company as stated in Section 8(b) with respect to any Underwriter by, or on
behalf of, such Underwriter through the Representative expressly for inclusion
in the Registration Statement, any Preliminary Prospectus, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application as the case may be, or (ii) any breach of any representation,
warranty, covenant, or agreement of the Company contained in this Agreement.
The foregoing agreement to indemnify shall be in addition
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to any liability the Company may otherwise have, including liabilities arising
under this Agreement.
If any action is brought against an Underwriter or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of an Underwriter (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability it may have other than pursuant to this Section 8(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (satisfactory to such indemnified party or parties) and
payment of expenses. Such indemnified party or parties shall have the right to
employ its or their own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties unless
the employment of such counsel shall have been authorized in writing by the
Company in connection with the defense of such action or the Company shall not
have promptly employed counsel reasonably satisfactory to such indemnified party
or parties to have charge of the defense of such action or such indemnified
party or parties shall have reasonably concluded that there may be one or more
legal defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company, and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
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to notify the Underwriters of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale of the Stock or the Additional Stock, the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus, or any
amendment or supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Underwriters in Section 8(a), but only with respect to
statements or omissions, if any, made in the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or on any application in reliance upon, and in conformity with, written
information furnished to the Company as stated in this Section 8(b) with respect
to any Underwriter by, or on behalf of, such Underwriter through the
Representative expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus, or any
amendment or supplement thereto, or on any application, as the case may be;
provided, however, that the obligation of each Underwriter to provide indemnity
under the provisions of this Section 8(b) shall be limited to the amount which
represents the product of the number of shares of Stock and Additional Stock
underwritten by such Underwriter hereunder and the initial public offering price
per share set forth on the cover page of the Prospectus. For all purposes of
this Agreement, the amounts of the selling concession and reallowance set forth
in the Prospectus constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for inclusion in the Registration Statement,
any Preliminary Prospectus, any Rule 430A Prospectus, or the Prospectus (as from
time to time amended or supplemented), or any amendment or supplement thereto,
or in any application, as the case may be. If any action shall be brought
against the Company, any Selling Stockholder, or any other person so indemnified
based on the Registration Statement, any Preliminary Prospectus, any Rule 430A
Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any
application, and in respect of which indemnity
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may be sought against any Underwriter pursuant to this Section 8(b), such
Underwriter shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8(a) or
8(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case or (ii) any indemnified or indemnifying party seeks
contribution under the Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company) as one entity and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party) as a second entity shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, so that the Underwriters are responsible for the proportion
thereof equal to the percentage which the underwriting discount per share set
forth on the cover page of the Prospectus represents of the initial public
offering price per share set forth on the cover page of the Prospectus and the
Company is responsible for the remaining portion; in such proportions as are
appropriate to reflect the relative benefits received by the Company and the
Underwriters in the aggregate; provided, however, that if applicable law does
not permit such allocation, then other relevant equitable considerations such as
the relative fault of the Company and the Underwriters in the aggregate in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative benefits received
by the Company and the Underwriters in the aggregate shall be deemed to be in
the same proportion as (x) the total proceeds from the offering of the Stock
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company (y) the total proceeds of the offering of the Additional
Stock (net of underwriting discounts and commissions but before deducting
expenses), and (z) the underwriting discounts and commissions received by the
Underwriters in the aggregate, in each case as set forth in the table on the
cover
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<PAGE>
page of the Prospectus and in the footnotes thereto. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by the Underwriters, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and
the Underwriters agree that it would be unjust and inequitable if the respective
obligations of the Company and the Underwriters for contribution were determined
by pro rata or per capita allocation of the aggregate losses, liabilities,
claims, damages, and expenses (even if the Underwriters and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 8(c). In no case shall any Underwriter be responsible for a
portion of the contribution obligation imposed on all Underwriters in excess of
its pro rata share based on the number of shares underwritten by it as compared
to the number of shares underwritten by all Underwriters who do not default in
their obligations under this Section 8(c). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 8(c), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent,
and counsel of an Underwriter shall have the same rights to contribution as such
Underwriter and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement, and each director
of the Company shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 8(c). Anything in this
Section 8(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
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9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Stock or Additional Stock hereunder, and if the number of
shares of Stock or Additional Stock to which the defaults of all Underwriters in
the aggregate relate does not exceed 10% of the number of shares of Stock or
Additional Stock, as the case may be, which all Underwriters have agreed to
purchase hereunder, then such shares of Stock or Additional Stock to which such
defaults relate shall be purchased by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, the Representative may, in the
Representative's discretion, arrange for itself or for another party or parties
to purchase such shares of Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such shares of Stock or Additional Stock,
as the case may be, within one business day after the occurrence of defaults
relating to in excess of 10% of the Stock or the Additional Stock, as the case
may be, then the Company shall be entitled to a further period of one business
day within which to procure another party or parties satisfactory to the
Representative to purchase such shares of Stock or Additional Stock, as the case
may be, on such terms. If the Representative or the Company with respect to the
Stock or Additional Stock do not arrange for the purchase of the shares of Stock
or Additional Stock, as the case may be, to which such defaults relate as
provided in this Section 9(b), this Agreement may be terminated by the
Representative or by the Company with respect to the Stock or Additional Stock,
in each case without liability on the part of the Company (except that the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall survive such termination)
or the several Underwriters, but nothing in this Agreement shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.
(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or
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<PAGE>
parties as aforesaid, the Representative or the Company with respect to the
Stock or Additional Stock or the Representative shall have the right to postpone
the Closing Date or the Additional Closing Date, as the case may be, for a
reasonable period but not in any event more than seven business days in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements with
respect to the Stock or the Additional Stock, and the Company agrees to prepare
and file promptly any amendment or supplement to the Registration Statement or
the Prospectus which in the opinion of counsel for the Underwriters may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any party substituted under this Section 9 as if such party had
originally been a party to this Agreement and had been allocated the number of
shares of Stock and Additional Stock actually purchased by it as a result of its
original commitment to purchase Stock and Additional Stock and its purchase of
shares of Stock or Additional Stock pursuant to this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Stock and the Additional Stock to the
several Underwriters. In addition, the provisions of Sections 5(a)(1), 6, 8,
10, 11, and 13 shall survive termination of this Agreement, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a)This Agreement shall become effective at 9:30 A.M., New York City
local time, on the first full business day following the day on which the
Registration Statement becomes
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effective under the Act or at the time of the initial public offering by the
Underwriters of the Stock, whichever is earlier. The time of the initial public
offering shall mean the time, after the Registration Statement becomes effective
under the Act, of the release by the Representative for publication of the first
newspaper advertisement which is subsequently published relating to the Stock or
the time, after the Registration Statement becomes effective under the Act, when
the Stock is first released by the Representative for offering by the
Underwriters or dealers by letter or telegram, whichever shall first occur. The
Representative or the Company may prevent this Agreement from becoming effective
without liability of any party to any other party, except as noted below in this
Section 11, by giving the notice indicated in Section 11(d) before the time this
Agreement becomes effective under the Act.
(b) If the purchase price of the Stock has not been determined as
provided for in Section 3 prior to 4:30 p.m., New York City local time, on the
third full business day after the date the Registration Statement becomes
effective under the Act, this Agreement may be terminated at any time thereafter
either by the Representative or by the Company by giving notice to the other
unless before such termination the purchase price for the Stock has been so
determined. If the purchase price of the Stock has not been so determined prior
to 4:30 p.m., New York City local time, on the tenth full business day after the
date the Registration Statement becomes effective under the Act, this Agreement
shall automatically terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date by giving notice to the
Company, and, if exercised, the Over-allotment Option, at any time prior to any
Additional Closing Date, by giving notice to the Company, (i) if any domestic or
international event, act, or occurrence has materially disrupted, or, in the
Representative's opinion, will in the immediate future materially disrupt, the
securities markets; or (ii) if there shall have been a general suspension of, or
a general limitation on prices for, trading in securities on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market; or
(iii) if there shall have been an outbreak or increase in the level of major
hostilities or other national or international calamity; or (iv) if a banking
moratorium has been
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declared by a state or federal authority; or (v) if a moratorium in foreign
exchange trading by major international banks or persons has been declared; or
(vi) if there shall have been a material interruption in the mail service or
other means of communication within the United States; or (vii) if the Company
shall have sustained a material or substantial loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, or other calamity or malicious act,
whether or not such loss shall have been insured, or from any labor dispute or
court or government action, order, or decree, which will, in the
Representative's opinion, make it inadvisable to proceed with the offering,
sale, or delivery of the Stock or the Additional Stock, as the case may be; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such change in the
market for the Company's securities or securities in general or in political,
financial, or economic conditions as in the Representative's judgment makes it
inadvisable to proceed with the offering, sale, and delivery of the Stock or the
Additional Stock, as the case may be, on the terms contemplated by the
Prospectus.
(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement, the Representative shall notify the Company promptly by telephone,
telex, or telegram, confirmed by letter. If, as so provided, the Company elects
to prevent this Agreement from becoming effective or to terminate this
Agreement, the Company shall notify the Representative promptly by telephone,
telex, or telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding other
than Section 11(f), if this Agreement shall not become effective by reason of an
election pursuant to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any covenant or
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agreement or satisfy any condition of this Agreement by it to be performed or
satisfied, the sole liability of the Company to the Underwriters, in addition to
the obligations the Company assumed pursuant to Section 6, will be to reimburse
the Underwriters for such out-of-pocket expenses (including the fees and
disbursements of their counsel) as shall have been incurred by them in
connection with this Agreement or the proposed offer, sale, and delivery of the
Stock and the Additional Stock, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters. Anything in this Agreement to the contrary
notwithstanding other than Section 11(f), if this Agreement shall not be carried
out within the time specified herein for any reason other than the failure on
the part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the Company
shall have no liability to the Underwriters other than for obligations assumed
by the Company pursuant to Section 6.
(f) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
12. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Hampshire Securities Corporation, 640 Fifth
Avenue, New York, New York 10019, Attention: Mr. Richard Abbe, with a copy to
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York 10176, Attention: Kenneth R. Koch, Esq.; or if sent to the Company shall be
mailed, delivered, or telexed or telegraphed and confirmed by letter, to the
Company, Connectsoft Communications Corporation, 11130 NE 33rd Place, Suite 250,
Bellevue, Washington 98004, Attention: Robert Marcus, President and Chief
Executive Officer, with a copy to Stephen A. Weiss, Esq., Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, 153 East 53rd Street, New York, New York
10022. All notices hereunder shall be effective upon receipt by the party to
which it is addressed.
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13. PARTIES. The Representative represents that it is authorized to act
on behalf of the several Underwriters named in Schedule I hereto, and the
Company shall be entitled to act and rely on any request, notice, consent,
waiver, or agreement purportedly given on behalf of the Underwriters when the
same shall have been given by the Representative on such behalf. This Agreement
shall inure solely to the benefit of, and shall be binding upon, the
Underwriters and the Company, and the persons and entities referred to in
Section 8 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any buyer, as such, of the Stock or the Additional Stock), and no other
person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
14. CONSTRUCTION. This Agreement shall be construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.
Time is of the essence in this Agreement.
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint, or
other process. Should the Company fail to appear or answer within such 30-day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgment may be entered against the Company for the amount as
demanded in any summons, complaint, or other process so served.
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If the foregoing correctly sets forth the understanding between the
Representative and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
CONNECTSOFT COMMUNICATIONS CORPORATION
BY:
-----------------------------------------
ACCEPTED AS OF THE DATE FIRST ABOVE
WRITTEN IN NEW YORK, NEW YORK
HAMPSHIRE SECURITIES CORPORATION*
BY:
------------------------------------
RICHARD ABBE
*ON BEHALF OF ITSELF AND THE OTHER SEVERAL
UNDERWRITERS NAMED IN SCHEDULE I HERETO.
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SCHEDULE I
Total
Number
of Shares
to be
Underwriter Purchased
----------- ---------
Hampshire Securities Corporation. . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
=========
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Exhibit 1.2
REPRESENTATIVE'S WARRANT
THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO
(I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER
SUCH ACT, OR (III) AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
THIS WARRANT IS NOT EXERCISABLE PRIOR TO __________ __, 1998.
VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, __________ __, 2002.
CONNECTSOFT COMMUNICATIONS CORPORATION
WARRANTS FOR THE PURCHASE
OF
SHARES OF COMMON STOCK, $.001 PAR VALUE
NO. _____
THIS CERTIFIES that, for receipt in hand of $ and other value
received, HAMPSHIRE SECURITIES CORPORATION (the "Holder") is entitled to
subscribe for, and purchase from, CONNECTSOFT COMMUNICATIONS CORPORATIONS, a
Delaware corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time after ___________ __, 1998, New York
City local time until 5:00 P.M. New York City local time on _________ __, 2002
(the "Exercise Period"), up to an aggregate of 200,000 shares of common stock,
$.001 par value (the "Common Stock"). This Warrant is initially exercisable at
$________ per share; provided, however, that upon the occurrence of any of the
events specified in Section 5 hereof, the rights granted by this Warrant,
including the exercise price and the number of shares of Common Stock to be
received upon such exercise, shall be adjusted as therein specified. The term
"Exercise Price" shall mean, depending on the context, the initial exercise
price (as set forth above) or the adjusted exercise price per share.
<PAGE>
This Warrant is the Representative's Warrant or one of the Representative's
Warrants (collectively, including any Representative's Warrant issued upon the
exercise or transfer of any such Representative's Warrants in whole or in part,
the "Warrants") issued pursuant to the Underwriting Agreement, dated _________
__, 1997 (the "Underwriting Agreement"), among the Company and Hampshire
Securities Corporation, as representative (the "Representative") of the several
underwriters named therein. As used herein, the term "this Warrant" shall mean
and include this Warrant and any Warrant or Warrants hereafter issued as a
consequence of the exercise or transfer of this Warrant in whole or in part.
This Warrant may not be sold, transferred, assigned, or hypothecated until
__________ __, 1998, except that it may be transferred, in whole or in part, to
(i) one or more officers or partners of the Holder (or the officers or partners
of any such partner); (ii) any other underwriting firm or member of the selling
group which participated in the public offering of shares of Common Stock which
commenced on __________ __, 1997 (or the officers or partners of any such firm);
(iii) a successor to the Holder, or the officers or partners of such successor;
(iv) a purchaser of substantially all of the assets of the Holder; or (v) by
operation of law. The term the "Holder" as used herein shall include any
transferee to whom this Warrant has been transferred in accordance with the
above.
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
1. This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company at its office at Connectsoft Communications
Corporation, 11130 NE 33rd Place, Suite 250, Bellevue, Washington 98004, or at
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Shares for
which this Warrant is being exercised.
2. Upon each exercise of the Holder's rights to purchase Shares, the
Holder shall be deemed to be the holder of record of the Shares, notwithstanding
that the transfer books of the Company shall then be closed or certificates
representing the Warrant Shares with respect to which this Warrant was exercised
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a Warrant
evidencing the right of the Holder to purchase the balance of the aggregate
number of Warrant Shares purchasable hereunder as to which this Warrant has not
been exercised or assigned.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be
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transferable on the books of the Company only upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his,
her, or its authority shall be produced. Upon any registration of transfer, the
Company shall deliver a new Warrant or Warrants to the person entitled thereto.
This Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company represents that all
shares of Common Stock issuable upon exercise of this Warrant are duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.
5. (a) The Exercise Price for the Warrant in effect from time to time,
and the number of shares of Common Stock issuable upon exercise of the Warrant,
shall be subject to adjustment, as follows:
(i) In the event that the Company shall at any time after the date
hereof (A) declare a dividend on the outstanding Common Stock payable in shares
of its capital stock, (B) subdivide the outstanding Common Stock, (C) combine
the outstanding Common Stock into a smaller number of shares, or (D) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price per Warrant Share in effect at the time of the record date for the
determination of stockholders entitled to receive such dividend or distribution
or of the effective date of such subdivision, combination, or reclassification
shall be adjusted so that it shall equal the price determined by multiplying
such Exercise Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action, and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action. Such adjustment shall be made successively
whenever any event listed above shall occur and shall become effective at the
close of business on such record date or at the close of business on the date
immediately preceding such effective date, as applicable.
(ii) In the event that the Company shall fix a record date for the
determination of stockholders entitled to receive issuance of rights or warrants
to be issued to all holders of Common Stock entitling such stockholders to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the then Current Market Price (as defined below) per
share
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<PAGE>
of Common Stock on such record date, the Exercise Price in effect at the time of
such record date shall be adjusted so that the same shall equal the price
determined by multiplying such Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such Current Market Price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and, to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(iii) In the event the Company shall fix a record date for the
determination of stockholders entitled to receive (including any such
distribution made to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the continuing corporation in a
distribution to all holders of Common Stock) evidences of its indebtedness,
cash, or assets (other than distributions and dividends payable in shares of
Common Stock), or rights, options, or warrants to subscribe for or purchase
shares of Common Stock, or securities convertible into, or exchangeable for,
shares of Common Stock (excluding those referred to in paragraph (ii) above) in
a distribution to all holders of Common Stock, then, in each case, the Exercise
Price in effect at the time of such record date shall be adjusted by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants, or convertible or exchangeable securities, or the amount of such cash,
applicable to one share of Common Stock, and the denominator of which shall be
such Current Market Price per share of Common Stock on such record date. Such
adjustment shall be made successively whenever any event listed above shall
occur and become effective at the close of business on such record date.
(iv) In case the Company shall issue shares of Common Stock for a
consideration per share (the "Offering Price") less than the Current Market
Price per share of Common Stock on the date the Company fixes the offering price
of such additional shares, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying such
Exercise Price by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in Subsection (i)
below) for the issuance of such additional shares would purchase at such Current
Market Price per share of Common Stock, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after the issuance
of such additional
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<PAGE>
shares. Such adjustment shall be made successively whenever such an issuance is
made. Notwithstanding anything herein to the contrary, no adjustment pursuant
to this paragraph (a)(iv) of Section 5 shall take place as a result of this
issuance of shares of Common Stock pursuant to an employee, officer, or director
securities ownership or compensation plan duly adopted by the Board of Directors
of the Company.
(v) In case the Company shall issue any securities convertible
into, or exchangeable for, Common Stock (excluding securities issued in
transactions described in Subsections (ii) and (iii) above) for a consideration
per share of Common Stock (the "Conversion Price") initially deliverable upon
conversion or exchange of such securities (determined as provided in Subsection
(i) below) less than the Current Market Price per share of Common Stock in
effect immediately prior to the issuance of such securities, the Exercise Price
in effect immediately prior to the date of such issuance shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in Subsection (i)
below) for such securities would purchase at such Current Market Price per share
of Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock deliverable upon conversion of, or in
exchange for, such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such an issuance is
made. Notwithstanding anything herein to the contrary, no adjustment pursuant
to this paragraph (a)(v) of Section 5 shall take place as a result of the
issuance of securities convertible into, or exchangeable for, shares of Common
Stock pursuant to an employee, officer, or director securities ownership or
compensation plan duly adopted by the Board of Directors of the Company.
(b) The Current Market Price per share of Common Stock on any date shall
be deemed to be the average of the daily closing prices for the 30 consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the NASDAQ National Market System) on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the highest reported bid price
for the Common Stock as furnished by the National Association of Securities
Dealers, Inc. through the Nasdaq SmallCap Market or a similar organization if
the Nasdaq SmallCap Market is no longer reporting such information. If, on any
such date, the Common Stock is not listed or admitted to trading on any national
securities exchange and is not quoted on the Nasdaq SmallCap Market or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(c) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an adjustment
in the number of Warrant Shares be made effective as of a record date for a
specified event, the Company may
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elect to defer, until the occurrence of such event, issuing to the Holder, if
the Holder exercised this Warrant after such record date, the Warrant Shares, if
any, issuable upon such exercise over and above the number of Warrant Shares
issuable upon such exercise upon such exercise on the basis of the number of
shares of Common Stock included such Units in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares of Common Stock upon the occurrence of the event requiring
such adjustment.
(e) Whenever there shall be an adjustment as provided in this Section 5,
the Company shall within 15 days thereafter cause written notice thereof to be
sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable and
the Exercise Price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of the correctness of
any such adjustment absent manifest error.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share of Common Stock would be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall
purchase such fraction for an amount in cash equal to the same fraction of the
Current Market Price of such share of Common Stock on the date of exercise of
this Warrant.
(g) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.05; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(h) Whenever the Exercise Price payable upon exercise of this Warrant is
adjusted pursuant to Subsections (a)(i), (a)(ii), (a)(iii), (a)(iv), or (a)(v)
above, the number of Warrant Shares issuable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Warrant Shares
theretofore issuable upon exercise of this Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.
(i) For purposes of any computation respecting consideration received
pursuant to Subsections (a)(iv) and (a)(v) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts, or
other expenses incurred by the Company for any underwriting of the
issue or otherwise in connection therewith;
(ii) in the case of the issuance of shares 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 market value thereof
as determined in good faith by the board of directors of the Company
(irrespective of the accounting treatment thereof), the determination
of which shall be a conclusive absent manifest error; and
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<PAGE>
(iii) in the case of the issuance of securities convertible into, or
exchangeable for, shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by
the Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (i) and (ii) of
this Subsection (i)).
(j) Notwithstanding anything herein to the contrary, if any adjustment
under this Section 5 of the Exercise Price or the number of shares of Common
Stock or other securities issuable upon exercise of this Warrant shall be
determined by the National Association of Securities Dealers, Inc. (the "NASD")
to violate either or both of Section (c)(6)(B)(vii)(g) or Section
(c)(6)(B)(vii)(h) of Rule 2710 of the Condcut Rules of the NASD, and such
determination shall not be subject to further appeal or review, the violative
provisions or provisions shall be deemed to be amended to the minimum extent
necessary to cause each such provision to comply with the applicable violated
paragraph of Rule 2710 of the NASD Conduct Rules.
6. (a) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the board
of directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of sale, lease, or conveyance or other transfer of all or
substantially all of the assets of the Company as part of a plan for liquidation
of the Company, all rights to exercise this Warrant shall terminate 30 days
after the Company gives written notice to the Holder and each registered holder
of a Warrant that such sale or conveyance or other transfer has been
consummated.
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<PAGE>
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of Warrant Shares for which
this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater amount per
share than the most recent such cash dividend) to all holders of Common Stock;
or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares
of Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their
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shares for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up, or (iii)
the date of such action which would require an adjustment to the Exercise Price
per Warrant Share.
8. The issuance of any shares or other securities upon the exercise of
this Warrant and the delivery of certificates or other instruments representing
such shares or other securities shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the seven-year period commencing on
______________, 1997 the Company shall file a registration statement (other than
on Form S-4, Form S-8 or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Registrable Securities (as hereinafter
defined) are outstanding, the Company shall give all the then holders of any
Registrable Securities (the "Eligible Holders") at least 45 days prior written
notice of the filing of such registration statement. If requested by any
Eligible Holder in writing within 30 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering and sale of the
Registrable Securities through the facilities of all appropriate securities
exchanges and the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable. Notwithstanding the
foregoing, if the managing underwriter of any such offering shall advise the
Company in writing that, in its opinion, the distribution of all or a portion of
the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then any Eligible Holder who shall have requested
registration of his, her, or its Registrable Securities shall delay the offering
and sale of such Registrable Securities (or the portions thereof so designated
by such managing underwriter) for such period, not to exceed 90 days (the "Delay
Period"), as the managing underwriter shall request, provided that no such delay
shall be required as to any Registrable Securities if any securities of the
Company are included in such registration statement and eligible for sale during
the Delay Period for the account of any person other than the Company and any
Eligible Holder unless the securities included in such registration statement
and eligible for sale during the Delay Period for such other person shall have
been reduced pro rata to the reduction of the Registrable Securities which were
requested to be included and eligible for sale during the Delay Period in such
registration. As used herein, "Registrable Securities" shall mean the Warrants
and the Warrant Shares which, in each case, have not been previously sold
pursuant to a registration statement or Rule 144 promulgated under the Act.
(b) If, on any two occasions during the seven-year period commencing on
___________ __, 1997, the Company shall receive a written request from Eligible
Holders who in the aggregate
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own (or upon exercise of all Warrants or Warrants then outstanding would own) a
majority of the total number of shares of Common Stock then included (or upon
such exercises would be included) in the Registrable Securities (the "Majority
Holders"), to register the sale of all or part of such Registrable Securities,
the Company shall, as promptly as practicable, prepare and file with the
Commission a registration statement sufficient to permit the public offering and
sale of the Registrable Securities through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its best
efforts through its officers, directors, auditors, and counsel to cause such
registration statement to become effective as promptly as practicable; provided,
that the Company shall only be obligated to file one such registration statement
pursuant to this Section 9(b) for which all expenses incurred in connection with
such registration (other than the fees and disbursements of counsel for the
Eligible Holders and underwriting discounts, if any, payable in respect of the
Registrable Securities sold by the Eligible Holders) shall be borne by the
Company. Within three business days after receiving any request contemplated by
this Section 9(b), the Company shall give written notice to all the other
Eligible Holders, advising each of them that the Company is proceeding with such
registration and offering to include therein all or any portion of any such
other Eligible Holder's Registrable Securities, provided that the Company
receives a written request to do so from such Eligible Holder within 30 days
after receipt by him, her, or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required by reason of this Section 9(c) to register or qualify the Registrable
Securities in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which the Company is not then subject.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 9 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Registrable Securities covered thereby. The Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders are first
free to sell such Registrable Securities; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Registrable Securities included in such
registration.
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(f) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, or preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus or any amendment or
supplement thereto, has been issued, nor has the Commission or any securities or
blue sky authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each prospectus forming a part thereof (including each preliminary prospectus),
and any amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Registrable
Securities.
(h) The Company agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements, and other materials
required to be filed with the Commission to permit holders of the Registrable
Securities to sell such securities under Rule 144 under the Act.
(i) Except for rights in existence on the date hereof, the Company will
not, without the written consent of the Majority Holders, grant to any persons
the right to request the Company to register any securities of the Company,
provided that the Company may grant such registration rights to other persons so
long as such rights are subordinate to the rights of the Eligible Holders.
10. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 10, without
limitation, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), as and when incurred, arising out of, based upon,
or in connection with, (i) any untrue statement or alleged untrue statement of a
material fact contained in (A) any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, relating to the offer and sale of any of
the Registrable Securities, or (B) any application or other document or
communication (in this Section 10, referred to collectively as an "application")
executed by, or on behalf of, the Company or based upon written information
furnished by, or on behalf of, the Company filed in any jurisdiction in order to
register or qualify any of the Registrable Securities under the securities or
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<PAGE>
"blue sky" laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company with respect to such Eligible
Holder by, or on behalf of, such person expressly for inclusion in any
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall
be in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including, without
limitation, the employment of counsel reasonably satisfactory to such
indemnified party or parties) and payment of expenses. Such indemnified party
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or the named parties to such action include both the indemnified
and the indemnifying parties and such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from, or in
addition to, those available to the Company, in any of which events such fees
and expenses shall be borne by the Company and the Company shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties. Anything in this Section 10 to the contrary notwithstanding, the
Company shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of each
indemnified party that is not released as described in this sentence, settle or
compromise any action, or permit a default or consent to the entry of judgment
in, or otherwise seek to terminate, any pending or threatened action, in respect
of which indemnity may be sought hereunder (whether or not any indemnified party
is a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the Eligible
Holders of the commencement of any litigation or proceedings against the Company
or any of its officers or directors in connection with the sale of any
Registrable Securities or any preliminary prospectus, prospectus, registration
statement, or amendment or supplement thereto, or any application relating to
any sale of any Registrable Securities.
(b) Each Eligible Holder severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Registrable Securities held by
such Eligible Holder, each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the
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<PAGE>
Exchange Act, and its or their respective counsel, to the same extent as the
foregoing indemnity from the Company to the Eligible Holders in Section 10(a),
but only with respect to statements or omissions, if any, made in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon, and in conformity with, written
information furnished to the Company with respect to any Eligible Holder by, or
on behalf of, such Eligible Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or any application,
and in respect of which indemnity may be sought against any Eligible Holder
pursuant to this Section 10(b), such Eligible Holder shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 10(a) or 10(b)
(subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by, or on behalf of,
any director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the Registrable
Securities included in such registration in the aggregate (including for this
purpose any contribution by, or on behalf of, an indemnified party), as a second
entity, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the Company and
such Eligible Holders in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses. The relative fault, in the
case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and
the Eligible Holders agree that it would be unjust and inequitable if the
respective obligations of the Company and the Eligible Holders for contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Eligible Holders and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 10(c). In no case shall any Eligible Holder be
responsible for a portion of the contribution obligation imposed on all Eligible
Holders in excess of its pro rata share based on the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by it and included in such registration as compared to the number of
shares of Common Stock owned (or which would be owned upon exercise of all
Registrable Securities) by all Eligible Holders and included in such
registration. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For purposes of
this Section 10(c), each person, if any, who controls any Eligible Holder within
the meaning of Section 15 of the Act or Section 20(a) of
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<PAGE>
the Exchange Act and each officer, director, partner, employee, agent, and
counsel of each such Eligible Holder or control person shall have the same
rights to contribution as such Eligible Holder or control person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any such registration statement, each director of the Company, and
its or their respective counsel shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 10(c).
Anything in this Section 10(c) to the contrary notwithstanding, no party shall
be liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 10(c) is intended to
supersede any right to contribution under the Act, the Exchange Act, or
otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof, the
Warrant Shares issued on exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates representing the Warrant
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER
SUCH ACT, OR (III) AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of, or relating to, this
Warrant, any document or instrument delivered pursuant to, in connection with,
or simultaneously with, this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint, or other process and agrees that
service thereof may be made in accordance with Section 12 of the Underwriting
Agreement. Within 30 days after such service,
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<PAGE>
or such other time as may be mutually agreed upon in writing by the attorneys
for the parties to such action or proceeding, the Company shall appear to answer
such summons, complaint, or other process. Should the Company so served fail to
appear or answer within such 30-day period or such extended period, as the case
may be, the Company shall be deemed in default and judgment may be entered
against the Company for the amount as demanded in any summons, complaint, or
other process so served.
Dated: ____________ __, 1997
CONNECTSOFT COMMUNICATIONS CORPORATION
BY: _______________________________
[Seal]
______________________
Secretary
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<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, $.001 par value, of Connectsoft Communications Corporation, a
Delaware corporation (the "Company"), and does hereby irrevocably constitute and
appoint ___________ attorney to transfer such Warrant on the books of the
Company, with full power of substitution.
Dated: _________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
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<PAGE>
ELECTION TO EXERCISE
To: Connectsoft Communications Corporation
11130 NE 33rd Place
Suite 250
Bellevue, Washington 98004
The undersigned hereby exercises his, her, or its rights to purchase
shares of Common Stock, $.001 par value ("the Common Stock"), of Connectsoft
Communications Corporation, a Delaware corporation (the "Company"), covered by
the within Warrant and tenders payment herewith in the amount of $_____ in
accordance with the terms thereof, and requests that certificates for the
securities constituting such shares of Common Stock be issued in the name of,
and delivered to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common Stock covered by the within Warrant shall be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: __________________ Name________________________
(Print)
Address:
________________________
(Signature)
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EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CONNECTSOFT COMMUNICATIONS CORPORATION
Pursuant to Section 102 of the General Corporation Law of
the State of Delaware
________________________________________________________________________________
The undersigned, in order to form a corporation pursuant to Section 102 of
the Delaware General Corporation Law, does hereby certify:
FIRST: The name of the Corporation is ConnectSoft Communications
Corporation (the "Corporation").
SECOND: The address including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 9 East
Loockerman Street, in the city of Dover, in the County of Kent; and the name of
the registered agent of the Corporation in the State of Delaware at such address
is National Corporate Research, Ltd.
THIRD: The purpose of the Corporation is 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 aggregate number of shares of capital stock which the
Corporation shall have authority to issue is THIRTY-FIVE MILLION (35,000,000)
shares consisting of:
(i) 30,000,000 shares of Common Stock, $.001 par value per share (the
"Common Stock'); and
(ii) 5,000,000 shares of Preferred Stock, $.001 par value per share (the
"Preferred Stock").
PART A
COMMON STOCK
1. GENERAL
(a) Each share of Common Stock issued and outstanding shall be
identical in all respects one with the other, and no dividends shall be paid on
any shares of Common Stock unless the same dividend is paid on all shares of
Common Stock outstanding at the time of such payment.
(b) Except for and subject to those rights expressly granted to the
holders of the Preferred Stock, or except as may be
<PAGE>
provided by the Delaware General Corporation Law, the holders of Common Stock
shall have exclusively all other rights of stockholders including, but not by
way of limitation, (i) the right to receive dividends, when, as and if declared
by the Board of Directors out of assets lawfully available therefor, and (ii) in
the event of any distribution of assets upon liquidation, dissolution or winding
up of the Corporation or otherwise, the right to receive ratably and equally all
the assets and funds of the Corporation remaining after payment to the holders
of the Preferred Stock of the Corporation of the specific amounts which they are
entitled to receive upon such liquidation, dissolution or winding up of the
Corporation as herein provided.
(c) In the event that the holder of any share of Common Stock shall
receive any payment of any dividend on, liquidation of, or other amounts payable
with respect to, any shares of Common Stock, which he is not then entitled to
receive, he will forthwith deliver the same to the holders of shares of the
Preferred Stock, and if in existence, the holders of shares of the Preferred
Stock (as their respective interests may appear), as the case may be, in the
form received, and until it is so delivered will hold the same in trust for such
holders.
(d) Each holder of shares of Common Stock shall be entitled to one
vote for each share of such Common Stock held by him, and voting power with
respect to all classes of securities of the Corporation shall be vested solely
in the Common Stock, other than as specifically provided in the Corporation's
Certificate of Incorporation, as it may be amended, with respect to the
Preferred Stock.
PART B
PREFERRED STOCK
Authority is hereby vested in the Board of Directors of the Corporation to
provide for the issuance of Preferred Stock and in connection therewith to fix
by resolution providing for the issue of such series, the number of shares to be
included and such of the preferences and relative participating, optional or
other special rights and limitations of such series, including, without
limitation, rights of redemption or conversion into Common Stock, to the fullest
extent now or hereafter permitted by the Delaware General Corporation Law.
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<PAGE>
FIFTH: The name and mailing address of the Incorporator is as follows:
NAME ADDRESS
Peter W. Rothberg Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel
153 East 53rd Street
New York, New York 10022
SIXTH: The Corporation expressly elects to be subject to the provisions
of Section 203 of the Delaware General Corporation Law.
SEVENTH: The board of directors is expressly authorized to adopt, amend or
repeal the by-laws of the Corporation.
EIGHTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall otherwise provide.
NINTH: Special meetings of the stockholders of the Corporation may only
be called by the board of directors of the Corporation or by the duly elected
officers of the Corporation.
TENTH: 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 trustee 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 summoned 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 said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
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<PAGE>
Incorporation, in the manner now or hereafter prescribed by statute or by this
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to the this reservation.
TWELFTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any 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) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
THIRTEENTH: Except as may otherwise be specifically provided in this
Certificate of Incorporation, no provision of this Certificate of Incorporation
is intended by the Corporation to be construed as limited, prohibiting, denying
or abrogating any of the general or specific powers or rights conferred under
the General Corporation Law upon the Corporation, upon its shareholders,
bondholders and security holders, and upon its directors, officers and other
corporate personnel, including, in particular, the power of the Corporation to
furnish indemnification to directors and officers in the capacities defined and
prescribed rights of said persons to indemnification as the same are conferred
under the General Corporation Law. The Corporation shall, to the fullest extent
permitted by the laws of the State of Delaware, including, but not limited to
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
power to indemnify under said Section or otherwise under Delaware law from and
against any and all of the expenses, liabilities or other matters referred to or
covered by said Section. The indemnification provisions contained int he
Delaware General Corporation Law shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
resolution of shareholders or disinterested directors, or otherwise, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent, both as to action in his official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of such person.
FOURTEENTH: The number of directors constituting the Board of Directors
shall be determined by the Board of Directors, but such number of directors
shall not be less than two (2) nor more than nine (9). Any vacancy in the Board
of Directors, whether arising from death, resignation, removal (with or without
cause), an increase in the number of directors or any other cause, may be filled
by the vote of either a majority of the directors then in office, though less
than a quorum, or by the stockholders at the
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<PAGE>
next annual meeting thereof or at a special meeting called for the purpose
therefor. Stockholders may not apply to request that the Delaware Court of
Chancery summarily order an election to be held to fill any vacancies in the
Board of Directors whether or not, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than majority of the whole Board of Directors as constituted immediately prior
to any such vacancy or increase. Each director so elected shall hold office
until the next meeting of the stockholders in which the election of directors is
in the regular order of business and until his successor shall have been elected
and qualified.
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of June,
1997, and I affirm that the foregoing certificate is my act and deed and that
the facts stated therein are true.
/s/ Peter W. Rothberg
_______________________________
Peter W. Rothberg, Incorporator
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel
153 East 53rd Street
New York, New York 10022
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<PAGE>
EXHIBIT 3.2
BY-LAWS OF
CONNECTSOFT COMMUNICATIONS CORPORATION
(A Delaware Corporation)
I
Offices
1. REGISTERED OFFICE. The registered office of the Corporation within
the State of Delaware shall be in the City of Dover, County of Kent.
2. OTHER OFFICES. The Corporation may also have an office or offices
other than said registered office at such place or places, either within or
without the State of Delaware, as the Board of Directors shall from time to time
determine or the business of the Corporation may require.
II
Stockholders
1. PLACE OF MEETINGS. All meetings of the stockholders for the election
of directors or for any other purpose shall be held at any such place, either
within or without the State of Delaware, as shall be designated from time to
time by the Board of Directors and stated in the notice of meeting or in a duly
executed waiver thereof.
2. ANNUAL MEETING. The annual meeting of stockholders shall be held at
such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of meeting. At such annual meeting, the
stockholders shall elect, by a plurality vote, a Board of Directors and transact
such other business as may properly be brought before the meeting.
3. SPECIAL MEETINGS. Special meetings of stockholders, unless otherwise
prescribed by statute, may be called at any time by the Board of Directors or
the Chairman of the Board, if one shall have been elected, or the President.
4. NOTICE OF MEETINGS. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote thereat not less than
<PAGE>
ten nor more than sixty days before the date of the meeting. Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice. Notice shall be given personally or by mail and,
if by mail, shall be sent in a postage prepaid envelope, addressed to the
stockholder at his address as it appears on the records of the Corporation.
Notice by mail shall be deemed given at the time when the same shall be
deposited in the United States mail, postage prepaid. Notice of any meeting
shall not be required to be given to any person who attends such meeting, except
when such person attends the meeting in person or by proxy for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, or who, either
before or after the meeting, shall submit a signed written waiver of notice, in
person or by proxy. Neither the business to be transacted at, nor the purpose
of, an annual or special meeting of stockholders need be specified in any
written waiver of notice.
5. LIST OF STOCKHOLDERS. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of 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, town or village where the meeting is
to be held, which place shall be specified in the notice of meeting, or, if not
specified, at the place where the meeting is to be held. The list shall 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.
6. QUORUM, ADJOURNMENTS. The holders of a majority of the voting power
of the issued and outstanding stock of the Corporation entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at all meetings of stockholders, except as otherwise
provided by statute or by the Certificate of Incorporation. If, however, such
quorum shall not be present or represented by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such adjourned meeting at which a
quorum shall be present or represented by proxy, any business may be transacted
which might have been transacted at the meeting as originally called. If the
adjournment is for more than thirty days, or, if after adjournment a new record
date is set, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
7. ORGANIZATION. At each meeting of stockholders, the Chairman of the
Board, if one shall have been elected, or, in his absence or if one shall not
have been elected, the President shall act as chairman of the meeting. The
Secretary or, in his absence or inability to act, the person whom the chairman
of the meeting shall appoint secretary of the meeting shall act as secretary of
the meeting and keep the minutes thereof.
<PAGE>
8. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
9. VOTING. Except as otherwise provided by statute or the Certificate of
Incorporation, each stockholder of the Corporation shall be entitled at each
meeting of stockholders to one vote for each share of capital stock of the
Corporation standing in his name on the record of stockholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these By-Laws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice thereof
shall be given, or, if notice is waived, at the close of business on the
date next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Certificate of Incorporation or of these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there by such proxy, and
shall state the number of shares voted.
10. INSPECTORS. The Board of Directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all
<PAGE>
stockholders. On request of the chairman of the meeting, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as an inspector of an election of
directors. Inspectors need not be stockholders.
11. ACTION BY CONSENT. Whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, by any provision of statute or of the Certificate of
Incorporation or of these By-Laws, the meeting and vote of stockholders may be
dispensed with, and the action taken without such meeting and vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
stock of the Corporation entitled to vote thereon were present and voted.
III
Board of Directors
1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The number of
directors constituting the initial Board of Directors shall be three (3).
Thereafter, the number of directors may be fixed, from time to time, by the
affirmative vote of a majority of the entire Board of Directors or by action of
the stockholders of the Corporation. Any decrease in the number of directors
shall be effective at the time of the next succeeding annual meeting of
stockholders unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next succeeding
annual meeting to the extent of the number of such vacancies. Directors need
not be stockholders. Except as otherwise provided by statute or these By-Laws,
the directors (other than members of the initial Board of Directors) shall be
elected at the annual meeting of stockholders. Each director shall hold office
until his successor shall have been elected and qualified, or until his death,
or until he shall have resigned, or have been removed, as hereinafter provided
in these By-Laws.
3. PLACE OF MEETINGS. Meetings of the Board of Directors shall be held
at such place or places, within or without the State of Delaware, as the Board
of Directors may from time to time determine or as shall be specified in the
notice of any such meeting.
4. ANNUAL MEETING. The Board of Directors shall meet for the purpose of
organization, the election of officers and the transaction of other business, as
soon as practicable after each annual meeting of stockholders, on the same day
and at the same place where such
<PAGE>
annual meeting shall be held. Notice of such meeting need not be given. In the
event such annual meeting is not so held, the annual meeting of the Board of
Directors may be held at such other time or place (within or without the State
of Delaware) as shall be specified
in a notice thereof given as hereinafter provided in Section 7 of this Article
III.
5. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be
held at such time and place as the Board of Directors may fix. If any day fixed
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board of Directors need not be given except as otherwise
required by statute or these By-Laws.
6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman of the Board, if one shall have been elected, or by two
or more directors of the Corporation or by the President.
7. NOTICE OF MEETINGS. Notice of each special meeting of the Board of
Directors (and of each regular meeting for which notice shall be required) shall
be given by the Secretary as hereinafter provided in this Section 7, in which
notice shall be stated the time and place of the meeting. Except as otherwise
required by these By-Laws, such notice need not state the purposes of such
meeting. Notice of each such meeting shall be mailed, postage prepaid, to each
director, addressed to him at his residence or usual place of business, by first
class mail, at least two days before the day on which such meeting is to be
held, or shall be sent addressed to him at such place by telegraph, cable,
telex, telecopier or other similar means, or be delivered to him personally or
be given to him by telephone or other similar means, at least twenty-four hours
before the time at which such meeting is to be held. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting, except when
he shall attend for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
8. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of Incorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and
place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
<PAGE>
9. ORGANIZATION. At each meeting of the Board of Directors, the Chairman
of the Board, if one shall have been elected, or, in the absence of the Chairman
of the Board or if one shall not have been elected, the President (or, in his
absence, another director chosen by a majority of the directors present) shall
act as chairman of the meeting and preside thereat. The Secretary or, in his
absence, any person appointed by the chairman shall act as secretary of the
meeting and keep the minutes thereof.
10. RESIGNATIONS. Any director of the Corporation may resign at any time
by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
11. VACANCIES. Any vacancy in the Board of Directors, whether arising
from death, resignation, removal (with or without cause), an increase in the
number of directors or any other cause, may be filled by the vote of a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director or by the stockholders at the next annual meeting thereof or
at a special meeting thereof. Each director so elected shall hold office until
his successor shall have been elected and qualified.
12. REMOVAL OF DIRECTORS. Any director may be removed, either with or
without cause, at any time, by the holders of a majority of the voting power of
the issued and outstanding capital stock of the Corporation entitled to vote at
an election of directors.
13. COMPENSATION. The Board of Directors shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity.
14. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
including an executive committee, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Except to the extent
restricted by statute or the Certificate of Incorporation, each such committee,
to the extent provided in the resolution creating it, shall have and may
exercise all the powers and authority of the Board of Directors and may
authorize the seal of the Corporation to be affixed to all papers which require
it. Each such committee shall serve at the pleasure of the Board of Directors
and have such name as may be determined from time to time by resolution adopted
by the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors.
15. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may
<PAGE>
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of Directors
or such committee, as the case may be.
16. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
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.
Participation by such means shall constitute presence in person at a meeting.
IV
Officers
1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall be
elected by the Board of Directors and shall include the President. The Board of
Directors may elect other officers (including one or more Vice Presidents, one
or more Treasurers, one or more Secretaries, one or more Assistant Treasurers
and one or more Assistant Secretaries) as may be necessary or desirable for the
business of the Corporation. If the Board of Directors wishes, it may also elect
as an officer of the Corporation a Chairman of the Board. Any two or more
offices may be held by the same person, and no officer except the Chairman of
the Board need be a director. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned or have been removed, as hereinafter
provided in these By-Laws.
2. RESIGNATIONS. Any officer of the Corporation may resign at any time
by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
3. REMOVAL. Any officer of the Corporation may be removed, either with
or without cause, at any time, by the Board of Directors at any meeting thereof.
4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have
been elected, shall be a member of the Board, an officer of the Corporation and,
if present, shall preside at each meeting of the Board of Directors or the
stockholders. He shall advise and counsel with the President, and in his
absence with other executives of the Corporation, and shall perform such other
duties as may from time to time be assigned to him by the Board of Directors.
5. THE PRESIDENT. The President shall be the chief executive officer of
the Corporation. He shall, in the absence of the Chairman of the Board or if a
Chairman of the Board shall not have been elected, preside at each meeting of
the Board of Directors or the
<PAGE>
stockholders. He shall perform all duties incident to the office of President
and chief executive officer and such other duties as may from time to time be
assigned to him by the Board of Directors.
6. VICE PRESIDENT. Each Vice President shall perform all such duties as
from time to time may be assigned to him by the Board of Directors or the
President. At the request of the President or in his absence or in the event of
his inability or refusal to act, the Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors
(or if there be no such determination, then the Vice Presidents in the order of
their election), shall perform the duties of the President, and, when so acting,
shall have the powers of and be subject to the restrictions placed upon the
President in respect of the performance of such duties.
7. TREASURER. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors.
8. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all certificates for shares of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board of Directors.
9. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the Assistant Treasurers in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
10. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
11. OFFICERS' BONDS OR OTHER SECURITY. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
as the Board of Directors may require.
12. Compensation. The compensation of the officers of the Corporation for
their services as such officers shall be fixed from time to time by the Board of
Directors. An officer of the Corporation shall not be prevented from receiving
compensation by reason of the fact that he is also a director of the
Corporation.
V
Stock Certificates and Their Transfer
<PAGE>
1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by,
the Chairman of the Board or the President or a Vice-President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by him in the
Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restriction of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
2. FACSIMILE SIGNATURES. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
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 date of issue.
3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
<PAGE>
5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint,
or authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
6. REGULATIONS. The Board of Directors may make such additional rules
and regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
7. FIXING THE RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment 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 chance, 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 nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
VI
Indemnification of Directors and Officers
1. GENERAL. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in
<PAGE>
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the-fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, provided that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
3. INDEMNIFICATION IN CERTAIN CASES. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
4. PROCEDURE. Any indemnification under Sections 1 and 2 of this Article
VI (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
5. ADVANCES FOR EXPENSES. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall be ultimately determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VI.
6. RIGHTS NOT EXCLUSIVE. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this Article VI
shall not be deemed
<PAGE>
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, 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.
7. INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article VI.
8. DEFINITION OF CORPORATION. For the purposes of this Article VI,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
9. SURVIVAL OF RIGHTS. The indemnification and advancement of expenses
provided by, or granted pursuant to this Article VI shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
VII
General Provisions
1. DIVIDENDS. Subject to the provisions of statute and the Certificate
of Incorporation, dividends upon the shares of capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
2. RESERVES. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors may, from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors may think conducive to the
interests of the Corporation. The Board of Directors may modify or abolish any
such reserves in the manner in which it was created.
<PAGE>
3. SEAL. The seal of the Corporation shall be in such form as shall be
approved by the Board of Directors.
4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed, and
once fixed, may thereafter be changed, by resolution of the Board of Directors.
5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other orders
for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board or the
President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may,
or may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation and under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new by-laws adopted (a) by
action of the stockholders entitled to vote thereon at any annual or special
meeting of stockholders or (b) if the Certificate of Incorporation so provides,
by action of the Board of Directors at a regular or special meeting thereof.
Any by-law made by the Board of Directors may be amended or repealed by action
of the stockholders at any annual or special meeting of stockholders.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL]
September 4, 1997
Connectsoft Communications Corporation
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
Dear Sirs:
We are acting as counsel to Connectsoft Communications Corporation (the
"Company") in connection with (a) the Registration Statement on Form SB-2, filed
on September 4, 1997 (as amended, the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), covering shares of the
Company's common stock, par value $.001 per share (the "Common Stock"),
including an over-allotment option of up to shares of Common Stock, and
(b) the Underwriting Agreement between the Company and Hampshire Securities
Corporation (the "Underwriting Agreement").
We have examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents as we have
deemed relevant or necessary as the basis for the opinion hereinafter expressed.
In all such examinations, we have assumed the genuineness of all signatures on
original or certified copies and the conformity to original or certified copies
of all copies submitted to us as conformed or reproduction copies. As to
various questions of fact relevant to such opinion, we have relied upon, and
assumed the accuracy of, certificates and oral or written statements and other
information of or from public officials, officers or representatives of the
Company, and others.
Based upon the foregoing, we are of the opinion that the shares of Common
Stock, when issued and delivered in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL
--------------------------------------------------------
GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of October __, 1997, between
CONNECTSOFT COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"),
and __________________________________, a resident of the State of
_______________ (the "Indemnitee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Indemnitee as a
Director of the Company;
WHEREAS, as a condition to the Indemnitee's agreement to serve the Company
as such, the Indemnitee requires that he be indemnified from liability to the
fullest extent permitted by law; and
WHEREAS, the Company is willing to indemnify the Indemnitee to the fullest
extent permitted by law in order to retain the services of the Indemnitee;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
1. MANDATORY INDEMNIFICATION IN PROCEEDINGS OTHER THAN THOSE BY OR IN THE
RIGHT OF THE COMPANY. Subject to Section 4 hereof, the Company shall indemnify
and hold harmless the Indemnitee from and against any and all claims, damages,
expenses (including attorneys' fees), judgments, penalties, fines (including
excise taxes assessed with respect to an employee benefit plan), settlements,
and all other liabilities incurred or paid by him in connection with the
investigation, defense, prosecution, settlement or appeal of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) and to which the Indemnitee was or is a party or is threatened to be
made a party by reason of the fact that the Indemnitee is or was an officer,
director, shareholder, employee or agent of the Company, or is or was serving at
the request of the Company as an officer, director, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, PROVIDED that the Indemnitee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
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2. MANDATORY INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Subject to Section 4 hereof, the Company shall indemnify and hold
harmless the Indemnitee from and against any and all expenses (including
attorneys' fees) and amounts actually and reasonably incurred or paid by him in
connection with the investigation, defense, prosecution, settlement or appeal of
any threatened, pending or completed action, suit or proceeding by or in the
right of the Company to procure a judgment in its favor, whether civil,
criminal, administrative or investigative, and to which the Indemnitee was or is
a party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an officer, director, shareholder, employee or agent of the
Company, or is or was serving at the request of the Company as an officer,
director, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of anything done or not done by the Indemnitee in any such capacity or
capacities, PROVIDED that (a) the Indemnitee acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company and (b) no indemnification shall be made under this Section 2 in respect
of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company for misconduct in the performance of his
duty to the Company unless, and only to the extent that, the court in which such
proceeding was brought (or any other court of competent jurisdiction) shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF NEGLIGENCE. The
Company shall reimburse the Indemnitee for any expenses (including attorneys'
fees) and amounts actually and reasonably incurred or paid by him in connection
with the investigation, defense, settlement or appeal of any action or suit
described in Section 2 hereof that results in an adjudication that the
Indemnitee was liable for negligence, gross negligence or recklessness (but not
willful misconduct) in the performance of his duty to the Company; PROVIDED,
HOWEVER, that the Indemnitee acted in good faith and in a manner he believed to
be in the best interests of the Company.
4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Sections
1 and 2 hereof (unless ordered by a court) and any reimbursement made under
Section 3 hereof shall be made by the Company only as authorized in the specific
case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Sections 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
a) first, by the Company's Board of Directors (the "Board") by
majority vote or consent of a quorum consisting of directors ("Disinterested
Directors") who are not, at the time of the Determination, named parties to such
action, suit or proceeding;
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b) next, if such a quorum of Disinterested Directors cannot be
obtained, by majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors;
c) next, if such a committee cannot be designated, by any
independent legal counsel (who may be any outside counsel regularly employed by
the Company) in a written opinion; or
d) next, if such legal counsel determination cannot be obtained, by
vote or consent of the holders of a majority of the Company's Common Stock.
4.1 NO PRESUMPTIONS. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
4.2 BENEFIT PLAN CONDUCT. The Indemnitee's conduct with respect to
an employee benefit plan for a purpose he reasonably believed to be in the
interests of the participants in and beneficiaries of the plan shall be deemed
to be conduct that the Indemnitee reasonably believed to be not opposed to the
best interests of the Company.
4.3 RELIANCE AS SAFE HARBOR. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (a) the records or books of account of the Company or another enterprise,
including financial statements, (b) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (c) the
advice of legal counsel for the Company or another enterprise, or (d)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 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 Sections 1, 2 or 3 hereof,
as the case may be.
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4.4 SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Sections 1 or 2 hereof, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (a) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of liability or guilt against him, (b)
the expiration of 120 days after the making of any claim or threat of an action,
suit or proceeding without the institution of the same and without any promise
or payment made to induce a settlement, or (c) the settlement of any action,
suit or proceeding under Sections 1, 2 or 3 hereof pursuant to which the
Indemnitee pays less than $10,000.
4.5 PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the Indemnitee is
entitled under any provision of this Agreement to indemnification and/or
reimbursement by the Company for some or a portion of the claims, damages,
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Sections 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
5. PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE BEEN SATISFIED.
5.1 COSTS. All costs of making the Determination required by Section
4 hereof shall be borne solely by the Company, including, but not limited to,
the costs of legal counsel, proxy solicitations and judicial determinations.
The Company shall also be solely responsible for paying (a) all reasonable
expenses incurred by the Indemnitee to enforce this Agreement, including, but
not limited to, the costs incurred by the Indemnitee to obtain court-ordered
indemnification pursuant to Section 8 hereof, regardless of the outcome of any
such application or proceeding, and (b) all costs of defending any suits or
proceedings challenging payments to the Indemnitee under this Agreement.
5.2 TIMING OF THE DETERMINATION. The Company shall use its best
efforts to make the Determination contemplated by Section 4 hereof promptly. In
addition, the Company agrees:
a) if the Determination is to be made by the Board or a
committee thereof, such Determination shall be made not later than 15 days after
a written request for a Determination (a "Request") is delivered to the Company
by the Indemnitee;
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b) if the Determination is to be made by independent legal
counsel, such Determination shall be made not later than 30 days after a Request
is delivered to the Company by the Indemnitee; and
c) if the Determination is to be made by the shareholders of
the Company, such Determination shall be made not later than 90 days after a
Request is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a
Determination may be made in advance of (a) the Indemnitee's payment (or
incurring) of expenses with respect to which indemnification or reimbursement is
sought, and/or (b) final disposition of the action, suit or proceeding with
respect to which indemnification or reimbursement is sought.
5.3 REASONABLENESS OF EXPENSES. The evaluation and finding as to the
reasonableness of expenses incurred by the Indemnitee for purposes of this
Agreement shall be made (in the following order of preference) within 15 days
after the Indemnitee's delivery to the Company of a Request that includes a
reasonable accounting of expenses incurred:
a) first, by the Board by a majority vote of a quorum
consisting of Disinterested Directors;
b) next, if a quorum cannot be obtained under paragraph (a), by
majority vote or consent of a committee duly designated by the Board (in which
designation all directors, whether or not Disinterested Directors, may
participate), consisting solely of two or more Disinterested Directors; or
c) next, if a finding cannot be obtained under either
subparagraph (a) or (b), by vote or consent of the holders of a majority of the
Company's Common Stock that are represented in person or by proxy at a meeting
called for such purpose.
All expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 5.3 is not made within the prescribed
time. The finding required by this Section 5.3 may be made in advance of the
payment (or incurring) of the expenses for which indemnification or
reimbursement is sought.
5.4 PAYMENT OF INDEMNIFIED AMOUNT. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to
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<PAGE>
be indemnified and/or reimbursed, as the case may be, without further
authorization or action by the Board; PROVIDED, HOWEVER, that the expenses for
which indemnification or reimbursement is sought have actually been incurred by
the Indemnitee.
5.5 SHAREHOLDER VOTE ON DETERMINATION. The Indemnitee and any other
shareholder who is a party to the proceeding for which indemnification or
reimbursement is sought shall be entitled to vote on any Determination to be
made by the Company's shareholders, including a Determination made pursuant to
Section 5.7 hereof. In addition, in connection with each meeting at which a
shareholder Determination will be made, the Company shall solicit proxies that
expressly include a proposal to indemnify or reimburse the Indemnitee. The
Company proxy statement relating to the proposal to indemnify or reimburse the
Indemnitee shall not include a recommendation against indemnification or
reimbursement.
5.6 SELECTION OF INDEPENDENT LEGAL COUNSEL. If the Determination
required under Section 4 is to be made by independent legal counsel, such
counsel shall be selected by the Indemnitee with the approval of the Board,
which approval shall not be unreasonably withheld. The fees and expenses
incurred by counsel in making any Determination (including Determinations
pursuant to Section 5.8 hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel, the Company
shall give such counsel an appropriate written agreement with respect to the
payment of their fees and expenses and such other matters as may be reasonably
requested by counsel.
5.7 RIGHT OF INDEMNITEE TO APPEAL AN ADVERSE DETERMINATION BY BOARD.
If a Determination is made by the Board or a committee thereof that the
Indemnitee did not meet the applicable standard of conduct set forth in Sections
1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a new
Determination to be made by the Company's shareholders at the next regular or
special meeting of shareholders. Subject to Section 8 hereof, such
Determination by the Company's shareholders shall be binding and conclusive for
all purposes of this Agreement.
5.8 RIGHT OF INDEMNITEE TO SELECT FORUM FOR DETERMINATION. If, at any
time subsequent to the date of this Agreement, "Continuing Directors" do not
constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of subparagraph (c) of Section 4 hereof. If none of the legal
counsel selected by the Indemnitee are willing and/or able to make the
Determination, then the Company shall cause the Determination to be made by a
majority vote or consent of a Board committee consisting solely of Continuing
Directors. For purposes of this Agreement, a "Continuing Director" means either
a member of the Board at the date of this Agreement or a person nominated to
serve as a member of the Board by a majority of the then Continuing Directors.
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5.9 ACCESS BY INDEMNITEE TO DETERMINATION. The Company shall afford
to the Indemnitee and his representatives ample opportunity to present evidence
of the facts upon which the Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination. The Company shall also afford the Indemnitee the reasonable
opportunity to include such evidence and information in any Company proxy
statement relating to a shareholder Determination.
5.10 JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In each action or
suit described in Section 2 hereof, the Company shall cause its counsel to use
its best efforts to obtain from the Court in which such action or suit was
brought (a) an express adjudication whether the Indemnitee is liable for
negligence or misconduct in the performance of his duty to the Company, and, if
the Indemnitee is so liable, (b) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
6. SCOPE OF INDEMNITY. The actions, suits and proceedings described in
Sections 1 and 2 hereof shall include, for purposes of this Agreement, any
actions that involve, directly or indirectly, activities of the Indemnitee both
in his official capacities as a Company director or officer and actions taken in
another capacity while serving as director or officer, including, but not
limited to, actions or proceedings involving (a) compensation paid to the
Indemnitee by the Company, (b) activities by the Indemnitee on behalf of the
Company, including actions in which the Indemnitee is plaintiff, (c) actions
alleging a misappropriation of a "corporate opportunity," (d) responses to a
takeover attempt or threatened takeover attempt of the Company, (e) transactions
by the Indemnitee in Company securities, and (f) the Indemnitee's preparation
for and appearance (or potential appearance) as a witness in any proceeding
relating, directly or indirectly, to the Company. In addition, the Company
agrees that, for purposes of this Agreement, all services performed by the
Indemnitee on behalf of, in connection with or related to any subsidiary of the
Company, any employee benefit plan established for the benefit of employees of
the Company or any subsidiary, any corporation or partnership or other entity in
which the Company or any subsidiary has a 5% ownership interest, or any other
affiliate shall be deemed to be at the request of the Company.
7. ADVANCE FOR EXPENSES.
7.1 MANDATORY ADVANCE. Expenses (including attorneys' fees) incurred
by the Indemnitee in investigating, defending, settling or appealing any
action, suit or proceeding described in Sections 1 or 2 hereof shall be paid by
the Company in advance of the final disposition of such action, suit or
proceeding. The Company shall promptly pay the amount of such expenses to the
Indemnitee, but in no event later than 10 days following the Indemnitee's
delivery to the Company of a written request for an advance pursuant to this
Section 7, together with a reasonable accounting of such expenses.
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7.2 UNDERTAKING TO REPAY. The Indemnitee hereby undertakes and
agrees to repay to the Company any advances made pursuant to this Section 7 if
and to the extent that it shall ultimately be found that the Indemnitee is not
entitled to be indemnified by the Company for such amounts.
7.3 MISCELLANEOUS. The Company shall make the advances contemplated
by this Section 7 regardless of the Indemnitee's financial ability to make
repayment, and regardless whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest-free.
8. COURT-ORDERED INDEMNIFICATION. Regardless whether the Indemnitee has
met the standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case
may be, and notwithstanding the presence or absence of any Determination whether
such standards have been satisfied, the Indemnitee may apply for indemnification
(and/or reimbursement pursuant to Sections 3 or 12 hereof) to the court
conducting any proceeding to which the Indemnitee is a party or to any other
court of competent jurisdiction. On receipt of an application, the court, after
giving any notice the court considers necessary, may order indemnification
(and/or reimbursement) if it determines the Indemnitee is fairly and reasonably
entitled to indemnification (and/or reimbursement) in view of all the relevant
circumstances (including this Agreement).
9. NONDISCLOSURE OF PAYMENTS. Except as expressly required by Federal
securities laws, neither party shall disclose any payments under this Agreement
unless prior approval of the other party is obtained. Any payments to the
Indemnitee that must be disclosed shall, unless otherwise required by law, be
described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
10. COVENANT NOT TO SUE, LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No
legal action shall be brought and no cause of action shall be asserted by or on
behalf of the Company (or any of its subsidiaries) against the Indemnitee, his
spouse, heirs, executors, personal representatives or administrators after the
expiration of two years from the date the Indemnitee ceases (for any reason) to
serve as either an officer or a director of the Company, and any claim or cause
of action of the Company (or any of its subsidiaries) shall be extinguished and
deemed released unless asserted by filing of a legal action within such two-year
period.
11. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Notwithstanding any other
provision of this Agreement, and regardless whether indemnification of the
Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively, the "Indemnitee's Estate") against, and the Company
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shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Sections 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
12. REIMBURSEMENT OF ALL LEGAL EXPENSES. Notwithstanding any other
provision of this Agreement, and regardless of the presence or absence of any
Determination, the Company promptly (but not later than 30 days following the
Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action described in Sections 1 or 2 hereof
(including, but not limited to, the matters specified in Section 6 hereof).
13. MISCELLANEOUS.
13.1 NOTICE PROVISION. Any notice, payment, demand or communication
required or permitted to be delivered or given by the provisions of this
Agreement shall be deemed to have been effectively delivered or given and
received on the date personally delivered to the respective party to whom it is
directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2 ENTIRE AGREEMENT. Except for the Company's Certificate of
Incorporation, this Agreement constitutes the entire understanding of the
parties and supersedes all prior understandings, whether written or oral,
between the parties with respect to the subject matter of this Agreement.
13.3 SEVERABILITY OF PROVISIONS. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of each such illegal, invalid or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
13.4 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
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13.5 EXECUTION IN COUNTERPARTS. This Agreement and any amendment may
be executed simultaneously or in counterparts, each of which together shall
constitute one and the same instrument.
13.6 COOPERATION AND INTENT. The Company shall cooperate in good
faith with the Indemnitee and use its best efforts to ensure that the Indemnitee
is indemnified and/or reimbursed for liabilities described herein to the fullest
extent permitted by law.
13.7 AMENDMENT. No amendment, modification or alteration of the terms
of this Agreement shall be binding unless in writing, dated subsequent to the
date of this Agreement, and executed by the parties.
13.8 BINDING EFFECT. The obligations of the Company to the Indemnitee
hereunder shall survive and continue as to the Indemnitee even if the Indemnitee
ceases to be a director, officer, employee and/or agent of the Company. Each
and all of the covenants, terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the successors to the Company and, upon
the death of the Indemnitee, to the benefit of the estate, heirs, executors,
administrators and personal representatives of the Indemnitee.
13.9 NONEXCLUSIVITY. The rights of indemnification and reimbursement
provided in this Agreement shall be in addition to any rights to which the
Indemnitee may otherwise be entitled by statute, bylaw, agreement, vote of
shareholders or otherwise.
13.10 EFFECTIVE DATE. The provisions of this Agreement shall cover
claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts
or omissions which heretofore have taken place.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ADDRESS: THE COMPANY:
Connectsoft Communications Corporation CONNECTSOFT COMMUNICATIONS
11130 N.E. 33rd Place, Suite 250 CORPORATION
Bellevue, Washington 98004
Attention: Chief Executive Officer By:
------------------------------
Name:
Title:
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ADDRESS: THE INDEMNITEE:
_________________________
_________________________
_________________________ ____________________________
Name:
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ConnectSoft Communications Corporation
1997 STOCK OPTION PLAN
_______________
Effective as of August 1, 1997
<PAGE>
Page 1
ConnectSoft Communications Corporation.
1997 Stock Option Plan
INTRODUCTION
ConnectSoft Communications Corporation, a Delaware corporation
(hereinafter referred to as the "Corporation"), hereby establishes an
incentive compensation plan to be known as the "ConnectSoft Communications
Corporation, 1997 Stock Option Plan" (hereinafter referred to as the "Plan"),
as set forth in this document. The Plan permits the grant of Non-Qualified
Stock Options and Incentive Stock Options.
The Plan shall become effective on August 1, 1997. However, it
shall be rendered null and void and have no effect, and all Plan Awards
granted hereunder shall be canceled, if the Plan is not approved by a
majority vote of the Corporation's stockholders within twelve (12) months of
the date the Plan is adopted by the Corporation's Board of Directors.
The purpose of the Plan is to promote the success and enhance the
value of the Corporation by linking the personal interests of Participants to
those of the Corporation's stockholders by providing Participants with an
incentive for outstanding performance. The Plan is further intended to
assist the Corporation in its ability to motivate, and retain the services
of, Participants upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
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DEFINITIONS
For purposes of this Plan, the following terms shall be defined as
follows unless the context clearly indicates otherwise:
(a) "Award Agreement" shall mean the written agreement, executed by an
appropriate officer of the Corporation, pursuant to which a Plan Award is
granted.
(a) "Board of Directors" shall mean the Board of Directors of the
Corporation.
(a) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder.
(a) "Committee" shall mean the Board of Directors of the Corporation or
any committee of two or more persons designated by the Board of Directors to
serve as the Committee.
(a) "Common Stock" shall mean the common stock, par value [$____] per
share, of the Corporation.
(f) "Consultant" shall mean an individual who is in a Consulting
Relationship with the Corporation or any Parent of Subsidiary.
(g) "Consulting Relationship" shall mean the relationship that exists
between an individual and the Corporation (or any Parent or Subsidiary) if
(i) such individual or (ii) any entity of which such individual is an
executive officer or owns a substantial equity interest has entered into a
written consulting contract with the Corporation or any Parent or Subsidiary.
(h) "Corporation" shall mean ConnectSoft Communications Corporation, a
Delaware corporation.
(i) "Disability" shall have the same meaning as the term "permanent and
total disability" under Section 22(e)(3) of the Code.
(j) "Employee" shall mean a common-law employee of the Company or of any
Parent or Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
(l) "Executive" means an employee of the Corporation or of any Parent or
Subsidiary whose compensation is subject to the deduction limitations set
forth under Code Section 162(m).
(m) "Fair Market Value" of the Corporation's Common Stock on a Trading
Day
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shall mean the last reported sale price for Common Stock or, in case no such
reported sale takes place on such Trading Day, the average of the closing bid
and asked prices for the Common Stock for such Trading Day, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any national securities exchange, but is traded in the
over-the-counter market, the closing sale price of the Common Stock or, if no
sale is publicly reported, the average of the closing bid and asked
quotations for the Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or any comparable
system or, if the Common Stock is not listed on NASDAQ or a comparable
system, the closing sale price of the Common Stock or, if no sale is publicly
reported, the average of the closing bid and asked prices, as furnished by
two members of the National Association of Securities Dealers, Inc. who make
a market in the Common Stock selected from time to time by the Corporation
for that purpose. In addition, for purposes of this definition, a "Trading
Day" shall mean, if the Common Stock is listed on any national securities
exchange, a business day during which such exchange was open for trading and
at least one trade of Common Stock was effected on such exchange on such
business day, or, if the Common Stock is not listed on any national
securities exchange but is traded in the over-the-counter market, a business
day during which the over-the-counter market was open for trading and at
least one "eligible dealer" quoted both a bid and asked price for the Common
Stock. An "eligible dealer" for any day shall include any broker-dealer who
quoted both a bid and asked price for such day, but shall not include any
broker-dealer who quoted only a bid or only an asked price for such day. In
the event the Corporation's Common Stock is not publicly traded, the Fair
Market Value of such Common Stock shall be determined by the Committee in
good faith.
(n) "Good Cause" shall have the equivalent meaning set forth in the
employment agreement between the Participant and the Corporation or Parent or
Subsidiary or, in the absence of such agreement, such term shall mean a
Participant's willful or gross misconduct or willful or gross negligence in
the performance of his duties for the Corporation or for any Parent or
Subsidiary after prior written notice of such misconduct or negligence and
the continuance thereof for a period of 30 days after receipt by such
Participant of such notice, (ii) a Participant's intentional or habitual
neglect of his duties for the Corporation or for any Parent or Subsidiary
after prior written notice of such neglect, (iii) a Participant's theft or
misappropriation of funds of the Corporation or of any Parent or Subsidiary
or commission of a felony or (iv) the direct or indirect breach by the
Participant of the terms of a related consulting contract with the
Corporation or any Parent or Subsidiary.
(o) "Incentive Stock Option" shall mean a stock option satisfying
the requirements for tax-favored treatment under Section 422 of the Code.
(p) "Non-Qualified Option" shall mean a stock option which does not
satisfy the requirements for, or which is not intended to be eligible for,
tax-favored treatment under Section 422 of the Code.
(q) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option granted pursuant to the provisions of Section VI
hereof.
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(r) "Optionee" shall mean a Participant who is granted an Option
under the terms of this Plan.
(s) "Outside Directors" shall mean members of the Board of
Directors of the Corporation who are classified as "outside directors" under
Section 162(m) of the Code.
(t) "Parent" shall mean a parent corporation of the Corporation
within the meaning of Section 424(e) of the Code.
(u) "Participant" shall mean any Employee [or other person]
participating under the Plan.
(v) "Plan Award" shall mean an Option granted pursuant to the terms
of this Plan.
(w) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
(x) "Subsidiary" shall mean a subsidiary corporation of the
Corporation within the meaning of Section 424(f) of the Code.
(y) "Termination of Consulting Relationship" shall mean the
cessation, abridgment or termination of a Consultant's Consulting
Relationship with the Corporation or any Parent or Subsidiary as a result of
(i) the Consultant's death or Disability (ii) the cancellation, annulment,
expiration, termination or breach of the written consulting contract between
the Corporation (or any Parent or Subsidiary) and the Consultant (or any
other entity) giving rise to the Consulting Relationship or (iii) if the
written consulting contract is not directly between the Corporation (or any
Parent or Subsidiary) and the Consultant, the Consultant's termination of
service with, or sale of all or substantially all of his equity interest in,
the entity which has entered into the written consulting contract with the
Corporation, Parent or Subsidiary.
ADMINISTRATION
The Plan shall be administered by the Committee , which, if
necessary to comply with Rule 16b-3 promulgated under the Exchange Act, shall
be composed solely of at least two Non-Employee Directors, as defined in such
Rule, to the extent such Rule is applicable to this Plan, and who also
qualify as "Outside Directors" (but only with respect to the period during
which Plan Awards granted hereunder are subject to the deduction limitations
of Section 162(m) of the Code). Subject to the provisions of the Plan, the
Committee may establish from time to time such regulations, provisions,
proceedings and conditions of awards which, in its sole opinion, may be
advisable in the administration of the Plan. A majority of the Committee
shall constitute a quorum, and, subject to the provisions of Section V of the
Plan, the acts of a majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by a
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Page 5
majority of the Committee, shall be the acts of the Committee as a whole.
SHARES AVAILABLE
Subject to the adjustments provided in Section VII of the Plan, the
aggregate number of shares of the Common Stock which may be granted for all
purposes under the Plan shall be [NUMBER OF SHARES] shares. Shares of Common
Stock underlying awards of securities (derivative or not) shall be counted
against the limitation set forth in the immediately preceding sentence and
may be reused to the extent that the related Plan Award to any individual is
settled in cash, expires, is terminated unexercised, or is forfeited. Common
Stock granted to satisfy Plan Awards under the Plan may be authorized and
unissued shares of the Common Stock, issued shares of such Common Stock held
in the Corporation's treasury or shares of Common Stock acquired on the open
market.
ELIGIBILITY
Officers and key employees of the Corporation, or of any Parent or
Subsidiary, who are regularly employed on a salaried basis as common law
employees, and Consultants, and directors of the Corporation or of any Parent
or Subsidiary who are not Employees, shall be eligible to participate in the
Plan. Where appropriate under this Plan, directors who are not Employees
shall be referred to as "employees" and their service as directors as
"employment".
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of, the
Committee, which shall administer the Plan so as to comply at all times with
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder, to the extent such compliance is required, and shall otherwise
have plenary authority to interpret the Plan and to make all determinations
specified in or permitted by the Plan or deemed necessary or desirable for
its administration or for the conduct of the Committee's business. Subject
to the provisions of Section XI hereof, all interpretations and
determinations of the Committee may be made on an individual or group basis
and shall be final, conclusive and binding on all interested parties.
Subject to the express provisions of the Plan, the Committee shall have
authority, in its discretion, to determine the persons to whom Plan Awards
shall be granted, the times when such Plan Awards shall be granted, the
number of Plan Awards, the exercise price of each Plan Award, the period(s)
during which a Plan Award shall be exercisable (whether in whole or in part),
the restrictions to be applicable to Plan Awards and the other terms and
provisions thereof (which need not be identical). In addition, the authority
of the Committee shall include, without limitation, the following:
Financing. The arrangement of temporary financing for an Optionee by
registered broker-dealers, under the rules and regulations of the Federal
Reserve Board, for the purpose of assisting an Optionee in the exercise of an
Option, such authority to include the
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payment by the Corporation of the commissions of the broker-dealer;
Procedures for Exercise of Option. The establishment of procedures for
an Optionee (i) to exercise an Option by payment of cash, (ii) to have
withheld from the total number of shares of Common Stock to be acquired upon
the exercise of an Option that number of shares having a Fair Market Value,
which, together with such cash as shall be paid in respect of fractional
shares, shall equal the Option exercise price of the total number of shares
of Common Stock to be acquired, and (iii) to exercise all or a portion of an
Option by delivering that number of shares of Common Stock already owned by
him, for a period of at least six months, having a Fair Market Value which
shall equal the Option exercise price for the portion exercised and, in cases
where an Option is not exercised in its entirety, and subject to the
requirements of the Code, to permit the Optionee to deliver the shares of
Common Stock thus acquired by him in payment of shares of Common Stock to be
received pursuant to the exercise of additional portions of such Option, the
effect of which shall be that an Optionee can in sequence utilize such newly
acquired shares of Common Stock in payment (but only if held for a period of
six months) of the exercise price of the entire Option, together with such
cash as shall be paid in respect of fractional shares.
Withholding. The establishment of a procedure whereby a number of shares
of Common Stock [or other securities] may be withheld from the total number
of shares of Common Stock to be issued upon exercise of an Option or for the
tender of shares of Common Stock owned by any Participant to meet any
obligation of withholding for taxes incurred by the Participant upon such
exercise.
STOCK OPTIONS
The Committee shall have the authority, in its discretion, to grant
Incentive Stock Options or to grant Non-Qualified Stock Options or to grant both
types of Options. Notwithstanding anything contained herein to the contrary, an
Incentive Stock Option may be granted only to common law employees of the
Corporation or of any Parent or Subsidiary now existing or hereafter formed or
acquired, and not to any director or officer who is not also such a common law
employee. In order for an Option grant to satisfy the "performance-based
compensation" exemption to the deduction limitation under Code Section 162(m),
the maximum number of shares of Common Stock subject to Options which may be
granted to any single Executive during any one calendar year, beginning with the
year grants under this Plan first become subject to such deduction limitations,
is [___________]. The terms and conditions of the Options shall be determined
from time to time by the Committee; provided, however, that the Options granted
under the Plan shall be subject to the following:
Exercise Price. The Committee shall establish the exercise price at the
time any Option is granted at such amount as the Committee shall determine;
provided, however, that
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the exercise price for each share of Common Stock purchasable under any Option
which is intended to satisfy the performance-based compensation exemption to the
deduction limitation under Section 162(m) of the Code or any Incentive Stock
Option granted hereunder shall be such amount as the Committee shall, in its
best judgment, determine to be not less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock at the date the Option is granted;
and provided, further, that in the case of an Incentive Stock Option granted to
a person who, at the time such Incentive Stock Option is granted, owns shares of
stock of the Corporation or of any Parent or Subsidiary which possess more than
ten percent (10%) of the total combined voting power of all classes of shares of
stock of the Corporation or of any Parent or Subsidiary, the exercise price for
each share of Common Stock shall be such amount as the Committee, in its best
judgment, shall determine to be not less than one hundred ten percent (110%) of
the Fair Market Value per share of Common Stock at the date the Option is
granted. The exercise price will be subject to adjustment in accordance with
the provisions of Section VII of the Plan.
Payment of Exercise Price. The price per share of Common Stock with
respect to each Option shall be payable at the time the Option is exercised.
Such price shall be payable in cash or pursuant to any of the methods set
forth in Sections V(a) or (b) hereof, as determined by the Participant.
Shares of Common Stock delivered to the Corporation in payment of the
exercise price shall be valued at the Fair Market Value of the Common Stock
on the date preceding the date of the exercise of the Option and must have
been held at least six months by Optionee prior to such exercise.
Exercisability of Options. Except as provided in Section VI(e) hereof,
each Option shall be exercisable in whole or in installments, and at such
time(s), and subject to the fulfillment of any conditions on, and to any
limitations on, exercisability as may be determined by the Committee at the
time of the grant of such Options. The right to purchase shares of Common
Stock shall be cumulative so that when the right to purchase any shares of
Common Stock has accrued such shares of Common Stock or any part thereof may
be purchased at any time thereafter until the expiration or termination of
the Option.
Expiration of Options. No Incentive Stock Option by its terms shall be
exercisable after the expiration of ten (10) years from the date of grant of
the Option; provided, however, in the case of an Incentive Stock Option
granted to a person who, at the time such Option is granted, owns shares of
stock of the Corporation or of any Parent or Subsidiary possessing more than
ten percent (10%) of the total combined voting power of all classes of shares
of stock of the Corporation or of any Parent or Subsidiary, such Option shall
not be exercisable after the expiration of five (5) years from the date such
Option is granted.
Exercise Upon Optionee's Termination of Employment or Termination of
Consulting Relationship. If the employment of an Optionee by the Corporation
or by any Parent or Subsidiary is terminated for any reason other than death,
any Incentive Stock Option granted to such Optionee may not be exercised
later than three (3) months (one (1) year in the case of termination due to
Disability) after the date of such termination of employment. For purposes of
determining whether any Optionee has incurred a termination of employment (or
a Termination of Consulting Relationship), an Optionee who is both an
employee (or a Consultant) and a director
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of the Corporation and/or any Parent or Subsidiary shall (with respect to any
Non-Qualified Option that may have been granted to him) be considered to have
incurred a termination of employment (or a Termination of Consulting
Relationship) only upon his termination of service both as an employee (or as a
Consultant) and as a director. Furthermore, (i) if an Optionee's employment (or
Consulting Relationship) is terminated by the Corporation or by any Parent or
Subsidiary for Good Cause or (ii) if an Optionee voluntarily terminates his
employment other than for Disability (or incurs a voluntary Termination of
Consulting Relationship other than for Disability) with the Corporation or with
any Parent or Subsidiary without the written consent of the Committee,
regardless of whether such Optionee continues to serve as a director of the
Corporation or of any Parent or Subsidiary, then the Optionee shall, at the time
of such termination of employment (or Termination of Consulting Relationship),
forfeit his rights to exercise any and all of the outstanding Option(s)
theretofore granted to him.
Maximum Amount of Incentive Stock Options. Each Plan Award under which
Incentive Stock Options are granted shall provide that to the extent the
aggregate of the (i) Fair Market Value of the shares of Common Stock
(determined as of the time of the grant of the Option) subject to such
Incentive Stock Option and (ii) the fair market values (determined as of the
date(s) of grant of the option(s) of all other shares of Common Stock subject
to incentive stock options granted to an Optionee by the Corporation or any
Parent or Subsidiary, which are exercisable for the first time by any person
during any calendar year, exceed(s) one hundred thousand dollars ($100,000),
such excess shares of Common Stock shall not be deemed to be purchased
pursuant to Incentive Stock Options. The terms of the immediately preceding
sentence shall be applied by taking all options, whether or not granted under
this Plan, into account in the order in which they are granted.
Dividend Equivalents for Outstanding Options. The Committee may, in
its sole discretion, provide that amounts equivalent to dividends shall be
payable with respect to one or more shares of Common Stock subject to vested
but unexercised Option(s) granted to a Participant. Such amounts shall be
credited to a suspense account, and shall be payable to the Participant in
cash or in Common Stock, as set forth under the terms of the Plan Award, at
such time as the related Option(s) are exercised.
(h) Reload Options. (i) Concurrently with the award of an Option (for
these purposes, the "Primary Option") to a Participant, the Committee may
authorize the award of an additional Option or Options (hereinafter referred to
as "Reload Options") to such Participant providing for the purchase of shares of
Common Stock in an amount equal to the sum of:
(A) the number of shares of Common Stock, if any, used to exercise the
Primary Option; and
(B) to the extent authorized by the Committee, the number of shares of
Common Stock used to satisfy any tax withholding requirement related to the
exercise of the Primary Option.
Shares issued per (A) and (B) above must be held for a period of at least six
(6)
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months.
For purposes of this subsection (h), upon its exercise a Reload Option shall be
treated as a Primary Option.
(ii) The grant of a Reload Option will become effective upon the
exercise of the Primary Option. At the discretion of the Committee, a Reload
Option may be an Incentive Stock Option.
(iii) Each Award Agreement under which an Option is granted will
provide whether or not the exercise of such Primary Option will result in the
award of a related Reload Option, which will be evidenced under a separate Award
Agreement. The terms of such Award Agreement shall include, among other items,
provisions providing that (A) the exercise price per share of Common Stock
available for purchase under the Reload Option shall be no less than 100% of the
Fair Market Value of such Common Stock on the date the Reload Option is granted
and (B) the term of the Reload Option shall not extend beyond the remaining term
of the Primary Option.
(iv) Notwithstanding the above, no Reload Option will be granted
pursuant to the exercise of a Primary Option if such exercise occurs after the
termination of the Optionee's employment with the Corporation and each Parent or
Subsidiary.
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
Recapitalization, Etc. In the event there is any change in the
Common Stock of the Corporation by reason of any reorganization,
recapitalization, stock split, stock dividend or otherwise, there shall be
substituted for or added to each share of Common Stock theretofore
appropriated or thereafter subject, or which may become subject, to any
Option, the number and kind of shares of stock or other securities into which
each outstanding share of Common Stock shall be so changed or for which each
such share shall be exchanged, or to which each such share be entitled, as
the case may be, and the per share price thereof also shall be appropriately
adjusted. Notwithstanding the foregoing, (i) each such adjustment with
respect to an Incentive Stock Option shall comply with the rules of Section
424(a) of the Code and (ii) in no event shall any adjustment be made which
would render any Incentive Stock Option granted hereunder to be other than an
incentive stock option for purposes of Section 422 of the Code.
Merger, Consolidation or Change in Control of Corporation. Upon (i)
the merger or consolidation of the Corporation with or into another
corporation (pursuant to which the stockholders of the Corporation
immediately prior to such merger or consolidation will not, as of the date of
such merger or consolidation, own a beneficial interest in shares of voting
securities of the corporation surviving such merger or consolidation having
at least a majority of the combined voting power of such corporation's then
outstanding securities), if the agreement of
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merger or consolidation does not provide for (1) the continuance of the Options
granted hereunder or (2) the substitution of new options for Options granted
hereunder, or for the assumption of such Options by the surviving corporation,
(ii) the dissolution, liquidation, or sale of all or substantially all the
assets of the Corporation to a person unrelated to the Corporation or to a
direct or indirect owner of a majority of the voting power of the Corporation's
then outstanding voting securities (such sale of assets being referred to as an
"Asset Sale") or (iii) the Change in Control of the Corporation, the holder of
any such Option theretofore granted and still outstanding (and not otherwise
expired) shall have the right immediately prior to the effective date of such
merger, consolidation, dissolution, liquidation, Asset Sale or Change in Control
of the Corporation to exercise such Option(s) in whole or in part without regard
to any installment provision that may have been made part of the terms and
conditions of such Option(s); provided that any conditions precedent to the
exercise of such Option(s), other than the passage of time, have occurred. The
Corporation, to the extent practicable, shall give advance notice to affected
Optionees of such merger, consolidation, dissolution, liquidation, Asset Sale or
Change in Control of the Corporation. All such Options and which are not so
exercised shall be forfeited as of the effective time of such merger,
consolidation, dissolution, liquidation or Asset Sale (but not in the case of a
Change in Control of the Corporation).
[Definition of Change in Control of the Corporation. As used herein,
a "Change in Control of the Corporation" shall be deemed to have occurred if
any person (including any individual, firm, partnership or other entity)
together with all Affiliates and Associates (as defined under Rule 12b-2 of
the General Rules and Regulations promulgated under the Exchange Act) of such
person (but excluding (i) a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or any subsidiary of the
Corporation, (ii) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the Corporation, (iii) the Corporation or any subsidiary
of the Corporation or (iv) only as provided in the immediately following
sentence, a Participant together with all Affiliates and Associates of the
Participant) is or becomes the Beneficial Owner (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Corporation representing 40% of more of the combined voting power of the
Corporation's then outstanding securities. The provisions of clause(iv) of
the immediately preceding sentence shall apply only with respect to the
Option(s) held by the Participant who, together with his Affiliates or
Associates, if any, is or becomes the direct or indirect Beneficial Owner of
the percentage of securities set forth in such clause.]
MISCELLANEOUS PROVISIONS
Administrative Procedures. The Committee may establish any
procedures determined by it to be appropriate in discharging its
responsibilities under the Plan. Subject to the provisions of Section XI
hereof, all actions and decisions of the Committee shall be final.
Assignment or Transfer. No grant or award of any Plan Award
(other than a Non-Qualified Option) or any rights or interests therein shall
be assignable or transferable by a
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Participant except by will or the laws of descent and distribution or pursuant
to a domestic relations order. During the lifetime of a Participant, Incentive
Stock Options granted hereunder shall be exercisable only by the Participant.
Investment Representation. With respect to shares of Common Stock
received pursuant to the exercise of an Option, the Committee may require, as
a condition of receiving such securities, that the Participant furnish to the
Corporation such written representations and information as the Committee
deems appropriate to permit the Corporation, in light of the existence or
nonexistence of an effective registration statement under the Securities Act
to deliver such securities in compliance with the provisions of the
Securities Act.
Withholding Taxes. In the case of the issuance or distribution of
Common Stock or other securities hereunder upon the exercise of any Plan
Award, the Corporation, as a condition of such issuance or distribution, may
require the payment (through withholding from the Participant's salary,
reduction of the number of shares of Common Stock or other securities to be
issued, or otherwise) of any federal, state, local or foreign taxes required
to be withheld. Each Participant may satisfy the withholding obligations by
paying to the Corporation a cash amount equal to the amount required to be
withheld or by tendering to the Corporation a number of shares of Common
Stock having a value equivalent to such cash amount, or by use of any
available procedure as described under Section V(c) hereof.
Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Corporation and shall not be charged against any
award nor to any employee receiving a Plan Award.
Funding of Plan. The Plan shall be unfunded. The Corporation
shall not be required to segregate any of its assets to assure the payment of
any Plan Award under the Plan. Neither the Participants nor any other
persons shall have any interest in any fund or in any specific asset or
assets of the Corporation or any other entity by reason of any Plan Award,
except to the extent expressly provided hereunder. The interests of each
Participant and former Participant hereunder are unsecured and shall be
subject to the general creditors of the Corporation.
Other Incentive Plans. The adoption of the Plan does not
preclude the adoption by appropriate means of any other incentive plan for
employees.
Plurals and Gender. Where appearing in the Plan, masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
Headings. The headings and sub-headings in this Plan are
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
Severability. In case any provision of this Plan shall be held
illegal or void, such illegality or invalidity shall not affect the remaining
provisions of this Plan, but shall be fully severable, and the Plan shall be
construed and enforced as if said illegal or invalid provisions had
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never been inserted herein.
Liability and Indemnification. (i) Neither the Corporation nor
any Parent or Subsidiary shall be responsible in any way for any action or
omission of the Committee, or any other fiduciaries in the performance of
their duties and obligations as set forth in this Plan. Furthermore, neither
the Corporation nor any Parent or Subsidiary shall be responsible for any act
or omission of any of their agents, or with respect to reliance upon advice
of their counsel provided that the Corporation and/or the appropriate Parent
or Subsidiary relied in good faith upon the action of such agent or the
advice of such counsel.
Except for their own gross negligence or willful misconduct
regarding the performance of the duties specifically assigned to them under, or
their willful breach of the terms of, this Plan, the Corporation, each Parent
and Subsidiary and the Committee shall be held harmless by the Participants,
former Participants, beneficiaries and their representatives against liability
or losses occurring by reason of any act or omission. Neither the Corporation,
any Parent or Subsidiary, the Committee, nor any agents, employees, officers,
directors or shareholders of any of them, nor any other person shall have any
liability or responsibility with respect to this Plan, except as expressly
provided herein.
Incapacity. If the Committee shall receive evidence satisfactory
to it that a person entitled to receive payment of, or exercise, any Plan
Award is, at the time when such benefit becomes payable or exercisable , a
minor, or is physically or mentally incompetent to receive such Plan Award
and to give a valid release thereof, and that another person or an
institution is then maintaining or has custody of such person and that no
guardian, committee or other representative of the estate of such person
shall have been duly appointed, the Committee may make payment of such Plan
Award otherwise payable to such person to (or permit such Plan Award to be
exercised by) such other person or institution, including a custodian under a
Uniform Gifts to Minors Act, or corresponding legislation (who shall be an
adult, a guardian of the minor or a trust company), and the release by such
other person or institution shall be a valid and complete discharge for the
payment or exercise of such Plan Award.
Cooperation of Parties. All parties to this Plan and any person
claiming any interest hereunder agree to perform any and all acts and execute
any and all documents and papers which are necessary or desirable for
carrying out this Plan or any of its provisions.
Governing Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in accordance
with the laws of the State of [JURISDICTION].
Nonguarantee of Employment or Consulting Relationship . Nothing
contained in this Plan shall be construed as a contract of employment (or as
a consulting contract) between the Corporation (or any Parent or Subsidiary),
and any employee or Participant, as a right of any employee or Participant to
be continued in the employment of (or in a Consulting Relationship with) the
Corporation (or any Parent or Subsidiary), or as a limitation on the right of
the Corporation or any Parent or Subsidiary to discharge any of its employees
(or Consultants),
<PAGE>
Page 13
at any time, with or without cause.
Notices. Each notice relating to this Plan shall be in writing
and delivered in person or by certified mail to the proper address. All
notices to the Corporation or the Committee shall be addressed to it at
[ADDRESS], Attn: [TITLE]. All notices to Participants, former Participants,
beneficiaries or other persons acting for or on behalf of such persons shall
be addressed to such person at the last address for such person maintained in
the Committee's records.
Written Agreements. Each Plan Award shall be evidenced by a
signed written agreement (the "Award Agreements") between the Corporation and
the Participant containing the terms and conditions of the award.
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right to
amend, suspend or terminate the Plan at any time, provided that no amendment
shall be made which shall increase the total number of shares of the Common
Stock of the Corporation which may be issued and sold pursuant to Incentive
Stock Options, reduce the minimum exercise price in the case of an Incentive
Stock Option or modify the provisions of the Plan relating to eligibility with
respect to Incentive Stock Options unless such amendment is made by or with the
approval of the stockholders within 12 months of the effective date of such
amendment, but only if such approval is required by any applicable provision of
law. Furthermore, no amendment to this Plan may change (i) the maximum amount of
Plan Awards that may be granted or paid on an annual basis or (ii) the exercise
price of any options granted hereunder without the prior approval of the
Corporation's stockholders in the manner required under Section 162(m) of the
Code; provided, however, that such stockholder consent is required only during
such period that the deduction limitations under Code Section 162(m) apply to
Plan Awards granted under the Plan. The Board of Directors of the Corporation
shall also be authorized to amend the Plan and the Options granted thereunder to
maintain qualification as "incentive stock options" within the meaning of
Section 422 of the Code, if applicable. Except as otherwise provided herein, no
amendment, suspension or termination of the Plan shall alter or impair any Plan
Awards previously granted under the Plan without the consent of the holder
thereof.
TERM OF PLAN
The Plan shall automatically terminate on the day immediately
preceding the [___th - 10th FOR ISOs] anniversary of the date the Plan was
adopted by the Board of Directors of the Corporation, unless sooner terminated
by such Board of Directors. No Plan Awards may be granted under the Plan
subsequent to the termination of the Plan.
CLAIMS PROCEDURES
<PAGE>
Page 14
Denial. If any Participant, former Participant or beneficiary is
denied any vested benefit to which he is, or reasonably believes he is,
entitled under this Plan, either in total or in an amount less than the full
vested benefit to which he would normally be entitled, the Committee shall
advise such person in writing the specific reasons for the denial. The
Committee shall also furnish such person at the time with a written notice
containing (i) a specific reference to pertinent Plan provisions, (ii) a
description of any additional material or information necessary for such
person to perfect his claim, if possible, and an explanation of why such
material or information is needed and (iii) an explanation of the Plan's
claim review procedure.
Written Request for Review. Within 60 days of receipt of the
information stated in subsection (a) above, such person shall, if he desires
further review, file a written request for reconsideration with the Committee.
Review of Document. So long as such person's request for review
is pending (including the 60 day period in subsection (b) above), such person
or his duly authorized representative may review pertinent Plan documents and
may submit issues and comments in writing to the Committee.
Committee's Final and Binding Decision. A final and binding
decision shall be made by the Committee within 60 days of the filing by such
person of this request for reconsideration; provided, however, that if the
Committee, in its discretion, feels that a hearing with such person or his
representative is necessary or desirable, this period shall be extended for
an additional 60 days.
Transmittal of Decision. The Committee's decision shall be
conveyed to such person in writing and shall (i) include specific reasons for
the decision, (ii) be written in a manner calculated to be understood by such
person and (iii) set forth the specific references to the pertinent Plan
provisions on which the decision is based.
Limitation on Claims. Notwithstanding any provisions of this Plan
to the contrary, no Participant (nor the estate or other beneficiary of a
Participant) shall be entitled to assert a claim against the Corporation (or
against any Parent or Subsidiary) more than three years after the date the
Participant (or his estate or other beneficiary) initially is entitled to
receive benefits hereunder.
<PAGE>
Page 1
INCENTIVE STOCK OPTION AGREEMENT
AGREEMENT made as of this [ ] day of [ ],
[199__] (the "Date of Grant") between ConnectSoft Communications Corporation, a
Delaware corporation (hereinafter referred to as the "Company"), and
[ ], residing at [ ] (hereinafter
referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires, in connection with the employment of
the Employee and in accordance with its 1997 Stock Option Plan (the "Plan"),
to provide the Employee with an opportunity to acquire Common Stock, [$___]
par value (hereinafter referred to as "Common Stock"), of the Company on
favorable terms and thereby increase his proprietary interest in the
continued progress and success of the business of the Company;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein set forth and other good and valuable consideration, the
Company and the Employee hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination
by the [____________ Committee of the Board of Directors][Board of Directors]
of the Company authorized to administer the Plan, the Company, subject to
the terms of the Plan and this Agreement, hereby grants to the Employee as a
matter of separate inducement and agreement, and in addition to and not in
lieu of salary or other compensation for services, the right to purchase
(hereinafter referred to as the "Option") an aggregate of [NUMBER] shares of
Common Stock, subject to adjustment as provided in the Plan (such shares, as
adjusted, hereinafter being referred to as the "Shares"). The Option is
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of shares of Common Stock
covered by the Option will be [$____] per share, being not less than [100%]
[110%] of the Fair Market Value of one share of Common Stock on the Date of
Grant, subject to adjustment as provided in the Plan.
3. Exercise of Option. The Option shall be exercisable on the
terms and conditions hereinafter set forth:
(a) The Option shall become exercisable cumulatively as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment
<PAGE>
Page 2
pursuant to the Plan), on the dates indicated:
(i) as to [ ] Shares on or after [ ];
(ii) as to [ ] Shares on or after [ ];
(iii) as to [ ] Shares on or after [ ];
(iv) as to [ ] Shares on or after [ ]; and
(v) as to [ ] Shares on or after [ ].
(b) The Option may be exercised pursuant to the provisions of
this Section 3, by notice and payment (including, but not limited to, by a
"cashless" exercise) to the Company as provided in Sections 9 and 14 hereof.
4. Term of Option. The term of the Option shall be a period of
[NUMBER - NO MORE THAN 10/5] years from the Date of Grant, subject to earlier
termination or cancellation as provided in this Agreement. This Option, to
the extent unexercised, shall expire on the day immediately prior to the
[___th - NO LATER THAN 10th/5th] anniversary of the Date of Grant. The holder
of the Option [shall] [shall not] have [any] rights to dividends [and]
[or any] other rights of a stockholder with respect to any shares of Common
Stock subject to the Option until such shares shall have been issued to him
(as evidenced by the appropriate entry on the books of a duly authorized
transfer agent of the Company) provided that the date of issuance shall not
be earlier than the date this Option is exercised and provision of the full
purchase price of the shares of Common Stock (with respect to which this
Option is exercised) is made to the Company.
5. Non-transferability of Option. The Option shall not be
assigned, transferred or otherwise disposed of, or pledged or hypothecated in
any way, and shall not be subject to execution, attachment or other process,
except as may be provided in the Plan. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option attempted contrary to the
provisions of the Plan, or any levy of execution, attachment or other process
attempted upon the Option, will be null and void and without effect. Any
attempt to make any such assignment, transfer, pledge, hypothecation or other
disposition of the Option will cause the Option to terminate immediately upon
the happening of any such event; provided, however, that any such termination
of the Option under the foregoing provisions of this Section 5 will not
prejudice any rights or remedies which the Company or any Parent or
Subsidiary may have under this Agreement or otherwise.
6. Exercise Upon Cessation of Employment. (a) If the Employee at
any time ceases to be an employee of the Company
<PAGE>
Page 3
and of any Parent or Subsidiary (i) by reason of his discharge for Good Cause
or (ii) due to his voluntary termination of employment without the written
consent of the Committee, the Option shall, at the time of such termination
of employment, terminate and the Employee shall forfeit all rights hereunder.
If, however, the Employee for any other reason (other than Disability or
death) ceases to be such an Employee, the Option may, subject to the
provisions of Section 5 hereof, be exercised by the Employee to the same
extent the Employee would have been entitled under Section 3 hereof to
exercise the Option immediately prior to such cessation of employment, at any
time within [________days/months/years - NO LATER THAN 3 MONTHS] after such
cessation of employment, at the end of which period the Option to the extent
not then exercised, shall terminate and the Employee shall forfeit all rights
hereunder, even if the Employee subsequently returns to the employ of the
Company or any Parent or Subsidiary. In no event, however, may the Option be
exercised after the expiration of the term provided in Section 4 hereof.
(b) The Option shall not be affected by any change of duties
or position of the Employee so long as he continues to be an a full-time
employee of the Company or of any Parent or Subsidiary thereof. If the
Employee is granted a temporary leave of absence, such leave of absence shall
be deemed a continuation of his employment by the Company or of any Parent or
Subsidiary thereof for the purposes of this Agreement, but only if and so
long as the employing corporation consents thereto.
7. Exercise Upon Death or Disability. (a) If the Employee dies
while he is employed by the Company or by any Parent or Subsidiary, [and on or
after the first date upon which he would have been entitled to exercise the
Option under the provisions of Section 3 hereof], the Option may, subject to
the provisions of Section 5 hereof, be exercised [with respect to all or any
part of the shares of Common Stock as to which the deceased Employee had not
exercised the Option at the time of his death (regardless of whether the Option
was fully exercisable at such time)] [(to the same extent the Employee would
have been entitled under Section 3 hereof to exercise the Option immediately
prior to his death)], by the estate of the Employee (or by the person or
persons who acquire the right to exercise the Option by written designation
of the Employee) at any time within [________ days/months/years] after the
death of the Employee, at the end of which period the Option, to the extent
not then exercised, shall terminate and the estate or other beneficiaries
shall forfeit all rights hereunder. In no event, however, may the Option be
exercised after the expiration of the term provided in Section 4 hereof.
(b) In the event that the employment of the Employee by the
Company and any Parent or Subsidiary is terminated by reason of the
Disability of the Employee [on or
<PAGE>
Page 4
after the first date upon which he would have been entitled to exercise the
Option under the provisions of Section 3 hereof], the Option may, subject to
the provisions of Section 5 hereof, be exercised
[with respect to all or any part of the shares of Common Stock as to which
he had not exercised the Option at the time of his Disability or Retirement
(regardless of whether the Option was fully exercisable at such time)]
[(to the same extent the Employee would have been entitled under Section 3
hereof to exercise the Option immediately prior to his employment termination
due to Disability)] by the Employee within the period ending [________ days
/months/years - NO LATER THAN 1 YEAR] after the date of such termination of
employment, at the end of which period the Option, to the extent not then
exercised, shall terminate and the Employee shall forfeit all rights
hereunder even if the Employee subsequently returns to the employ of the
Company or any Parent or Subsidiary. In no event, however, may the Option be
exercised after the expiration of the term provided in Section 4 hereof.
8. Registration. The shares of Common Stock subject hereto and
issuable upon the exercise hereof may not be registered under the Securities
Act of 1933, as amended, and, if required upon the request of counsel to the
Company, the Employee will give a representation as to his investment intent
with respect to such shares prior to their issuance as set forth in Section 9
hereof. The Company may register or qualify the shares covered by the Option
for sale pursuant to the Securities Act of 1933, as amended, at any time
prior to or after the exercise in whole or in part of the Option.
9. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in
the manner set forth in Exhibit A hereto (the "Notice") and provision for
payment to the Company in accordance with the procedure prescribed herein.
Each such Notice shall:
(i) state the election to exercise the Option and the
number of Shares with respect to which it is being exercised;
(ii) contain a representation and agreement as to
investment intent, if required by counsel to the Company with respect to
such Shares, in a form satisfactory to counsel to the Company;
(iii) be signed by the Employee or the person or
persons entitled to exercise the Option and, if the Option is being
exercised by any person or persons other than the Employee, be
accompanied by proof, satisfactory to counsel to the Company, of the
right of such other person or persons to exercise the Option;
<PAGE>
Page 5
(iv) include payment of the full purchase price for
the shares of Common Stock to be purchased pursuant to such exercise of
the Option; and
(v) be received by the Company on or before the date of
the expiration of this Option. In the event the date of expiration of
this Option falls on a day which is not a regular business day at the
Company's executive office in [CITY/STATE] then such written Notice must
be received at such office on or before the last regular business day
prior to such date of expiration.
(b) Payment of the purchase price of any shares of Common
Stock, in respect of which the Option shall be exercised, shall be made by
the Employee or such person or persons at the place specified by the Company
on the date the Notice is received by the Company (i) by delivering to the
Company a certified or bank cashier's check payable to the order of the
Company, (ii) by delivering to the Company properly endorsed certificates of
shares of Common Stock having been owned for at least six (6) months (or
certificates accompanied by an appropriate stock power) with signature
guaranties by a bank or trust company, or (iii) by any combination of the
above.
(c) The Option shall be deemed to have been exercised with
respect to any particular shares of Common Stock if, and only if, the
preceding provisions of this Section 9 and the provisions of Section 10
hereof shall have been complied with, in which event the Option shall be
deemed to have been exercised on the date the Notice was received by the
Company. Anything in this Agreement to the contrary notwithstanding, any
Notice given pursuant to the provisions of this Section 9 shall be void and
of no effect if all of the preceding provisions of this Section 9 and the
provisions of Section 10 shall not have been complied with.
(d) The certificate or certificates for shares of Common Stock
as to which the Option shall be exercised will be registered in the name of
the Employee (or in the name of the Employee's estate or other beneficiary if
the Option is exercised after the Employee's death), or if the Option is
exercised by the Employee and if the Employee so requests in the notice
exercising the Option, will be registered in the name of the Employee and
another person jointly, with right of survivorship and will be delivered as
soon as practical after the date the Notice is received by the Company
(accompanied by full payment of the exercise price), but only upon compliance
with all of the provisions of this Agreement.
(e) If the Employee fails to accept delivery of and pay for
all or any part of the number of Shares specified in such Notice, his right
to exercise the Option with respect to such undelivered Shares may be
terminated in the sole discretion
<PAGE>
Page 6
of the Board of Directors of the Company. The Option may be exercised only
with respect to full Shares.
(f) The Company shall not be required to issue or deliver any
certificate or certificates for shares of its Common Stock purchased upon the
exercise of any part of this Option prior to the payment to the Company, upon
its demand, of any amount requested by the Company for the purpose of
satisfying its liability, if any, to withhold state or local income or
earnings tax or any other applicable tax or assessment (plus interest or
penalties thereon, if any, caused by a delay in making such payment) incurred
by reason of the exercise of this Option or the transfer of shares thereupon.
Such payment shall be made by the Employee in cash or, with the consent of
the Company, by tendering to the Company shares of Common Stock equal in
value but limited to the amount of the required withholding. In the
alternative, the Company may, at its option, satisfy such withholding
requirements by withholding from the shares of Common Stock to be delivered
to the Employee pursuant to an exercise of this Option a number of shares of
Common Stock equal in value but limited to the amount of the required
withholding.
[(g) Upon the Employee's exercise of this Option in a
manner that would satisfy the requirements set forth under the Plan for the
issuance of Reload Options, the Employee shall be awarded such Reload Options
providing for (i) the number of shares of Common Stock available for purchase
thereunder, (ii) the exercise price and (iii) the term of such Reload Options
as set forth in the Plan. The other conditions related to the exercise of
such Reload Options shall be the same as set forth hereunder with respect to
this Option. Any Reload Option granted pursuant to this provision shall, to
the extent permitted by law, be considered to be an Incentive Stock Option.]
10. Approval of Counsel. The exercise of the Option and the
issuance and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Company's counsel of all legal matters in
connection therewith, including, but not limited to, compliance with the
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder,
and the requirements of any stock exchange upon which the Common Stock may
then be listed.
11. Resale of Common Stock. (a) If so requested by the Company,
upon any sale or transfer of the Common Stock purchased upon exercise of the
Option [(subject to the provisions of Section 11(b), hereof)], the Employee
shall deliver to the Company an opinion of counsel satisfactory to the
Company to the effect that either (i) the Common Stock to be sold or
transferred has been registered under the Securities Act of 1933, as amended,
and that there is in effect a current prospectus meeting the requirements of
Section 10(a) of said Act which is being or will
<PAGE>
Page 7
be delivered to the purchaser or transferee at or prior to the time of
delivery of the certificates evidencing the Common Stock to be sold or
transferred, or (ii) such Common Stock may then be sold without violating
Section 5 of said Act.
[(b) (i) If the Employee, any other person who acquires
shares of Common Stock by way of the exercise of this Option (such shares of
Common Stock, for purposes of this Section 11(b) being referred to as the
"Shares"), or any other person who subsequently acquires any of such Shares
desires to transfer any of such Shares, such person ("Offeror") shall first,
in writing, offer to sell all of such Shares to the Company, at the lesser of
(A) the "Third Party Offer Price" (as defined in Section 11(b)(iv) hereof) or
(B) the "Formula Price" (as defined in Section 11(B)(v) hereof) and upon the
terms and conditions hereinafter set forth, and the Company shall have a
period of thirty (30) days after the receipt of such offer in which to accept
or reject the same. If the Company elects to accept such offer, such
acceptance must be to the full extent permitted by law, and it shall so
signify its acceptance thereof within such thirty (30) day period by a duly
signed notice to the Offeror. If the acceptance is for less than all of the
Shares offered, such acceptance shall be contingent upon acceptance of the
balance of the Shares pursuant to Section 11(b)(ii) hereof.
(ii) If the Company, for any reason, fails to accept in
its entirety the offer made pursuant to Section 11(b)(i) above within the
thirty (30) day period therein provided, the Offeror shall, immediately upon
the expiration of such thirty (30) day period, offer to sell all of such
Shares (or such lesser amount where the Company cannot legally accept the
offer in full), at the price and upon the terms and conditions as set forth
in Section 11(b)(i) hereof, ratably to the other shareholders of the Company
(the "Shareholders"), and such other Shareholders shall have a further period
of thirty (30) days within which to accept such offer, which acceptance must,
in the aggregate, be for all and not part of the Shares so offered. If a
Shareholder elects to accept the Shares offered, he shall so signify by duly
signed written notice to the Offeror. Such Shareholder may indicate in his
acceptance that he will purchase any Shares not accepted by the other
Shareholder(s) to whom the offer was made. Notwithstanding anything
contained in Section 11(b)(i) or in this Section 11(b)(ii), the Company
and/or the offeree Shareholders may, either during the thirty (30) day period
referred to in Section 11(b)(i) or the thirty (30) day period referred to in
this Section 11(b)(ii) agree to purchase Shares from the Offeror in such
proportions as the Company and/or the offeree Shareholders may agree, so long
as all of the Shares offered for sale are purchased by them, and so long as
they shall so signify within either such thirty (30) day period by a duly
signed notice to the Offeror.
(iii) In the event of the acceptance of
<PAGE>
Page 8
any offer by written notice, transmitted by registered or certified mail,
return receipt requested, the closing shall be held within thirty (30) days
after the giving of such acceptance, except that should such date fall on a
weekend, legal or religious holiday, then the closing shall be held on the
following business day at the Company's principal place of business or such
other place as may be designated by the parties. On closing, the parties
shall deliver all of the instruments and documents required to be delivered
by this Agreement, against the payment required hereunder.
(iv) In the event that there is no election to purchase
all of the Shares offered pursuant to Sections 11(b)(i) and 11(b)(ii),
hereof, the Offeror shall thereafter have the right to dispose of his Shares
free of any restrictions imposed by the terms hereof, provided, however, that
the Company and the remaining (offeree) Shareholders shall at all times have
the right of first refusal to purchase the Shares so offered on the same
terms and conditions as are set forth in any bona fide offer made to the
Offeror by a third party purchaser which bona fide offer the Offeror is
willing to accept for the sale of his Shares ("Third Party Offer" with the
purchase price set forth in such Third Party Offer being referred to as the
"Third Party Offer Price") at a purchase price equal to the lesser of (A) the
Third Party Offer Price or (B) the Formula Price. If the Offeror receives a
Third Party Offer, it shall be reduced to writing and a copy thereof shall be
provided to the Company and the offeree Shareholders, together with a written
notice indicating (i) the Offeror's intent to sell his Shares in accordance
with the terms thereof, and (ii) the right of first refusal of the Company
and the offeree Shareholders with respect thereto. The Company and/or the
offeree Shareholders shall be required to signify their election to purchase
the Shares offered under this Section 11(b)(iv) within ten (10) days from the
receipt of the aforesaid notice by a notice such as that required pursuant to
provisions of Sections 11(b)(i) and 11(b)(ii), above. If no such notice of
election is given, the Offeror shall have the right to sell his Shares
pursuant to such Third Party Offer on terms no more favorable to the
purchaser than contained therein, during a period of ninety (90) days
following the expiration of such ten (10) day period. If such sale is not
consummated within such ninety (90) day period the right of first refusal
herein provided shall be reinstated.
(v) [DETERMINATION OF FORMULA PRICE].
[(c)] The Common Stock issued upon exercise of the Option
shall bear the following (or similar) legend if required by counsel for the
Company:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS
THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH
REGISTRATION IS NOT REQUIRED.
<PAGE>
Page 9
[FURTHERMORE, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN COMPANY AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF COMPANY].
12. Reservation of Shares. Unless the Common Stock is readily
tradable on a generally recognized securities market, the Company shall at
all times during the term of the Option reserve and keep available such
number of shares of the Common Stock as will be sufficient to satisfy the
requirements of this Agreement.
13. Limitation of Action. The Employee and the Company each
acknowledges that every right of action accruing to him or it, as the case
may be, and arising out of or in connection with this Agreement against the
Company or a Parent or Subsidiary, on the one hand, or against the Employee,
on the other hand, shall, irrespective of the place where an action may be
brought, cease and be barred by the expiration of three years from the date
of the act or omission in respect of which such right of action arises.
14. Notices. Each notice relating to this Agreement shall be in
writing and delivered in person or by certified mail to the proper address.
All notices to the Company or the Committee shall be addressed to them at
[ADDRESS], Attn: [OFFICER]. All notices to the Employee shall be addressed
to the Employee or such other person or persons at the Employee's address
above specified. Anyone to whom a notice may be given under this Agreement
may designate a new address by notice to that effect.
15. Benefits of Agreement. This Agreement shall inure to the
benefit of and be binding upon each successor and assign of the Company. All
obligations imposed upon the Employee and all rights granted to the Company
under this Agreement shall be binding upon the Employee's heirs, legal
representatives and successors.
16. Severability. In the event that any one or more provisions of
this Agreement shall be deemed to be illegal or unenforceable, such
illegality or unenforceability shall not affect the validity and
enforceability of the remaining legal and enforceable provisions hereof,
which shall be construed as if such illegal or unenforceable provision or
provisions had not been inserted.
<PAGE>
Page 10
17. Governing Law. This Agreement will be construed and governed
in accordance with the laws of the State of [JURISDICTION].
18. Disposition of Shares. By accepting this Agreement, the
Employee agrees that in the event he shall dispose (whether by sale,
exchange, gift or any like transfer) of any shares of Common Stock of the
Company (to the extent such shares are deemed to have been purchased pursuant
to an incentive stock option) acquired by him pursuant hereto within two
years of the Date of Grant of this Option or within one year after the
acquisition of such shares pursuant hereto, he will notify the [OFFICER] of
the Company no later than 15 days from the date of such disposition of such
date or dates and the number of shares disposed of by him and the
consideration received, if any, and, upon notification from the Company,
promptly forward to the [OFFICER] of the Company any amount requested by the
Company for the purpose of satisfying its liability, if any, to withhold
federal, state or local income or earnings tax or any other applicable tax or
assessment (plus interest or penalties thereon, if any, caused by any delay
in making such payment) incurred by reason of such disposition.
[19. Acknowledgement of Employee. The Employee represents and
warrants that as of the Date of Grant of this Option, he does not own (within
the meaning of Section 422(b)(6) of the Code) shares possessing more than 10%
of the total combined voting power of all classes of shares of the Company or
of any Parent or Subsidiary.]
[20.] Employment. Nothing contained in this Agreement shall be
construed as (a) a contract of employment between the Employee and the
Company or any Parent or Subsidiary, (b) as a right of the Employee to be
continued in the employ of the Company or of any Parent or Subsidiary, or (c)
as a limitation of the right of the Company or of any Parent or Subsidiary to
discharge the Employee at any time, with or without cause.
[21.] Definitions. Unless otherwise defined herein, all capitalized
terms shall have the same definitions as set forth under the Plan.
[22.] Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the
Plan, which are incorporated herein by reference.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its name by its President or one of its Vice Presidents and its
corporate seal to be hereunto affixed and attested by its Secretary or one of
its Assistant Secretaries
<PAGE>
Page 11
and the Employee has hereunto set his hand all as of the date, month and year
first above written.
[ ]
By:________________________________
Name:
Title:
___________________________________
[Name of Employee]
___________________________________
Social Security Number
ATTEST:
_________________________
<PAGE>
Page 12
EXHIBIT A
INCENTIVE OPTION EXERCISE FORM
[DATE]
[Company Name]
[Address]
[City, State and Zip Code]
Attention: [OFFICER]
Dear Sirs:
Pursuant to the provisions of the Incentive Stock Option Agreement
dated [ ], whereby you have granted to me an Incentive Stock Option
to purchase [ ] shares of Common Stock of [ ] (the "Company"), I
hereby notify you that I elect to exercise my option to purchase [ ]
of the shares of Common Stock covered by such Option at the price specified
therein. In full payment of the price for the shares being purchased hereby,
I am delivering to you herewith (i) a certified or bank cashier's check
payable to the order of the Company in the amount of $____________, or (ii) a
certificate or certificates for [ ] shares of Common Stock of the
Company, and which have a fair market value as of the date hereof of
$___________, [and a certified or bank cashier's check, payable to the order
of the Company, in the amount of $________________]. Any such stock
certificate or certificates are endorsed, or accompanied by an appropriate
stock power, to the order of the Company, with my signature guaranteed by a
bank or trust company or by a member firm of the New York Stock Exchange.
[I hereby acknowledge that I am purchasing these shares for investment purposes
only and not for resale.]
Very truly yours,
______________________________
[Address]
(For notices, reports, dividend
checks and other communications to
stockholders.)
<PAGE>
Page 13
[DRAFT 8/11/97]
OPTION NO. 97-ISO-[ ]
______________________________________________________________________________
ConnectSoft Communications Corporation
1997 Stock Option Plan
INCENTIVE STOCK OPTION
Granted To
____________________________
Optionee
_________________________ _________________________
Number of Shares Price per Share
DATE GRANTED:____________ EXPIRATION DATE:_________
______________________________________________________________________________
<PAGE>
AMERICAN UNITED GLOBAL, INC.
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
August 1, 1997
Connectsoft Communications Corporation
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
Re: Premises at 11130 N.E. 33rd Place,
Bellevue, Washington ("Leased Premises")
Gentlemen:
We are the tenant of the Leased Premises, leased by us from Rosen
Bel-Kirk Associates ("Lessor"), in accordance with the covenants, agreements,
terms, provisions and conditions of the lease ("Lease") for the Leased
Premises.
This letter confirms our sublease agreement with you concerning your
sublease of a portion of the Leased Premises.
We hereby sublet to you a portion of the Leased Premises, which right
shall commence on the date hereof and shall terminate one day prior to the
expiration of the Lease. You shall use and occupy the portion of the Leased
Premises for your general corporate and business purposes. You shall not
permit any other user or occupant without our consent. Your use of a portion
of the Leased Premises pursuant to this sublease agreement shall conform in
all respects to the Lease and you shall not do nor permit any use or activity
which would constitute a breach of the Lease or permit Lessor to declare a
default under the Lease.
We shall have the right to permit other affiliates or subsidiaries to
use and occupy portions of the Leased Premises or to enter into other
subleases with respect thereto without your consent.
Your use and occupancy of the Leased Premises pursuant to this sublease
agreement shall be on an "as is" basis and we shall have no obligation to
perform any alterations or install any improvements to any portion of the Leased
Premises. You shall advise us of any repair or restoration which may be required
from time to time in any portion of the Leased Premises so that we may notify
Lessor and obtain performance of Lessor's obligations under the Lease.
You shall pay to us as rent hereunder an amount equal to a proportionate
share of our annual rental and all other payments made by us as additional
rent or utility costs under the Lease equal to the proportion of the square
footage of the Leased Premises that you use and occupy under this agreement
to the total square footage of the Leased Premises. These rental amounts
shall be paid by you to us from time to time as such costs are incurred by us
and billed to you.
You shall pay all insurance costs and costs arising from or related to
compliance with laws or regulations applicable to your use and occupancy of a
portion of the Leased Premises as provided for herein. Any insurance coverage
provided by you shall conform to the Lease and shall cover any interests of
Lessor and of the undersigned.
Please countersign this letter to confirm your agreement.
Very truly yours,
CONNECTSOFT HOLDINGS, INC. GLOBAL, INC.
By:
Name:
Title:
AGREED TO:
CONNECTSOFT COMMUNICATIONS CORPORATION
By:
Name:
Title:
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of this [ ] day of [ ],
[199__] (the "Date of Grant") between ConnectSoft Communications Corporation, a
Delaware corporation (hereinafter referred to as the "Company"), and
[ ], residing at [ ] (hereinafter
referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires, in connection with the employment of the
Employee and in accordance with its 1997 Stock Option Plan (the "Plan"), to
provide the Employee with an opportunity to acquire Common Stock, [$___] par
value (hereinafter referred to as "Common Stock"), of the Company on favorable
terms and thereby increase his proprietary interest in the continued progress
and success of the business of the Company;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth and other good and valuable consideration, the Company and the
Employee hereby agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination by
the [____________ Committee of the Board of Directors][Board of Directors] of
the Company authorized to administer the Plan, the Company, subject to the terms
of the Plan and this Agreement, hereby grants to the Employee as a matter of
separate inducement and agreement, and in addition to and not in lieu of salary
or other compensation for services, the right to purchase (hereinafter referred
to as the "Option") an aggregate of [NUMBER] shares of Common Stock, subject to
adjustment as provided in the Plan (such shares, as adjusted, hereinafter being
referred to as the "Shares"). The Option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Purchase Price. The purchase price of shares of Common Stock
covered by the Option will be [$____] per share, subject to adjustment as
provided in the Plan.
3. Exercise of Option. The Option shall be exercisable on the terms
and conditions hereinafter set forth:
(a) The Option shall become exercisable cumulatively as to the
following amounts of the number of Shares originally subject thereto (after
giving effect to any adjustment pursuant to the Plan), on the dates indicated:
(i) as to [ ] Shares on or after [ ];
(ii) as to [ ] Shares on or after [ ];
<PAGE>
(iii) as to [ ] Shares on or after [ ];
(iv) as to [ ] Shares on or after [ ]; and
(v) as to [ ] Shares on or after [ ].
(b) The Option may be exercised pursuant to the provisions of
this Section 3, by notice and payment (including, but not limited to, by a
"cashless" exercise) to the Company as provided in Sections 9 and 14 hereof.
4. Term of Option. The term of the Option shall be a period of
[NUMBER] years from the Date of Grant, subject to earlier termination or
cancellation as provided in this Agreement. This Option, to the extent
unexercised, shall expire on the day immediately prior to the [___th]
anniversary of the Date of Grant. The holder of the Option [shall] [shall not]
have [any] rights to dividends [and] [or any] other rights of a stockholder with
respect to any shares of Common Stock subject to the Option until such shares
shall have been issued to him (as evidenced by the appropriate entry on the
books of a duly authorized transfer agent of the Company) provided that the date
of issuance shall not be earlier than the date this Option is exercised and
provision of the full purchase price of the shares of Common Stock (with respect
to which this Option is exercised) is made to the Company.
5. Non-transferability of Option. The Option shall not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated in any way, and
shall not be subject to execution, attachment or other process, except as may be
provided in the Plan. Any assignment, transfer, pledge, hypothecation or other
disposition of the Option attempted contrary to the provisions of the Plan, or
any levy of execution, attachment or other process attempted upon the Option,
will be null and void and without effect. Any attempt to make any such
assignment, transfer, pledge, hypothecation or other disposition of the Option
will cause the Option to terminate immediately upon the happening of any such
event; provided, however, that any such termination of the Option under the
foregoing provisions of this Section 5 will not prejudice any rights or remedies
which the Company or any Parent or Subsidiary may have under this Agreement or
otherwise.
6. Exercise Upon Cessation of Employment. (a) If the Employee at
any time ceases to be an employee of the Company and of any Parent or Subsidiary
(i) by reason of his discharge for Good Cause or (ii) due to his voluntary
termination of employment without the written consent of the Committee, the
Option shall, at the time of such termination of employment, terminate and the
Employee shall forfeit all rights hereunder. If, however, the Employee for any
other reason (other than Disability or death) ceases to be such an Employee, the
Option may, subject to the provisions of Section 5 hereof, be exercised by the
Employee to the same extent the Employee would have been entitled under Section
3 hereof to exercise the Option immediately prior to such cessation of
employment, at any time within [________days/months/years] after such cessation
of employment, at the end of which period
2
<PAGE>
the Option to the extent not then exercised, shall terminate and the Employee
shall forfeit all rights hereunder, even if the Employee subsequently returns to
the employ of the Company or any Parent or Subsidiary. In no event, however,
may the Option be exercised after the expiration of the term provided in Section
4 hereof.
(b) The Option shall not be affected by any change of duties or
position of the Employee so long as he continues to be an a full-time employee
of the Company or of any Parent or Subsidiary thereof. If the Employee is
granted a temporary leave of absence, such leave of absence shall be deemed a
continuation of his employment by the Company or of any Parent or Subsidiary
thereof for the purposes of this Agreement, but only if and so long as the
employing corporation consents thereto.
7. Exercise Upon Death or Disability. (a) If the Employee dies
while he is employed by the Company or by any Parent or Subsidiary, [and on or
after the first date upon which he would have been entitled to exercise the
Option under the provisions of Section 3 hereof], the Option may, subject to the
provisions of Section 5 hereof, be exercised [with respect to all or any part of
the shares of Common Stock as to which the deceased Employee had not exercised
the Option at the time of his death (regardless of whether the Option was fully
exercisable at such time)] [(to the same extent the Employee would have been
entitled under Section 3 hereof to exercise the Option immediately prior to his
death)], by the estate of the Employee (or by the person or persons who acquire
the right to exercise the Option by written designation of the Employee) at any
time within [________ days/months/years] after the death of the Employee, at the
end of which period the Option, to the extent not then exercised, shall
terminate and the estate or other beneficiaries shall forfeit all rights
hereunder. In no event, however, may the Option be exercised after the
expiration of the term provided in Section 4 hereof.
(b) In the event that the employment of the Employee by the
Company and any Parent or Subsidiary is terminated by reason of the Disability
of the Employee [on or after the first date upon which he would have been
entitled to exercise the Option under the provisions of Section 3 hereof], the
Option may, subject to the provisions of Section 5 hereof, be exercised [with
respect to all or any part of the shares of Common Stock as to which he had not
exercised the Option at the time of his Disability or Retirement (regardless of
whether the Option was fully exercisable at such time)] [(to the same extent the
Employee would have been entitled under Section 3 hereof to exercise the Option
immediately prior to his employment termination due to Disability)] by the
Employee within the period ending [________ days/months/years] after the date of
such termination of employment, at the end of which period the Option, to the
extent not then exercised, shall terminate and the Employee shall forfeit all
rights hereunder even if the Employee subsequently returns to the employ of the
Company or any Parent or Subsidiary. In no event, however, may the Option be
exercised after the expiration of the term provided in Section 4 hereof.
3
<PAGE>
8. Registration. The shares of Common Stock subject hereto and
issuable upon the exercise hereof may not be registered under the Securities Act
of 1933, as amended, and, if required upon the request of counsel to the
Company, the Employee will give a representation as to his investment intent
with respect to such shares prior to their issuance as set forth in Section 9
hereof. The Company may register or qualify the shares covered by the Option for
sale pursuant to the Securities Act of 1933, as amended, at any time prior to or
after the exercise in whole or in part of the Option.
9. Method of Exercise of Option. (a) Subject to the terms and
conditions of this Agreement, the Option shall be exercisable by notice in the
manner set forth in Exhibit A hereto (the "Notice") and provision for payment to
the Company in accordance with the procedure prescribed herein. Each such
Notice shall:
(i) state the election to exercise the Option and the number of
Shares with respect to which it is being exercised;
(ii) contain a representation and agreement as to investment
intent, if required by counsel to the Company with respect to such Shares,
in a form satisfactory to counsel to the Company;
(iii) be signed by the Employee or the person or persons
entitled to exercise the Option and, if the Option is being exercised by
any person or persons other than the Employee, be accompanied by proof,
satisfactory to counsel to the Company, of the right of such other person
or persons to exercise the Option;
(iv) include payment of the full purchase price for the shares of
Common Stock to be purchased pursuant to such exercise of the Option; and
(v) be received by the Company on or before the date of the
expiration of this Option. In the event the date of expiration of this
Option falls on a day which is not a regular business day at the Company's
executive office in [CITY/STATE] then such written Notice must be received
at such office on or before the last regular business day prior to such
date of expiration.
(b) Payment of the purchase price of any shares of Common Stock,
in respect of which the Option shall be exercised, shall be made by the Employee
or such person or persons at the place specified by the Company on the date the
Notice is received by the Company (i) by delivering to the Company a certified
or bank cashier's check payable to the order of the Company, (ii) by delivering
to the Company properly endorsed certificates of shares of Common Stock having
been owned for alt least six (6) months (or certificates accompanied by an
appropriate stock power) with signature guaranties by a bank or trust company,
or (iii) by any combination of the above.
4
<PAGE>
(c) The Option shall be deemed to have been exercised with
respect to any particular shares of Common Stock if, and only if, the preceding
provisions of this Section 9 and the provisions of Section 10 hereof shall have
been complied with, in which event the Option shall be deemed to have been
exercised on the date the Notice was received by the Company. Anything in this
Agreement to the contrary notwithstanding, any Notice given pursuant to the
provisions of this Section 9 shall be void and of no effect if all of the
preceding provisions of this Section 9 and the provisions of Section 10 shall
not have been complied with.
(d) The certificate or certificates for shares of Common Stock
as to which the Option shall be exercised will be registered in the name of the
Employee (or in the name of the Employee's estate or other beneficiary if the
Option is exercised after the Employee's death), or if the Option is exercised
by the Employee and if the Employee so requests in the notice exercising the
Option, will be registered in the name of the Employee and another person
jointly, with right of survivorship and will be delivered as soon as practical
after the date the Notice is received by the Company (accompanied by full
payment of the exercise price), but only upon compliance with all of the
provisions of this Agreement.
(e) If the Employee fails to accept delivery of and pay for all
or any part of the number of Shares specified in such Notice, his right to
exercise the Option with respect to such undelivered Shares may be terminated in
the sole discretion of the Board of Directors of the Company. The Option may be
exercised only with respect to full Shares.
(f) The Company shall not be required to issue or deliver any
certificate or certificates for shares of its Common Stock purchased upon the
exercise of any part of this Option prior to the payment to the Company, upon
its demand, of any amount requested by the Company for the purpose of satisfying
its liability, if any, to withhold state or local income or earnings tax or any
other applicable tax or assessment (plus interest or penalties thereon, if any,
caused by a delay in making such payment) incurred by reason of the exercise of
this Option or the transfer of shares thereupon. Such payment shall be made by
the Employee in cash or, with the consent of the Company, by tendering to the
Company shares of Common Stock equal in value, but limited to the amount of the
required withholding. In the alternative, the Company may, at its option,
satisfy such withholding requirements by withholding from the shares of Common
Stock to be delivered to the Employee pursuant to an exercise of this Option a
number of shares of Common Stock equal in value, but limited to the amount of
the required withholding.
[(g) Upon the Employee's exercise of this Option in a manner
that would satisfy the requirements set forth under the Plan for the issuance of
Reload Options, the Employee shall be awarded such Reload Options providing for
(i) the number of shares of Common Stock available for purchase thereunder, (ii)
the exercise price and (iii) the term of such Reload Options as set forth in the
Plan. The other conditions related to the exercise of such Reload Options shall
be the same as set forth
5
<PAGE>
hereunder with respect to this Option. Any Reload Option granted pursuant to
this provision shall be considered to be a Non-Qualified Stock Option.]
10. Approval of Counsel. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Company's counsel of all legal matters in connection therewith,
including, but not limited to, compliance with the requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, and the requirements of any
stock exchange upon which the Common Stock may then be listed.
11. Resale of Common Stock. (a) If so requested by the Company,
upon any sale or transfer of the Common Stock purchased upon exercise of the
Option [(subject to the provisions of Section 11(b), hereof)], the Employee
shall deliver to the Company an opinion of counsel satisfactory to the Company
to the effect that either (i) the Common Stock to be sold or transferred has
been registered under the Securities Act of 1933, as amended, and that there is
in effect a current prospectus meeting the requirements of Section 10(a) of said
Act which is being or will be delivered to the purchaser or transferee at or
prior to the time of delivery of the certificates evidencing the Common Stock to
be sold or transferred, or (ii) such Common Stock may then be sold without
violating Section 5 of said Act.
[(b) (i) If the Employee, any other person who acquires
shares of Common Stock by way of the exercise of this Option (such shares of
Common Stock, for purposes of this Section 11(b) being referred to as the
"Shares"), or any other person who subsequently acquires any of such Shares
desires to transfer any of such Shares, such person ("Offeror") shall first, in
writing, offer to sell all of such Shares to the Company, at the lesser of (A)
the "Third Party Offer Price" (as defined in Section 11(b)(iv) hereof) or (B)
the "Formula Price" (as defined in Section 11(b)(v) hereof) and upon the terms
and conditions hereinafter set forth, and the Company shall have a period of
thirty (30) days after the receipt of such offer in which to accept or reject
the same. If the Company elects to accept such offer, such acceptance must be to
the full extent permitted by law, and it shall so signify its acceptance thereof
within such thirty (30) day period by a duly signed notice to the Offeror. If
the acceptance is for less than all of the Shares offered, such acceptance shall
be contingent upon acceptance of the balance of the Shares pursuant to Section
11(b)(ii) hereof.
(ii) If the Company, for any reason, fails to accept in its
entirety the offer made pursuant to Section 11(b)(i) above within the thirty
(30) day period therein provided, the Offeror shall, immediately upon the
expiration of such thirty (30) day period, offer to sell all of such Shares (or
such lesser amount where the Company cannot legally accept the offer in full),
at the price and upon the terms and conditions as set forth in Section 11(b)(i)
hereof, ratably to the other shareholders of the Company (the "Shareholders"),
and such other Shareholders shall have a further period of thirty (30)
6
<PAGE>
days within which to accept such offer, which acceptance must, in the aggregate,
be for all and not part of the Shares so offered. If a Shareholder elects to
accept the Shares offered, he shall so signify by duly signed written notice to
the Offeror. Such Shareholder may indicate in his acceptance that he will
purchase any Shares not accepted by the other Shareholder(s) to whom the offer
was made. Notwithstanding anything contained in Section 11(b)(i) or in this
Section 11(b)(ii), the Company and/or the offeree Shareholders may, either
during the thirty (30) day period referred to in Section 11(b)(i) or the thirty
(30) day period referred to in this Section 11(b)(ii) agree to purchase Shares
from the Offeror in such proportions as the Company and/or the offeree
Shareholders may agree, so long as all of the Shares offered for sale are
purchased by them, and so long as they shall so signify within either such
thirty (30) day period by a duly signed notice to the Offeror.
(iii) In the event of the acceptance of any offer by
written notice, transmitted by registered or certified mail, return receipt
requested, the closing shall be held within thirty (30) days after the giving of
such acceptance, except that should such date fall on a weekend, legal or
religious holiday, then the closing shall be held on the following business day
at the Company's principal place of business or such other place as may be
designated by the parties. On closing, the parties shall deliver all of the
instruments and documents required to be delivered by this Agreement, against
the payment required hereunder.
(iv) In the event that there is no election to purchase all
of the Shares offered pursuant to Sections 11(b)(i) and 11(b)(ii), hereof, the
Offeror shall thereafter have the right to dispose of his Shares free of any
restrictions imposed by the terms hereof, provided, however, that the Company
and the remaining (offeree) Shareholders shall at all times have the right of
first refusal to purchase the Shares so offered on the same terms and conditions
as are set forth in any bona fide offer made to the Offeror by a third party
purchaser which bona fide offer the Offeror is willing to accept for the sale of
his Shares ("Third Party Offer" with the purchase price set forth in such Third
Party Offer being referred to as the "Third Party Offer Price") at a purchase
price equal to the lesser of (A) the Third Party Offer Price or (B) the Formula
Price. If the Offeror receives a Third Party Offer, it shall be reduced to
writing and a copy thereof shall be provided to the Company and the offeree
Shareholders, together with a written notice indicating (i) the Offeror's intent
to sell his Shares in accordance with the terms thereof, and (ii) the right of
first refusal of the Company and the offeree Shareholders with respect thereto.
The Company and/or the offeree Shareholders shall be required to signify their
election to purchase the Shares offered under this Section 11(b)(iv) within ten
(10) days from the receipt of the aforesaid notice by a notice such as that
required pursuant to provisions of Sections 11(b)(i) and 11(b)(ii), above. If
no such notice of election is given, the Offeror shall have the right to sell
his Shares pursuant to such Third Party Offer on terms no more favorable to the
purchaser than contained therein, during a period of ninety (90) days following
the expiration of such ten (10) day period. If such
7
<PAGE>
sale is not consummated within such ninety (90) day period the right of first
refusal herein provided shall be reinstated.
(v) [DETERMINATION OF FORMULA PRICE]
[(c)] The Common Stock issued upon exercise of the Option
shall bear the following (or similar) legend if required by counsel for the
Company:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF
COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED.
[FURTHERMORE, THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE
COMPANY OR ITS ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN
COMPANY AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF COMPANY.]
12. Reservation of Shares. Unless the Common Stock is readily
tradable on a generally recognized securities market, the Company shall at all
times during the term of the Option reserve and keep available such number of
shares of the Common Stock as will be sufficient to satisfy the requirements of
this Agreement.
13. Limitation of Action. The Employee and the Company each
acknowledges that every right of action accruing to him or it, as the case may
be, and arising out of or in connection with this Agreement against the Company
or a Parent or Subsidiary, on the one hand, or against the Employee, on the
other hand, shall, irrespective of the place where an action may be brought,
cease and be barred by the expiration of three years from the date of the act or
omission in respect of which such right of action arises.
14. Notices. Each notice relating to this Agreement shall be in
writing and delivered in person or by certified mail to the proper address. All
notices to the Company or the Committee shall be addressed to them at [ADDRESS],
Attn: [OFFICER]. All notices to the Employee shall be addressed to the
Employee or such other person or persons at the Employee's address above
specified. Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect.
8
<PAGE>
15. Benefits of Agreement. This Agreement shall inure to the benefit
of and be binding upon each successor and assign of the Company. All
obligations imposed upon the Employee and all rights granted to the Company
under this Agreement shall be binding upon the Employee's heirs, legal
representatives and successors.
16. Severability. In the event that any one or more provisions of
this Agreement shall be deemed to be illegal or unenforceable, such illegality
or unenforceability shall not affect the validity and enforceability of the
remaining legal and enforceable provisions hereof, which shall be construed as
if such illegal or unenforceable provision or provisions had not been inserted.
17. Governing Law. This Agreement will be construed and governed in
accordance with the laws of the State of [JURISDICTION].
18. Employment. Nothing contained in this Agreement shall be
construed as (a) a contract of employment between the Employee and the Company
or any Parent or Subsidiary, (b) as a right of the Employee to be continued in
the employ of the Company or of any Parent or Subsidiary, or (c) as a limitation
of the right of the Company or of any Parent or Subsidiary to discharge the
Employee at any time, with or without cause.
19. Definitions. Unless otherwise defined herein, all capitalized
terms shall have the same definitions as set forth under the Plan.
20. Incorporation of Terms of Plan. This Agreement shall be
interpreted under, and subject to, all of the terms and provisions of the Plan,
which are incorporated herein by reference.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in its name by its President or one of its Vice Presidents and its
corporate seal to be hereunto affixed and attested by its Secretary or one of
its Assistant Secretaries and the Employee has hereunto set his hand all as of
the date, month and year first above written.
[ ]
By:________________________________
Name:
Title:
___________________________________
[Name of Employee]
___________________________________
Social Security Number
ATTEST:
_________________________
10
<PAGE>
EXHIBIT A
NON-QUALIFIED STOCK OPTION EXERCISE FORM
[DATE]
[Company Name]
[Address]
[City, State and Zip Code]
Attention: [OFFICER]
Dear Sirs:
Pursuant to the provisions of the Non-Qualified Stock Option Agreement
dated [ ], whereby you have granted to me a Non-Qualified Option to
purchase [ ] shares of the Common Stock of [ ] (the "Company"), I hereby
notify you that I elect to exercise my option to purchase [ ] of the shares
of Common Stock covered by such Option at the price specified therein. In full
payment of the price for the shares being purchased hereby, I am delivering to
you herewith (i) certified or bank cashier's check payable to the order of the
Company in the amount of $____________, or (ii) a certificate or certificates
for [ ] shares of Common Stock of the Company, and which have a fair
market value as of the date hereof of $___________, [and a certified or bank
cashier's check, payable to the order of the Company, in the amount of
$________________].* Any such stock certificate or certificates are endorsed,
or accompanied by an appropriate stock power, to the order of the Company, with
my signature guaranteed by a bank or trust company or by a member firm of the
New York Stock Exchange. [I hereby acknowledge that I am purchasing these
shares for investment purposes only and not for resale.]
Very truly yours,
______________________________
[Address]
(For notices, reports, dividend checks and
other communications to stockholders.)
___________________
* $______________________ of this amount is the purchase price of the
shares, and the balance represents payment of withholding taxes as
follows: Federal [caad 214]$____________, State $____________ and Local
$_____________.
** $_____________ of this amount is at least equal to the current market
value of one share of Common Stock of the Company, and the balance
represents payment of withholding taxes as follows: Federal
[caad 214]$____________, State $____________ and Local $_____________.
<PAGE>
[DRAFT 8/11/97]
OPTION NO. 97-NQO-[ ]
ConnectSoft Communications Corporation
1997 Stock Option Plan
NON-QUALIFIED STOCK OPTION
Granted To
____________________________
Optionee
_________________________ _________________________
Number of Shares Price per Share
DATE GRANTED:____________ EXPIRATION DATE:_________
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 15th day
of May, 1996, by and between CONNECTSOFT, INC., a Washington corporation having
its principal offices at 11130 N.E. 33rd Place, Suite 250, Bellevue, Washington
98004 (the "Company"), and ROBERT MARCUS, an individual residing at 3046 West
Viewmont Way West, Seattle, Washington 98199 (the "Employee");
W I T N E S S E T H :
WHEREAS, the Employee has extensive experience relating the marketing and
promotion of computer software and related technologies; and
WHEREAS, to promote the ongoing business of the Company, the Company
desires to assure itself of the right to the Employee's services, on the terms
and conditions of this Agreement; and
WHEREAS, the Employee is willing and able to render his services to the
Company on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. NATURE OF EMPLOYMENT.
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of President and Chief Executive Officer, and/or such other titles as may
be assigned to the Employee from time to time by the Board of Directors of the
Company (the "Board"). In such capacity, the Employee shall have and exercise
responsibility for overseeing and actively participating in all aspects of the
Company's business (with particular emphasis on marketing and sales efforts)
throughout the world, together with such other similar or related duties as may
be assigned to the Employee from time to time by the Board.
(b) Throughout the period of his employment hereunder, the Employee
shall: (i) devote his full business time, attention, knowledge and skills,
faithfully, diligently and to the best of his ability, to the active performance
of his duties and responsibilities hereunder on
<PAGE>
behalf of the Company; (ii) observe and carry out such reasonable rules,
regulations, policies, directions and restrictions as may be established from
time to time by the Board, including but not limited to the standard policies
and procedures of the Company as in effect from time to time; and (iii) do such
traveling as may reasonably be required in connection with the performance of
such duties and responsibilities; PROVIDED, HOWEVER, that the Employee shall not
be assigned to regular duties that would reasonably require him to relocate his
permanent residence from that first set forth above.
2. TERM OF EMPLOYMENT.
(a) Subject to prior termination in accordance with paragraph 2(b)
below, the term of this Agreement and the Employee's employment hereunder shall
commence on July 15, 1996 and shall continue through July 31, 1999, and shall
thereafter automatically renew for additional terms of one (1) year each unless
either party gives written notice of termination to the other party not less
than ninety (90) days prior to the end of any term (in which event this
Agreement shall terminate effective as of the close of such term).
(b) This Agreement may be terminated:
(i) upon mutual written agreement of the Company and the
Employee;
(ii) at the option of the Employee, upon fourteen (14) days'
prior written notice to the Company, in the event that the Company shall (A)
fail to make any payment to the Employee required to be made under the terms of
this Agreement within thirty (30) days after payment is due, or (B) fail to
perform any other material covenant or agreement to be performed by it hereunder
or take any action prohibited by this Agreement, and fail to cure or remedy same
within thirty (30) days after written notice thereof to the Company;
(iii) at the option of the Company, upon written notice to
the Employee, "for cause" (as hereinafter defined);
(iv) at the option of the Company in the event of the
"permanent disability" (as hereinafter defined) of the Employee; or
(v) upon the death of the Employee.
(c) As used herein, the term "for cause" shall mean and be limited
to: (i) any willful and material breach of this Agreement (including, without
limitation, the covenants contained in paragraph 5 below) by the Employee which
in any case is not fully corrected within thirty (30) days after written notice
of same from the Company to the Employee; (ii) gross neglect by the Employee of
his duties and responsibilities hereunder; (iii) any fraud, criminal
<PAGE>
misconduct, breach of fiduciary duty, dishonesty, or gross and willful
misconduct by the Employee in connection with the performance of his duties and
responsibilities hereunder; (iv) the Employee being under the influence of
alcohol or drugs during business hours or while on call, or being habitually
drunk or addicted to drugs; (v) the commission by the Employee of any crime of
moral turpitude, or any other action by the Employee which may materially impair
or damage the reputation of the Company; or (vi) habitual breach by the Employee
of any of the material provisions of this Agreement (regardless of any prior
cure thereof).
(d) As used herein, the term "permanent disability" shall mean, and
be limited to, any physical or mental illness, disability or impairment that
prevents the Employee from continuing the performance of his normal duties and
responsibilities hereunder for a period in excess of three (3) consecutive
months. For purposes of determining whether a "permanent disability" has
occurred under this Agreement, the written determination thereof by two (2)
qualified practicing physicians selected and paid for by the Company (and
reasonably acceptable to the Employee) shall be conclusive.
(e) Upon any termination of this Agreement as hereinabove provided,
the Employee (or his estate or legal representatives, as the case may be) shall
be entitled to receive any and all unpaid Base Salary prorated as of the
effective date of termination, and any other amounts then due and payable to the
Employee hereunder. All such payments shall be made on the next applicable
payment date therefor (as provided in paragraph 3 below) following the effective
date of termination. Except when termination is pursuant to paragraph 2(b)(ii)
above or by the Company other than on grounds specified in paragraph 2(b) above
(in either instance, an "Unjustified Termination"), the foregoing constitutes
all amounts to which the Employee shall be entitled upon termination of this
Agreement.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY. As compensation for his services to be rendered
hereunder, the Company shall pay to the Employee a base salary at the rate of
One Hundred Twenty-Five Thousand ($125,000) Dollars per annum (the "Base
Salary"), payable in periodic installments in accordance with the standard
payroll practices of the Company in effect from time to time.
(b) FRINGE BENEFITS. The Company shall also make available to the
Employee, throughout the period of his employment hereunder, such benefits and
perquisites as are generally provided by the Company to its employees, including
but not limited to eligibility for participation in any group life, health,
dental, disability or accident insurance, pension plan, profit-sharing plan, or
other such benefit plan or policy which may presently be in effect or which may
hereafter be adopted by the Company for the benefit of its employees generally;
PROVIDED, HOWEVER, that nothing herein contained may be deemed to require the
Company to adopt or maintain any particular plan or policy. Participation in
such benefit plans may be subject to standard waiting periods following the
commencement of full-time employment.
<PAGE>
(c) EXPENSES. Throughout the period of the Employee's employment
hereunder, the Company shall also reimburse the Employee, upon presentment by
the Employee to the Company of appropriate receipts and vouchers therefor, for
any reasonable out-of-pocket business expenses incurred by the Employee in
connection with the performance of his duties and responsibilities hereunder;
PROVIDED, HOWEVER, that no reimbursement shall be required to be made for any
expense which is not properly deductible (in whole or in part) by the Company
for income tax purposes, or for any expense item which has not previously been
approved in accordance with the Company's standard policies and procedures in
effect from time to time.
4. VACATION.
The Employee shall be entitled to take, from time to time, normal and
reasonable vacations with pay, consistent with the Company's standard policies
and procedures in effect from time to time, at such times as shall be mutually
convenient to the Employee and the Company, and so as not to interfere unduly
with the conduct of the business of the Company.
5. RESTRICTIVE COVENANTS.
(a) The Employee hereby acknowledges and agrees that (i) the business
contacts, customers, suppliers, technology, product designs and specifications,
know-how, trade secrets, marketing techniques, promotional methods and other
aspects of the business of the Company have been and are of value to the
Company, and have provided and will hereafter provide the Company with
substantial competitive advantage in the operation of its business, and (ii) he
has and will continue to have detailed knowledge and possesses and will possess
confidential information concerning the business and operations of the Company.
The Employee hereby further acknowledges that his business skills are not
uniquely suited to businesses of the type conducted by the Company, and that, if
required, he could readily adapt and utilize such skills in one or more other
types of businesses.
(b) The Employee shall not, directly or indirectly, for himself or
through or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise disclose or
cause to be divulged, transmitted or otherwise disclosed, any business contacts,
client or customer lists, technology, know-how, trade secrets, marketing
techniques, contracts or other confidential or proprietary information of the
Company of whatever nature, whether now existing or hereafter created or
developed (provided, however, that for purposes hereof, information shall not be
considered to be confidential or proprietary if (A) it is a matter of common
knowledge or public record, (B) it is generally known in the industry, or (C)
the Employee can demonstrate that such information was already known to the
recipient thereof other than by reason of any breach of any
<PAGE>
obligation under this Agreement or any other confidentiality or non-disclosure
agreement); and/or
(ii) at any time during the period from the date hereof
through and including the date of the termination of the Employee's employment
with the Company, and for an additional period of one (1) year thereafter unless
the Employee's employment was terminated by reason of an Unjustified Termination
(collectively, the "Restrictive Period"), invest, carry on, engage or become
involved, either as an employee, agent, advisor, officer, director, stockholder
(excluding ownership of not more than 3% of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or operational
responsibility), manager, partner, joint venturer, participant or consultant, in
any business enterprise (other than American United Global, Inc. (so long as it
is an affiliate of the Company), the Company or any of their respective
subsidiaries, affiliates, successors or assigns) which derives any material
revenues from the offer or sale in the United States, at wholesale or retail, of
any computer software products or other goods or services offered or sold by the
Company or its subsidiaries, affiliates, successors or assigns from time to time
during the Restrictive Period, or which engages in any other business similar to
or competitive with the business of the Company or its subsidiaries, affiliates,
successors or assigns (as such business is constituted at the time that the
Employee proposes to become involved in such other business enterprise).
(c) The Employee and the Company hereby acknowledge and agree that,
in the event of any breach by the Employee, directly or indirectly, of the
foregoing restrictive covenants, it will be difficult to ascertain the precise
amount of damages that may be suffered by the Company by reason of such breach;
and accordingly, the parties hereby agree that, as liquidated damages (and not
as a penalty) in respect of any such breach, the breaching party or parties
shall be required to pay to the Company, on demand from time to time, cash
amounts equal to any and all gross revenues derived by the breaching party or
parties, directly or indirectly, from any and all violative acts or activities.
The parties hereby agree that the foregoing constitutes a fair and reasonable
estimate of the actual damages that might be suffered by reason of any breach of
this paragraph 5 by the Employee, and the parties hereby agree to such
liquidated damages in lieu of any and all other measures of damages that might
be asserted in respect of any subject breach.
(d) The Employee and the Company hereby further acknowledge and agree
that any breach by the Employee, directly or indirectly, of the foregoing
restrictive covenants will cause the Company irreparable injury for which there
is no adequate remedy at law. Accordingly, the Employee expressly agrees that,
in the event of any such breach or any threatened breach hereunder by the
Employee, directly or indirectly, the Company shall be entitled, in addition to
any and all other remedies available (including but not limited to the
liquidated damages provided for in paragraph 5(c) above), to seek and obtain
injunctive and/or other equitable relief to require specific performance of or
prevent, restrain and/or enjoin a breach under the provisions of this paragraph
5.
<PAGE>
(e) In the event of any dispute under or arising out of this
paragraph 5, the prevailing party in such dispute shall be entitled to recover
from the non-prevailing party or parties, in addition to any damages and/or
other relief that may be awarded, its reasonable costs and expenses (including
reasonable attorneys' fees) incurred in connection with prosecuting or defending
the subject dispute.
6. INVENTIONS; INTELLECTUAL PROPERTY.
The Employee acknowledges and confirms that any and all inventions,
product designs and specifications, and other intellectual property developed or
utilized by the Employee during the period of his employment hereunder
constitutes, as between the Company and the Employee, the sole and exclusive
property of the Company for which the Employee is being adequately compensated
hereunder; and the Employee shall execute and deliver any and all applications,
assignments and other documents as may be requested by the Company to establish,
protect and enforce the Company's rights in and to such intellectual property.
7. NON-ASSIGNABILITY.
In light of the unique personal services to be performed by the
Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
8. NOTICES.
Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally, one (1) day after being sent by recognized
overnight courier service will all charges prepaid or charged to the sender's
account, or three (3) days after being mailed by certified mail, return receipt
requested, addressed to the party being notified at the address of such party
first set forth above, or at such other address as such party may hereafter have
designated by notice; PROVIDED, HOWEVER, that any notice of change of address
shall not be effective until its receipt by the party to be charged therewith.
Copies of any notices or other communications to the Company shall
simultaneously be sent by first class mail to American United Global, Inc., 25
Highland Boulevard, Dix Hills, New York 11746, Attention: Robert M. Rubin.
<PAGE>
9. GENERAL.
(a) Neither this Agreement nor any of the terms or conditions hereof
may be waived, amended or modified except by means of a written instrument duly
executed by the party to be charged therewith. Any waiver or amendment shall
only be applicable in the specific instance, and shall not constitute or be
construed as a waiver or amendment in any other or subsequent instance. No
failure or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party's right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the express prior written consent of the
other party.
(c) The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of Washington.
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be brought
for injunctive and/or any other equitable relief as contemplated by paragraph
5(d) above, any dispute involving the interpretation or application of this
Agreement shall be resolved by final and binding arbitration before one or more
arbitrators designated by the American Arbitration Association in Seattle,
Washington. The award of such arbitrator(s) may be enforced in any court of
competent jurisdiction. The prevailing party in any action or proceeding
hereunder shall be entitled to an award for its costs and reasonable attorneys'
fees in connection with such action or proceeding, and the arbitrator(s) in any
arbitration hereunder shall be empowered and directed to make such an award in
his, her or their discretion.
(h) This Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior
<PAGE>
discussions, agreements and understandings of every kind and nature between them
as to such subject matter.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
CONNECTSOFT, INC.
By:_____________________________
________________________________
ROBERT MARCUS
<PAGE>
CONNECTSOFT, INC.
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
July 31, 1997
Mr. Robert Marcus
3046 W. Viewmont Way W.
Seattle, Washington 98199
Dear Mr. Marcus:
This will confirm that the Employment Agreement, dated as of May 15, 1996
(the "Agreement"), by and between ConnectSoft, Inc., a Washington corporation
("Old ConnectSoft") and you, and all respective rights and obligations therein
and thereunder, will be assigned by Old ConnectSoft to its affiliate,
Connectsoft Communications Corporation ("New Connectsoft"), subject to and
effective upon the consummation by New Connectsoft of a registered initial
public offering of its common stock on or prior to December 31, 1997. In
connection therewith, you hereby consent to such assignment and the assumption
by New Connectsoft (evidenced by its signature below) of all obligations of Old
ConnectSoft under the Agreement, and you agree to look solely to New Connectsoft
with respect to all performance under the Agreement from and after the effective
date provided herein.
Please indicate your agreement with the foregoing by signing a counterpart copy
of this letter, whereupon this shall constitute a binding agreement between you
and New Connectsoft.
Very truly yours,
CONNECTSOFT, INC.
By:_________________________
Name:
Title:
Acknowledged, Confirmed and Agreed To:
/s/ Robert Marcus
______________________________
Robert Marcus
The undersigned, Connectsoft Communications Corporation, hereby confirms its
assumption of all rights and obligations of Old ConnectSoft under the Agreement,
effective from and after the effective date provided above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT 10.4
SOFTWARE LICENSE AGREEMENT
(Object Code)
This Software License Agreement ("Agreement") is made effective April 1, 1997
(the "Effective Date") between HEWLETT-PACKARD COMPANY, a California corporation
("HP") and ConnectSoft, Inc. A Washington corporation ("Licensor")
1. DEFINITIONS
1.1 "Licensed Software" shall mean all:
1.1.1 Computer software described in Exhibit A;
1.1.2 Fixes; and
1.1.3 Enhancements and New Programs accepted by HP pursuant to
article 5 below.
1.2 "Intellectual Property Rights" shall mean the following
rights that pertain to the Licensed Software under
common law, state law, federal law, and foreign law:
1.2.1 Rights in copyrights and rights of authorship, and
1.2.2 Rights in trade secrets.
1.3 "Source Code" shall mean all human readable code which
documents Licensed Software, including all related
compilers, utilities, listings, test suites, build
scripts, libraries, design documentation, and technical
documentation.
1.4 "Object Code" shall mean any machine executable code
derived in whole or part from the Licensed Software.
1.5 "Development Work" shall mean any periodic development
work to be performed by Licensor at the request of HP, as
more particularly described in Exhibit B. Development
Work shall also include work requested by HP to add
features to the Licensed Software.
1.6 "Fixes" shall mean all upgrades, updates, fixes,
workarounds, and other modifications to the Licensed
Software other than Enhancements, which are made by or on
behalf of Licensor during the Term in order to connect
defects or errors in the Licensed Software.
1.7 "Enchancements" shall mean all improvements to the
Licensed Software made by or on behalf of Licensor during
the Term, in order to improve functionality or
performance.
1.8 "New Programs" shall mean all software programs developed
by or for Licensor during the Term to supplement or
replace Licensed Software.
1.9 "Confidential Information" shall mean any proprietary and
confidential information delivered by one party to the
other pursuant to this Agreement.
1.10 "Royalty(ies)" shall mean the royalties described in
paragraph 3.1 below and Exhibit C.
1.11 "Infringement Action" shall mean any claim, suit, or
proceeding brought against HP or its customers that
Licensed Software or Documentation infringes any patent,
copyright, trademark, or trade secret of a third party.
<PAGE>
1.12 "Infringing Product" shall mean any restriction on the
use of Licensed Software as the result of an Infringement
Action.
1.13 "Term" shall mean the period this Agreement is in effect,
commencing on the Effective Date.
1.14 "DSI" shall mean Data Securities International, Inc.
2. GRANT CLAUSES
2.1 Licensor hereby grants HP, under Licensor's Intellectual Property
Rights, a fully paid, worldwide, exclusive, non-transferable
(subject to section 2.2 below) license in the Object Code to use,
reproduce, bundle and distribute.
2.2 HP's license rights under section 2.1 ,may be sublicensed or
otherwise delegated to its third party channels of distribution
or its subcontractors.
2.4 HP shall use its standard forms in distributing Object Code.
2.5 Except as expressly provided in this Agreement, Licensor retains
all right, title, and interest in the Licensed Software and
Documentation.
2.6 Licensor agrees that it shall not grant any other printer
manufacturer the license to use, reproduce, bundle, or distribute
Object Code for the Term of this Agreement, including the two
six-month renewal periods if they are invoked.
2.7 HP's license grant under this Agreement shall allow HP to
distribute the Licensed Software in the following manner:
2.7 1 Integrated into or bundled separately with any of HP's
inkjet technology printers, regardless of the location of
manufacture;
2.7.2 With supplies for all HP inkjet printers distributed by
HP; and
2.7.3 Through direct download from HP's world wide web internet
web sites. The particular sites involved in this
downloading shall be determined at a later date.
3. CONSIDERATION
3.1 For the rights granted in section 2.1 above, HP shall pay a
one-time license fee in accordance with Exhibit C. HP shall pay
a quarterly maintenance Royalty in accordance with Exhibit C.
3.2 If Licensor is not in breach of this Agreement, Royalties due
Licensor shall be paid within thirty-five days after the end of
each HP fiscal quarter, without any invoice. Such payments shall
reflect all Royalties due for that quarter, less credits and
other adjustments.
3.3 Licensor is responsible for all taxes on Royalties paid under
this Agreement - including use, sales, and property taxes, but
excluding taxes calculated solely on HP's income.
3.4 Unless otherwise requested and agreed to by HP, Licensor shall
transmit all Licensed Software to HP electronically. Licensor
shall provide separate invoices for any license fees or other
payments due for items not transmitted to HP by electronic means.
3.5 Licensor warrants that the Royalties are no greater than those
payable by any other licensee of similar quantities of Licensed
Software. Licensor shall retroactively pass on to HP the lowest
rate it give to any other such licensee, commencing on the date
it grants such lower rate.
4. DELIVERY, MANUFACTURING, AND MARKETING
<PAGE>
4.1 Licensor shall deliver an alpha version candidate of the Licensed
Software electronically and on CD-ROM to HP no later than April
22, 1997. HP shall have five business days from this date to
notify Licensor of any negative test results. If Licensor does
not receive notice of any negative test results within this
period, the alpha version candidate shall be considered accepted.
4.2 Licensor shall deliver a beta version candidate of the Licensed
Software electronically and on CD-ROM to HP no later than May 22,
1997. HP shall have five business days from this date to notify
Licensor of any negative test results. If Licensor does not
receive notice of any negative test results within this period,
the beta version candidate shall be considered accepted.
4.3 Licensor shall deliver a final gold master of the Licensed
Software electronically and on CAROM to HP no latest Ann July 8,
1997. HP shall have ten business days Mom this date to notify
Licensor of any negative test results. If Licensor does not
receive notice of any negative test results within this period,
the gold master shall be considered accepted.
4.4 HP is responsible for reproducing all Object Code end HP
documentation.
4.5 HP may market Object Code to the extent it deems appropriate, in
its sole discretion. This Agreement does not:
4 5.1 Create any partnership, agency, or other relationship
other than licensee and licensor; or
4.5.2 Preclude HP from independently developing or acquiring
software which performs the same or similar functions as
Licensed Software.
4.6 Each party shall, in performing this .Agreement, comply with all
applicable laws and regulations, including export laws and
regulations.
4.7 The terms of this Agreement are Confidential Information.
Further, Licensor may not make any press release, advertisement,
or other public disclosure of the existence of this Agreement
except with the prior written consent HP; HP may impose, as a
condition of such consent, any restrictions which HP deems
appropriate, in its sole discretion.
4 8 HP's marketing support activities will be performed in a manner
determined by HP.
4.9 For the duration of this Agreement, HP will acknowledge Licensor
as a technology partner in the "about" screen Details of all
merchandising opportunities will be determined at a later date.
In all instances, HP shall have final approval for all
marketing, merchandising, and public relations activities.
4.10 Any promotional materials that Licensor wishes to include with
the Licensed Software must be reviewed and approved by HP prior
to its use. Licensor shall be responsible for all costs
associated with Licensor's promotional materials.
5. ENCHANCEMENTS AND NEW PROGRAMS
5.1 As soon as possible but in any event at least thirty days prior
to the commercial release of any New Program or Enhancement,
Licensor shall deliver to HP a complete copy of the New Program
or Enhancement.
5.2 For purposes of this article 5, a "complete copy" shall be
sufficient to enable HP to fully evaluate for the purposes of
functionality, compatibility, and performance capability the New
Program or Enhancement, and shall include
5.2.1 Electric And CD-ROM versions in object code form; and
5.2.2 Any other documentation which HP reasonably requests.
5.3 HP may evaluate each New Program and Enhancement by any
reasonable means. HP shall have thirty days after receipt of a
complete copy of a New Program or Enhancement to either accept
it, return it for rework, or reject it. HP shall give Licensor
notice of the evaluation results.
<PAGE>
5.4 At its discretion, HP may reject any New Program or Enhancement.
If HP rejects an Enhancement, HP shall be entitled to continue to
distribute the version of the Licensed Software prior to such
Enhancement. All Enhancements shall be backward compatible.
5.5 If HP accepts an Enhancement, the Enhancement shall be added to
this Agreement and shall be covered by the existing Royalty
schedule. If HP accepts a New Program, the parties shall
negotiate in good a mutually agreeable Royalty schedule for
adding the schedule for adding the New Program to this Agreement.
5 6 If HP requests Licenser to perform Development Work and Licensor
wishes to include any such increased functionality in any of its
other similar software products, Licensor must first receive
written approval from HP. If HP approves such request, HP may be
entitled to a mutually agreeable credit against its quarry
maintenance Royalty payment. Upon completion of the Development
Work, Licensor shall deliver a master copy in electronic and
CD-ROM format of the Object Code to HP.
6. SUPPORT
6.1 Licensor shall, at no charge to HP, provide HP with support for
all licensed Software, as set forth in Exhibit D.
6.2 Licensor shall only be obligated to provide support to the extent
that defects are not caused by HP's modifications.. HP shall
support its customers.
6.3 Licensor's support obligations shall continue for five years
after the expiration of the Term or other termination of this
Agreement.
7. CONFIDENTIAL INFORMATION
7.1 All Confidential Information shall either (i) be marked as
confidential at the time of disclosure, or (ii) if unmarked when
disclosed but treated as confidential (e.g. disclosed orally), be
described in a written memorandum sent to the recipient's account
manager within thirty days after disclosure.
7.2 A recipient of Confidential Information shall protect such
Information by using the same degree of care, but no less than a
reasonable degree of care, as the recipient uses to protect its
own information of a similar nature.
7.3 A recipient shall restrict access to Confidential Information to
(i) its employees having a need to know, and (ii) its
subcontractors.
7.4 A recipient obligations of confidentiality shall continue for
three years from the Effective Date
7.5 A recipient of Confidential Information agrees that:
7.5.1 The discloser may be irreparably injured by a disclosure
of Confidential Information in violation of this
Agreement; and
7.5.2 In addition to any other remedies available at law or in
equity, the discloser may seek an injunction to prevent r
stop any unauthorized disclosure.
7.6 Confidential Information does not include information that:
7.6.1 Was in recipient possession before receipt from the
discloser;
7.6.2 Is or becomes a matter of public knowledge through no
fault of the recipient;
7.6.3 Is or becomes a matter of public knowledge through no
fault of the recipient;
7.6.4 Is disclosed by the discloser to a third party without a
duty of confidentiality on third party;
7.6.5 Is independently developed by the recipient; or
7 6.6 Is disclosed under operation of law.
<PAGE>
8. WARRANTIES
8.1 Licensor warrants that:
8.1.1 It has full power and authority to grant the right under
this Agreement;
8.1.2 The Licensed Software will comply win the stations ill
Exhibit A;
and
8.1.3 The Licensed Software does not violate or infringe any
third party intellectual property rights.
8.2 Licensor shell defend any Infringement Action, and shall pay all
damages, costs, and attorneys' fees with respect to the Action.
HP shall give Licensor prompt notice of any Infringement Action,
as well as all authority, information, and assistance (at
Licensor's expense) necessary to defend the Action.
8.3 With respect to any Infringing Product, Licensor sha11, at its
expense and option:
8.3.1 Procure for HP the right to continue using the Product;
8.3.2 Replace the Product with a non-infringing product of
comparable function or performance; or
8.3.3 Modify the Product to be non-infringing.
8.4 Licensor shall haste no liability, under sections 8.2 and 8.3 to
the extent the Infringement Action is based upon
8.4.1 Any unauthorized modification of the Licensed Software or
Documentation; or
8.4.2 Any combination, operation, or use of the Licensed
Software or Documentation with equipment, software,
documentation, or other items not supplied by either
Licensor or HP.
8.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 8, LICENSOR MAKES NO
OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, REGARDING THE
LICENSED SOFTWARE OR THE DOCUMENTATION, INCLUDNG AS TO THEIR
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
8.6 IN NO EVENT SHALL. EITHER LICENSOR OR HP BE LIABLE FOR ANY
INDIRECT, SPECIAL, INDICDNTAL, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOSS OF PROFITS) ARISING OUT OF ANY PERFORMANCE OF
THIS AGREEMENT, OR IN FURTHERANCE OF THE PROVISIONS AND
OBJECTIVES OF THIS AGREEMENT, WHETHER SUCH DAMAGES ARE BASED ON
TORT, CONTRACT, OR ANY OTHER LEGAL THEORY AND WHETHER ADVISED OF
THE POSSIBLITY OF SUCH DAMAGES.
9. ACCESS TO SOURCE CODE
9.1 Licensor shall deposit a copy of the Source Code with DSI,
pursuant to the terms of the standard deposit agreement between
HP and DSI. HP shall have the right to verify that current and
complete Source Code is deposited.
9.2 If Source Code is properly released by DSI to HP under the
deposit agreement, HP shall be entitled to recover all
reasonable, actual costs and expenses incurred by HP in remedying
any obligations of Licensor which are in default under this
Agreement.
9.3 The conditions of the deposit agreement between HP and DSI shall
stipulate that, in addition to the standard conditions relative
to the release of the Source Code, the following conditions shall
also cause the release of Source Code to HP: (i) if Licensor
becomes insolvent; (ii) if Licensor fails to pay its debts or
perform it obligations in the ordinary course of business as they
mature; (iii) if Licensor admits in writing its solvency or
inability to pay its debts or perform its obligations as they
mature; (iv) if Licensor makes an assignment for the benefit of
creditors; (v) if Licensor has more than 50% of its outstanding
shares or securities (representing the right to vote for the
election of directors or other managing authority) owned o
controlled, directly or indirectly, by a third party; (vi) if
Licensor sells all or substantially all of its assets to a third
party involved in the manufacture or marketing of computers,
printers, or software; (vii) if Licensor has a receiver or
trustee
<PAGE>
appointed to administer its property or affairs; (viii) if
Licensor files a petition or other request for relief under any
provision of the Bankruptcy Code; (ix) if Licensor has filed
against it any petition or other request for relief under any
provision of the Bankruptcy Code and fails to have such petition
within sixty (60) days; or (x) if Licensor ceases to do business
in the normal course.
<PAGE>
10. TERM AND TERMINATION
10.1 The Term of this Agreement is 18 months, unless earlier
terminated for cause, HP may renew the Term for two additional
six month periods on the same terms and conditions, by notice to
the Licensor at any time before the expiration of the Term.
10.2 HP may terminate this Agreement for convenience with thirty (30)
days written notice to Licensor.
10.3 Either party may terminate this Agreement for cause immediately
upon written notice to the other any anytime if;
10.3.1 The other party is in material breach of any warranty,
term, conditions or covenant of this Agreement and fails
to cure that breach within fifteen (15) days after
written notice of that breach and of the first party's
intention to terminate if the breach is not cured; or
10.3.2 The other party: )i) becomes insolvent; (ii) fails to pay
its debts or perform its obligations in the ordinary
course of business as they mature; (iii) admits in
writing its insolvency or inability to pay its debts or
perform its obligations as they mature; (iv) makes an
assignment for the benefit of creditors; (v) has more
than 50% of its outstanding shares or securities
(representing the right to vote for the election of
directors or other managing authority) owned or
controlled, directly or indirectly, by a third party;
(vi) sells all or substantially all of its assets to a
third party involved in the manufacture or marketing of
computers, printers, or software; (vii) has a receiver or
trustee appointed to administer its property or affairs;
(viii) files a petition or other request for relief under
any provision of the Bankruptcy Code; (ix) has filed
against it any petition or other request for relief under
any provision of the Bankruptcy Code and fails to have
such petition dismissed within sixty (60) days; or (x)
ceases to do business in the normal course. In the event
(v) occurs, the controlled party shall promptly give
written notice of such acquisition to the other party.
10.4 Upon the expiration or termination of this Agreement, HP may
continue distributing all Object Code and HP documentation. The
expiration or termination of this Agreement shall not affect the
rights of existing end-users, whose rights are perpetual.
11. MISCELLANEOUS PROVISIONS
11.1 All notices under this Agreement shall be in writing and shall be
considered given upon personal delivery or delivery by electronic
means (e.g. facsimile), upon forty. eight hours after sending by
air courier, or upon seventy two hours after deposit in the
United States Mail, certified mail return receipt requested. All
notices shall be addressed as specified below:
If to HP: Hewlett-Packard Company
P.O. Box 8906
Vancouver, WA 98668-8906
ATTENTION: CONTRACTS ADMINISTRATOR
If to Contractor: ConnectSoft, Inc.
1130 N.E. 33rd Place #250
Bellevue, WA 98004
ATTENTION: ROBERT MARCUS
11.2 Neither party shall disclose to any third party the terms of this
Agreement.
11.3 Neither party may assign or otherwise transfer its rights or
responsibilities in this Agreement.
11.4 In the event of a conflict between an and Exhibit and the main
body of this Agreement, the latter shall control. The following
Exhibits are incorporated by reference:
(a) Exhibit A, System Specification Plan;
(b) Exhibit B, Development Work;
(c) Exhibit C, License Fee and Royalty Schedule; and
<PAGE>
(d) Exhibit D, Support.
11.5 This Agreement represents the entire agreement between the
parties as to the matters set forth and integrates all prior
discussions and understandings between them. This Agreement may
only be modified by a written instrument signed by an authored
representative of both Licensor and HP
11.6 This Agreement shall be governed by, and construed in accordance
with the laws of the State of California, USA.
HEWLETT-PACKARD COMPANY CONNECSOFT
By________________________ By:_____________________________
Typed Name: Typed Name:
Title: Title:
Dated:____________________ Dated:__________________________
<PAGE>
To: Robert Marcus
From: Kerry Kelley
Re: Contract dates for delivery of HP Instant Delivery August 15, 1997
--------------------------------------------------
Dear Robert,
This note is to confirm our discussion surrounding final delivery dates for
the first version of Instant Delivery. As mutually agreed the final "release
candidate" for the product, targeted for Japan, will be delivered by you no
later than September 8, 1997. Delivery on this date will facilitate our final
round of acceptance testing and will support our target release to
manufacturing of September 22, 1997.
You also asked about disclosure of this effort as part of your prospectus. I
have reviewed the material relative to Instant Delivery and can approve your
disclosure in this specific context. Per our previous discussion relative to
project disclosure, please do not disseminate this type of information in any
other form without specific clearance from us.
Regards,
/s/ Kerry Kelley
<PAGE>
Exhibit 10.5
SOFTWARE LICENSE AGREEMENT
BETWEEN
DATA CONNECTION LIMITED
AND
CONNECTSOFT COMMUNICATIONS CORPORATION
<PAGE>
MASTER SOFTWARE LICENSE AGREEMENT
---------------------------------
PRINCIPALS
This Master Software License Agreement is made and entered into as of the
Effective Date, by and between Data Connection Limited, with a place of business
at 100 Church Street, Enfield, Middlesex, EN2 6BQ, England (hereinafter called
"DCL"), on behalf of itself and its successors, permitted assigns and
Affiliates, and ConnectSoft Communications Corporation, with a place of business
at 11130 NE 33rd Place, Suite 250, Bellevue, WA 98004, USA (hereinafter called
"CCC") on behalf of itself and its successors, permitted assigns and Affiliates.
DCL is engaged in the business of creating computer software, and desires to
grant to CCC world-wide rights to that certain software technology owned by DCL
and currently referred to by DCL as "VoiceNet" (herein referred to as "Licensed
Programs") consisting of programs and related documentation described in
Addendum 1, Schedule A.
WHEREAS, CCC desires to integrate DCL's software technology with other computer
programs developed or licensed by CCC, which programs will be marketed and
licensed by CCC as a proprietary intelligent integrated communications software
system currently known as "FreeAgent" and DCL is willing to license CCC so to
do, on the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the premises, the granting of the license,
and the mutual covenants, agreements and obligations of the parties hereinafter
set forth, it is hereby agreed between the parties hereto as follows.
(1 ) DEFINITIONS
1.1 "ADDENDUM" MEANS AN INSTRUMENT BY WHICH CCC ACQUIRES RIGHTS TO A PARTICULAR
SET OF LICENSED PROGRAMS FROM DCL UNDER THIS AGREEMENT. EACH LICENSED
PROGRAM FOR WHICH RIGHTS ARE ACQUIRED BY CCC IS OR WILL BE SPECIFIED IN AN
ADDENDUM WITH APPLICABLE SCHEDULES. ADDENDUM 1 SCHEDULES A THROUGH E IS
ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE AND SHALL BE EFFECTIVE
UPON EXECUTION OF THIS AGREEMENT BY THE PARTIES.
1.2 "BINDING PAYMENTS" MEANS A SPECIFIC SERIES OF PAYMENTS WITH AN ASSOCIATED
PAYMENT SCHEDULE OPTIONALLY IDENTIFIED IN EACH ADDENDUM TO THIS AGREEMENT.
1.3 "Defined Products means those software products identified in Schedule A of
each Addendum, within which the Licensed Programs may be distributed by CCC
pursuant to this Agreement.
1.4 "Derivative Work" means: (a) for copyrightable or copyrighted material, a
work which is based upon one or more pre-existing works, such as a
revision, modification, translation, abridgement, condensation, expansion,
collection, compilation, or any other form in which such pre-existing works
may be recast, transformed, or adapted; (b) for patentable or patented
materials, any adaptation, addition, improvement, or combination; and (c)
for material subject to trade secret protection, any new material,
information, or data relating to and derived from such existing trade
secret material, including new material which may be protectable by
copyright, patent or other proprietary rights. Each of the above shall be
considered a Derivative Work" only to the extent that such Derivative Work
is based upon the Licensed Programs, and in the absence of this Agreement
or other authorization by the owner of the pre-existing work, preparation,
copying, use and/or display thereof would constitute an infringement of a
party's Intellectual Property Rights in such pre-existing work.
1.5 "Documentation" means DCL's publications which facilitate the use of the
Licensed Programs (and the extensions to the base functions of the Licensed
Programs created by DCL pursuant to this Agreement and all addenda) by CCC
or by the users of CCC's products. Schedule B of each Addendum contains a
list of applicable Documentation.
Page 1
<PAGE>
1.6 "Effective Date" means (a) the later of the dates on which the two parties
sign this Agreement (including Addendum 1), or (b) in the case of an
Addendum other than Addendum 1, "Effective Date" means the later of the
dates on which the two parties sign the Addendum in question.
1.7 "Licensed Programs" means DCL's computer programs listed in Schedule A of
each Addendum in Source Code, machine-readable Object Code, intermediate
code or interpreted from. Such definition shall also include all
corrections, modifications, enhancements, and Documentation to such
programs, but shall exclude New Software as defined in Paragraph 8 below.
1.8 "Object Code" means code resulting from the translation or processing of
Source Code by a computer into machine language or intermediate code, and
thus is in a form that would not be convenient to human understanding of
the program logic, but which is appropriate for execution or interpretation
by a computer.
1.9 "Prime Support" means the assistance which is provided to users of a CCC
product incorporating the Licensed Programs as specified in CCC's customer
license agreements or otherwise provided by CCC.
1.10 "PROPRIETARY INFORMATION" MEANS THE SOURCE CODE, SOURCE CODE LISTING,
TECHNICAL INFORMATION AND ANY OTHER DCL DOCUMENTATION AND INFORMATION
REQUIRED TO ADAPT THE LICENSED PROGRAMS TO RUN ON THE DEFINED COMPUTERS.
1.11 "SOFTWARE DELIVERABLES" SHALL MEAN THE ACTUAL LICENSED PROGRAMS MATERIALS
AND DOCUMENTATION TO BE DELIVERED UNDER THIS AGREEMENT, AS DESCRIBED IN
SCHEDULES A AND B OF EACH ADDENDUM HERETO.
1.12 "SOURCE CODE" MEANS THE LICENSED PROGRAMS IN A FORM IN WHICH THE PROGRAM
LOGIC IS EASILY DEDUCED BY A HUMAN BEING, INCLUDING A PRINTED LISTING OF
THE PROGRAMS AND RELATED SYSTEM DOCUMENTATION INCLUDING ALL COMMENTS AND
ANY PROCEDURAL CODE SUCH AS JOB CONTROL LANGUAGE.
1.13 AN "AFFILIATE" SHALL MEAN ANY:
(a) DIRECT PARENT ENTITY OF CCC, OR
(b) JOINT VENTURE, OR
(c) OTHER CORPORATION, COMPANY OR OTHER ENTITY INTO WHICH CCC IS MERGED, OR
(d) OTHER ENTITY.
(i) A SUFFICIENT PROPORTION OF WHOSE OUTSTANDING SHARES OR
SECURITIES, REPRESENTING THE RIGHT TO VOTE FOR THE ELECTION OF
DIRECTORS OR OTHER MANAGING AUTHORITY, IS NOW OR HEREAFTER, OWNED OR
CONTROLLED, DIRECTLY OR INDIRECTLY, BY A PARTY HERETO; OR WHICH DOES
NOT HAVE OUTSTANDING SHARES OR SECURITIES, AS MAY BE THE CASE IN A
PARTNERSHIP, JOINT VENTURE OR UNINCORPORATED ASSOCIATION, BUT A
SUFFICIENT PROPORTION OF WHOSE OWNERSHIP INTEREST, REPRESENTING THE
RIGHT TO MAKE THE DECISIONS FOR SUCH CORPORATION, COMPANY OR ENTITY,
IS NOW OR HEREAFTER, OWNED OR CONTROLLED, DIRECTLY OR INDIRECTLY, BY A
PARTY HERETO.
(2) LICENSE
Upon and subject to the terms of this Agreement, DCL hereby grants to CCC the
following world-wide license rights:
(a) A NON-EXCLUSIVE LICENSE TO REPRODUCE, USE, MODIFY AND/OR ENHANCE (INCLUDING
WITHOUT LIMITATION TO DELETE AND ADD MATERIAL AND CREATE DERIVATIVE WORKS)
THE LICENSED PROGRAMS
Page 2
<PAGE>
AND THE PROPRIETARY INFORMATION SOLELY FOR THE PURPOSES OF DEVELOPMENT,
MAINTENANCE AND SUPPORT OF PRODUCTS AND/OR RELATED SERVICES, INCLUDING
WITHOUT LIMITATION THE RIGHT TO INCORPORATE THE PROPRIETARY INFORMATION
INTO THE DEFINED PRODUCTS.
(b) A NON-EXCLUSIVE LICENSE TO MARKET, SELL, DISTRIBUTE AND SUBLICENSE, VIA ANY
DIRECT OR INDIRECT CHANNEL OF DISTRIBUTION, THE OBJECT CODE (OR OBJECT CODE
DERIVED FROM MODIFIED SOURCE CODE IN ACCORDANCE WITH SUBPARAGRAPH (A)
ABOVE) FOR USE SOLELY WITHIN THE DEFINED PRODUCTS, SUBJECT TO THE PROVISION
THAT CCC WILL ONLY GRANT OBJECT CODE LICENSES FOR THE LICENSED PROGRAMS TO
A THIRD PARTY ON THE CONDITION THAT THE THIRD PARTY LICENSEE AGREES:
1. Not to make copies of the Licensed Programs, other than for its own
internal purposes;
2. NOT TO ALTER, REVERSE ENGINEER OR DISASSEMBLE THE LICENSED PROGRAMS,
EXCEPT AS MAY BE SPECIFICALLY PERMITTED BY LAW, INCLUDING, BUT NOT
LIMITED TO, REVERSE ENGINEERING OR DISASSEMBLY FOR THE PURPOSE OF
ACHIEVING INTEROPERABILITY WITH THE LICENSED PROGRAMS AND OTHER
PRODUCTS;
3. THAT THE LICENSE DOES NOT GRANT ANY RIGHT IN OR TO INTELLECTUAL
PROPERTY WITH RESPECT TO THE LICENSED PROGRAMS;
4. THAT TITLE TO AND OWNERSHIP OF THE LICENSED PROGRAMS AND DOCUMENTATION
AND ANY COPIES OR REPRODUCTIONS THEREOF SHALL REMAIN WITH DCL AND ITS
SUPPLIERS AND LICENSERS.
(c) A NON-EXCLUSIVE LICENSE TO INCORPORATE AND DISTRIBUTE INTO CCC'S OWN
PUBLICATIONS MODIFIED OR UNMODIFIED INFORMATION FROM THE DOCUMENTATION, AND
TO MARKET, SELL, DISTRIBUTE AND SUBLICENSE SUCH PUBLICATIONS IN PRINT OR
ELECTRONIC FORM AS AN INTEGRAL PART OF CCC'S SOFTWARE PRODUCT OFFERINGS.
(d) an exclusive license to market, sell, distribute and sublicense, either
directly or via a third party, Object Code (in accordance with Subparagraph
(b) above) to be incorporated into a product or service for use by a
telephone network or telephone service provider, including but not limited
to the Internet Services division of a telephone network or telephone
service provider.
The exclusive license rights granted by DCL to CCC in Subparagraph (d) of this
Paragraph do not apply to certain parties explicitly named in Exhibit B attached
to this Agreement.
(3) DURATION
The term of this Agreement shall commence on the Effective Date and shall
continue in perpetuity until terminated by either party in accordance with the
provisions of Paragraph 22.
(4) TITLE
Except as provided under Paragraph 2, neither CCC nor any third party shall
acquire under this Agreement any right, title or interest in the Licensed
Programs, Proprietary Information or Documentation.
Any additions, adaptations or improvements of the Licensed Programs made by CCC
and included in Derivative Works shall be the sole and exclusive property of
CCC, and DCL hereby irrevocably assigns all copyright and other intellectual
property rights thereto to CCC.
Page 3
<PAGE>
If necessary, DCL shall obtain a written agreement not to assert any moral
rights, including any rights to identification of authorship, rights or approval
on modifications or limitation on subsequent modification, from any person or
entity having moral rights with respect to any materials, assigned, delivered or
licensed by DCL to CCC hereunder or under any additional agreements. DCL hereby
agrees not to assert any moral rights, including any right of identification of
authorship, rights of approval on modifications or limitation on subsequent
modification, DCL has or may have in the Licensed Products delivered hereunder.
Title in the Licensed Programs remains with DCL and DCL's suppliers and
licensers.
(5) LICENSE FEES
The license fees from CCC to DCL are set forth in Schedule D of each Addendum.
(6) RELATIONSHIP
The only relationship between DCL and CCC which is created by this Agreement is
that of licenser and licensee, and neither party shall be, nor represent itself
to be, an agent, employee, partner or joint venturer of the other, nor on the
other's behalf, nor in any manner or form make promises, representation or
warranties or incur any liability, direct or indirect, contingent or fixed, for
or on behalf of the other party.
(7) DCL CONSULTING AND ENGINEERING SERVICES
DCL will provide consulting and engineering services to CCC as set forth in
Schedule E of each Addendum (the "Services").
DCL will assign appropriately qualified, trained and experienced personnel to
perform the Services and will use its best efforts to minimize changes of
personnel so assigned and to promptly address all concerns of CCC with respect
to such assigned personnel.
CCC will give to DCL promptly on request such information and facilities as DCL
reasonably requires for the provision of the Services, and as are specified in
Schedule E of each Addendum.
Derivative Works created by DCL, its employees, consultants and subcontractors
as a result of consulting and engineering services provided by DCL to CCC
pursuant to this Agreement, including all matter created which is subject to
copyright, shall be the property of the party designated as the owner of such
Derivative Work. To the extent that such Derivative Works are to be the property
of CCC, all such works shall be deemed to be created as a "work made for hire"
within the meaning of Section 101 of the United States "Copyright" law and all
rights to copyright shall be vested entirely in CCC. If for any reason CCC may
not be deemed to have commissioned a "work made for hire," and its rights to
copyright are thereby in doubt, this Agreement shall constitute an irrevocable
assignment by DCL of all rights in the copyright of the work prepared for CCC.
The parties intend that any and all rights to the Derivative Works are to be
conveyed to CCC in full. DCL hereby agrees not to assert any moral rights,
including any right of identification of authorship, rights of approval on
modifications or limitation on subsequent modification, with respect to any
product or deliverable produced as a result of Services performed for CCC by
DCL.
No master and servant relationship will be deemed to exist between CCC on the
one hand and any employee of DCL on the other hand.
During the service and for the six months after termination of this service
neither party will solicit the employment of any employee of the other party who
has been engaged in the service.
(8) NEW SOFTWARE
The Licensed Programs include only (i) the current versions of such programs as
of the Effective Date of this Agreement or the Effective Date of any subsequent
Addendum, and (ii) enhancements, modifications or revisions to such programs
prepared by DCL pursuant to an Addendum to this Agreement. Any new DCL software
or revisions to the Licensed Programs which provide significant functional
capabilities over and above those of the Licensed Programs other than
Page 4
<PAGE>
revisions prepared for CCC pursuant to this Agreement or an applicable Addendum
("New Software") shall be considered outside the terms of this Agreement; the
two parties may agree that DCL will license such New Software to CCC by
execution of a new Addendum to this Agreement. In such an event, such license
will be at terms no less favourable than licenses granted for the corresponding
function to any other DCL licensees.
(9) SUPPORT SERVICES
9.1 CCC shall be responsible for providing all installation and support
services for CCC customers.
9.2 After CCC has accepted the Licensed Programs as set out in Paragraph
21 below, DCL shall provide support and maintenance for each Licensed
Program as set out in Schedule C of the applicable Addendum.
During such periods, CCC shall document and notify DCL regarding any
Licensed Program deficiencies and DCL shall, as described in Schedule
C of the applicable Addendum, correct promptly the defects or errors,
both in the Source Code and Documentation. This correction service
does not cover any changes, adaptations, modifications or Derivative
Works created with or without authority of DCL, except those provided
by DCL under the maintenance service set out in Schedule C of each
Addendum.
Software corrections, changes, adaptations, modifications or
Derivative Works created by DCL for CCC shall be furnished to CCC by
DCL in Source Code form and, if requested by CCC, also in Object Code
form.
(10) DOCUMENTATION
DCL shall provide documentation for the Licensed Programs of the type and to the
extent as stated in Schedule B of each Addendum.
(11) DELIVERY OF LICENSED PROGRAMS
DCL shall deliver to CCC the Software Deliverables as set out in Schedules A and
B of each Addendum. DCL shall be solely responsible for all shipping procedures
and costs, including, but not limited to, compliance with and obtaining of any
export licenses associated with the delivery of the Software Deliverables to
CCC.
Without limiting the effect of the foregoing, if DCL is aware of, or should be
aware of, a delay that will prevent a delivery date of a specific Software
Deliverable from being met, DCL will immediately inform CCC, in writing.
(12) PUBLICITY
CCC may prepare and release any material for publicity purposes which advertises
the existence of functionality provided by the Licensed Programs in CCC
products.
Neither CCC nor DCL is precluded from publicizing the existence of this
agreement, but can only do so with the prior agreement of the other party, and
may not otherwise disclose the terms and conditions enclosed herein, except as
necessary to enforce its rights hereunder or as required by the national laws or
regulations applicable to either party.
(13) DISTRIBUTION
13.1 CCC may distribute the Licensed Programs on media supplied by CCC in
accordance with the rights set out in Paragraph 2 of this Agreement.
13.2 CCC agrees to duplicate the trademark and copyright notices on all
Licensed Programs and Documentation, and to contractually require that
any Affiliate, distributor or dealer to whom CCC grants a right to
reproduce the Licensed Programs and Documentation also duplicates such
notices. Standard copyright notices should read, with the proper year:
"-C- DATA CONNECTION LIMITED 19xx".
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<PAGE>
13.3 CCC agrees to attribute the trademarks listed in Schedule A of each
Addendum to DCL in any advertising, brochures, documentation and
literature that use such trademarks. Such attribution need only be
made for the first use in a particular document. Attribution shall be
made by footnote reference and/or by use of the international symbols
"ah" and "TM", as specified in Schedule A of each Addendum. It is
expressly understood and agreed that CCC is not obligated to use any
trademarks of DCL in its marketing and promotion of any CCC product
incorporating the Licensed Programs or Derivative Works.
13.4 CCC shall be solely responsible for compliance with and obtaining of
any export licenses which may be required for the distribution of CCC
products incorporating the Licensed Programs or Derivative Works. DCL
shall provide answers to CCC technical questions relating to the
Licensed Programs where such questions are not answered by the
Documentation to enable CCC to obtain such export licenses.
(14) REPRESENTATIONS AND WARRANTIES OF DCL
14.1 DCL hereby represents and warrants CCC as follows.
(a) That DCL has the full right and power to enter into and perform
according to the terms of this Agreement, and that it possesses
all worldwide copyright, trademark, trade secret and similar
property and other rights in the Software which are necessary for
DCL's performance of this Agreement; that, to the best of DCL's
knowledge, there is no pending or threatened litigation,
including court, administrative or arbitral proceedings, which if
decided adversely to DCL would interfere in any material manner
whatever with CCC's rights to use the Licensed Programs; and that
CCC's use of the Licensed Programs and Documentation in
accordance with the terms and conditions of this Agreement will
not infringe such rights of any person or entity.
(b) That, commencing upon each delivery made by DCL and continuing
until the earlier of (i) ninety (90) days from the date of CCC's
first delivery of the Defined Product to a commercial customer or
(ii) one hundred eighty (180) days from Acceptance of the
deliverable by CCC, the Licensed Programs and Documentation will
be substantially free from defects in design and from program
errors, and conform to the specifications in Schedule A of the
applicable Addendum.
14.2 Except as set forth in this Paragraph, DCL MAKES NO WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
(15) REPRESENTATIONS AND WARRANTIES OF CCC
CCC hereby represents and warrants to DCL as follows.
(a) That CCC shall not disclose or distribute (except as expressly authorised
in this Agreement) the Proprietary Information to any third party except
with prior written agreement from DCL.
The following disclosures and distributions of the Proprietary Information
are expressly permitted, provided that the party to whom disclosure is made
is correspondingly bound (to the same extent that CCC is bound hereunder)
to keep the disclosed information secret and confidential:
(i) those required to comply with any relevant source code escrow
provision to which CCC is, or may become, subject to;
(ii) those designed solely to permit CCC to have a CCC product
incorporating the Licensed Programs translated into a language other
than English;
(iii)those third party contract programmers, consultants and other such
contractors, who are authorized by CCC to perform work on the Source
Code of the Licensed Programs, or on other Proprietary Information,
solely for the purpose of developing or supporting a CCC product
incorporating the Licensed Programs.
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<PAGE>
(b) That CCC shall not sell or otherwise distribute the Licensed Programs
or Proprietary Information except pursuant to the terms of this
Agreement.
(16) CONFIDENTIALITY
16.1 CCC agrees that the Proprietary Information may constitute secret and
confidential information of DCL, and CCC agrees that, it will not
disclose to others, and will use reasonable efforts to prevent any of
its officers, employees, Affiliates, distributors and agents from
disclosing to others, any such confidential information if clearly
marked "confidential", except only to the extent necessary to parties
installing or licensing the Licensed Programs, who shall
correspondingly be bound to keep all such information secret and
confidential.
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<PAGE>
16.2 Except where required by law to do so, each party will refrain from
disclosing to any third party any information obtained from the other
party, which the other party has designated as confidential,
concerning its operations, strategies, relationships, communications,
methods, customers, information pertaining to sublicensees, vendors,
subscribers, product offerings, service offerings, business plans or
other proprietary or confidential information, without advance written
approval from the other party.
16.3 For purposes of this Paragraph, the party owning rights in or
disclosing confidential information is termed the "Discloser", and the
party receiving such information is termed the "Recipient". The
following information shall not be considered confidential.
(a) Information presently in the public domain;
(b) Information which hereafter becomes part of the public domain
except as a result of the fault of the Recipient;
(c) Information which CCC and DCL agree in writing may be disclosed;
(d) Information independently developed by the Recipient without use
of information derived from the Discloser;
(e) Information which the Recipient is obliged to produce as a result
of a court order or pursuant to governmental action provided the
Discloser shall have been given notice and an opportunity to
appear and object to such disclosure, but is unsuccessful.
(17) PRINTING AND REPRODUCTION OF DOCUMENTATION
CCC may incorporate any information contained in the Documentation into CCC's
Own manuals, but may not distribute DCL's actual Documentation.
CCC may not reproduce DCL's Documentation except for use by CCC in installing,
modifying, testing and using the Licensed Programs or in preparing CCC's own
manuals, except as otherwise permitted in Paragraph 15.
The responsibility of and expense associated with any publishing of end-user
documentation associated with CCC's use of the Licensed Programs shall be that
of CCC.
(18) END USER RIGHTS AND SUPPORT
When a Licensed Program or Derivative Work has been sublicensed by CCC to a
third party, the third party may use the Licensed Programs for the term and in
the manner provided for in the agreement between CCC and the third party
applicable to such Licensed Program or Derivative Work. The rights and
obligations set forth therein are independent of this Agreement and will survive
the termination of the relationship between CCC and DCL. CCC is responsible for
Prime Support of all CCC customers. In the event that a CCC customer contacts
DCL for support, DCL shall refer the customer to CCC.
(19) INFRINGEMENT
DCL shall defend, at its expense, and shall pay the cost and damages awarded in
any action brought against CCC, or any customer of CCC, based on allegation that
the Licensed Programs or Documentation, or any portion thereof, or trademark
provided hereunder, infringes a patent, copyright, trademark or trade secret
wherever issued, or constitutes an unauthorized of any trade secret or other
proprietary information belonging to a third party, provided that CCC promptly
notifies DCL in writing of such claim and DCL shall have had sole control of the
defense of any such action and all negotiations for its settlement or compromise
(except that any such settlement or compromise that admits any liability or
wrongdoing by CCC, or may adversely affect CCC's reputation or business, must
first be approved by CCC, which may withhold such approval in its sole
discretion), and provided further that DCL shall have no liability to CCC or any
Affiliate, distributor, dealer or
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customer of CCC under this Paragraph if any infringement or allegation thereof
is based upon any material modification to the Licensed Programs not made or
approved by DCL.
(20) INDEMNIFICATION
DCL shall defend, at its expense, and shall pay all reasonable cost and damages
of (a) any settlement to which DCL has given written consent, or (b) a final
court decision, in both cases resulting from any claim or demand brought against
CCC or CCC customers based on an allegation of incorrect design, analysis or
error in the Licensed Programs, if CCC or CCC's customer, as applicable, (i)
promptly notifies DCL in writing of the claim; (ii) gives DCL all reasonably
requested information which CCC or CCC's customer has concerning-.the claim;
(iii) reasonably cooperates with and assists DCL in defending the claim; and
(iv) gives DCL sole authority to defend or settle the claim (except that any
such settlement that admits any liability or wrongdoing by CCC, or may adversely
affect CCC's reputation or business, must first be approved by CCC, which may
withhold such approval in its sole discretion).
If an injunction is issued against CCC's sale, use, marketing or distribution of
the Licensed Programs or the Documentation as permitted under this Agreement, or
if in DCL's opinion the Licensed Programs or the Documentation are likely to
become the subject of claim or demand, DCL shall, at its option and at its
expense, do one of the following: (i) obtain for CCC the right to continue that
use or marketing; or (ii) replace or modify the Licensed Programs with other
programs having substantially similar functionality and performance or the
Documentation so that it becomes noninfringing.
DCL will not have any liability under this Paragraph (20) if (i) any claim of
such incorrect design, analysis, error, or infringement is caused by the use of
the Licensed Programs or the Documentation in combination with any materials not
furnished directly by DCL, or is based on a material modification of the
Licensed Programs or the Documentation otherwise than at DCL's direction or
approval, (ii) the Licensed Programs are used in a manner for which they were
not designed, or are not used according to their specifications, or (iii) DCL
provided CCC with a later version of the Licensed Programs or Documentation, and
CCC's use of that later version would have avoided the claim of incorrect
design, analysis or error in the Licensed Programs.
(21) ACCEPTANCE
CCC shall evaluate the Licensed Programs and the Proprietary Information and
shall submit a written Acceptance, deferral of Acceptance, or rejection to DCL
within thirty (30) days after final delivery as defined in Schedule A of the
applicable Addendum (the "Notice Date").
CCC will begin evaluation of the Licensed Programs promptly, and will, in good
faith, use its reasonable best efforts to complete its evaluation testing in a
timely fashion, such that DCL is given reasonable notice of outstanding problems
in the Licensed Programs.
In the absence of written deferral of Acceptance or rejection by such date, CCC
will be deemed to have accepted the Licensed Programs.
CCC may defer Acceptance, or may reject the Licensed Programs if:
(i) on the Notice Date, there are any unresolved problems of Severity 1 or
2 (as set forth in Schedule C of each Addendum), or
(ii) on the Notice Date, there are an unreasonable number of open problems
of Severity 3 or 4.
In the event of deferral of Acceptance by CCC, DCL shall deliver to CCC fixes
for those unresolved problems in the Licensed Programs defined by the criteria
in 21 (i) and 21 (ii) above (the "Fix Package"), within thirty (30) days of
receipt of written notification of deferral of Acceptance by CCC. CCC shall then
re-evaluate the Licensed Programs and the Proprietary Information and shall
submit a written Acceptance or rejection to DCL within fifteen (15) days of
receipt of the Fix Package. CCC may reject the Licensed Programs if, after
delivery of the Fix Package, the Licensed Programs contain (a) any problems of
Severity 1 and Severity 2 (as set forth in Schedule C of each Addendum), or (b)
an UNREASONABLE number of open problems of Severity 3 or 4; and, in both cases,
DCL does not correct these problems within three (3)
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working days of notification to DCL thereof. In the absence of written
Acceptance or rejection, CCC will be deemed to have accepted the Licensed
Programs.
In the event that CCC rejects the Licensed Programs, CCC may, at its sole
option, terminate this Agreement and receive a full refund of all amounts paid
to DCL by CCC hereunder.
In no event shall CCC make any product containing the Licensed Programs
commercially available to third parties prior to Acceptance.
Following acceptance of the Licensed Programs by CCC, DCL will have no liability
for the consequences of any use which CCC makes of the Licensed Programs except
as otherwise provided in this Agreement.
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(22) TERM AND TERMINATION
CCC shall have all rights granted under this Agreement on a continuing basis
until this Agreement and/or any Addenda hereto are terminated according to the
provisions of this Paragraph 22.
Either party may terminate this Agreement or any applicable Addendum: (1 ) for a
breach of any material provision thereof by not less than thirty (30) days
written notice to the nonbreaching party specifying any such breach, unless
within the time period stated in such notice all breaches specified therein
shall have been remedied, or, if any such breach is not susceptible of being
cured within such time period, the other party has begun and is continuing to
remedy such breach diligently and without delay; or (2) immediately upon written
notice to the other party in the event that such other party ceases operations
in the normal course or seeks to make a compromise, assignment, or other
arrangement for the benefit of creditors. Either party may similarly terminate
this Agreement if the other becomes a party to bankruptcy, receivership, or
similar proceedings affecting its financial condition, unless such proceedings
are discharged within sixty (60) days.
Upon termination of this Agreement, other than for material breach solely by CCC
due to failure to make payments to DCL as specified in Addendum 1 Schedule D,
which failure to make payments does not result from a good faith dispute between
the parties, CCC may retain copies of the Licensed Programs solely for the
purpose of providing maintenance and support to CCC's customers with sublicenses
for the Licensed Programs or Derivative Works preexisting at the date of
termination. The obligations of confidentiality, indemnity and payment on both
parties shall survive the termination of this Agreement. No other obligation
shall survive termination of this Agreement except those which by their
language, nature or context are intended to survive termination hereunder.
(23) NOTICES
Service of all notices under this Agreement shall be sufficient only if mailed
by certified or registered mail or recognized courier service, or personally
delivered, to the DCL address or CCC address as stated herein under
"PRINCIPALS", and shall be deemed given as of the day they are actually
received. Either party may change its address for service by written notice to
the other.
(24) UNFORESEEN EVENTS
Notwithstanding anything else in this Agreement, no default, delay or failure to
perform on the part of either party shall be considered a breach of this
Agreement if such default, delay or failure to perform is shown to be directly
related to causes beyond the reasonable control of the party charged with a
default, including, but not limited to, causes such as strikes, lockouts or
other labour disputes, riots, civil disturbances, actions or in action's of
governmental authorities or suppliers, epidemics, war, embargoes, severe
weather, fire, earthquake, acts of God or public enemy, nuclear disasters, or
default of a common carrier. If any such delay on either party's part extends
beyond sixty (60) days, the other party may cancel any deliverable or service so
delayed without liability or obligation therefore.
(25) SEVERABILITY
In the event that any one or more of the provisions of this Agreement shall for
any reason be held to be unenforceable in any respect under the law, such
unenforceability shall not affect any other provision, but this Agreement shall
then be construed as if such unenforceable provision or provisions had never
been contained herein.
(26) ENTIRE AGREEMENT
This Agreement supersedes all prior proposals, oral or written, all
negotiations, conversations or discussions between the parties relating to this
Agreement and all past course of dealing or industry custom. CCC and DCL
acknowledge that they have not been induced to enter into this Agreement by any
representations or statements, oral or written, not expressly contained herein,
and that they have had an opportunity to have this Agreement reviewed by legal
counsel. The terms and conditions of this Agreement shall prevail,
notwithstanding any variance with the terms and conditions of any subsequent
purchase order or other written instrument submitted by CCC, unless such
variation is accepted by DCL.
(27) GENERAL CONDITIONS
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This Agreement shall be construed and exclusively enforced in accordance with
the laws of the State of Washington, USA, applicable to contracts made and to be
performed entirely in the State of Washington, without reference to principles
of conflicts of laws.
Except in connection with an action by either party for an injunction or to
compel specific performance (or for other equitable relief), in the event of a
disagreement or dispute between DCL and CCC relating in any way to this
Agreement or the rights and obligations of DCL or CCC under this Agreement, the
matter will be settled by an arbitration conducted in Seattle, Washington in
accordance with the rules of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with said rules. Both parties agree to
be bound by the unanimous or, if there is no unanimity, the majority decision of
the arbitrators, which shall be final and unappealable, and to share equally the
fees and expenses of the arbitrators. Judgement upon any award of the
arbitrators may be entered in any court for the judicial acceptance of the award
and on order of enforcement. By agreeing to arbitration, neither party is
waiving any benefit of the statute of limitations or other equitable defenses.
In the event of legal action by one party against the other, DCL consents to
jurisdiction in any competent court located in the United States and agrees that
service of process on DCL will be proper if such service complies with the
United States Federal Rules of Civil Procedure.
The International Sale of Goods Convention will not apply to this Agreement.
This Agreement may be modified only by a writing signed by each party. However,
this Agreement consists of this document and various schedules which shall be
deemed a part of the full Agreement. If additional products are brought under
this Agreement by an Addendum, such Addendum shall be deemed a part of this
Agreement from the date of its execution and attachment.
Headings included in this Agreement are for convenience only and are not to be
used to interpret the agreement between the parties.
The failure of either party to enforce at any time any of the provisions hereof
shall not be construed to be a waiver of the right of such party thereafter to
enforce any such provisions.
All rights and remedies of the parties are cumulative.
(28) ASSIGNABILITY
The provisions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto, their successors and assigns, but neither party may
assign this Agreement without the express written consent of the other party,
which consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, CCC may assign this Agreement to another division of CCC or to an
Affiliate of CCC without the consent of DCL but with prior written notification
to DCL.
(29) LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE FOR INDIRECT OR CONSEQUENTIAL DAMAGES TO THE OTHER
PARTY, ARISING FROM, OR RELATED TO THIS AGREEMENT IN ANY WAY WHATSOEVER.
(30) INTERPRETATION
The following shall apply in the interpretation or construction of this
Agreement and/or any applicable Addendum:
(a) the terms "include" or including'' mean without limitation;
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(b) the terms therein", hereof' or like terms refer to this Agreement
and any applicable Addenda; and
(c) whenever a party is required to perform an act under this
Agreement and/or any applicable Addendum, such party has an
obligation to perform reasonably and in good faith.
(31) COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same document.
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EXECUTED BY THE PARTIES BELOW:
DATA CONNECTION LIMITED CONNECTSOFT COMMUNICATIONS
CORPORATION
By: /s/John Lazar By: /s/Robert Marcus
JOHN LAZAR ROBERT MARCUS
Typed Name: John Lazar Typed Name: Robert Marcus
Title: DIRECTOR Title: PRESIDENT & CEO
Date: July 14, 1997 Date: July 10, 1997
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Exhibit 10.6
SRI Agreement No. ____________
SOFTWARE DEVELOPMENT AGREEMENT
THIS SOFTWARE DEVELOPMENT AGREEMENT dated as of August 21, 1997,
(hereinafter "Agreement"), is entered into between SRI INTERNATIONAL, a
California nonprofit public benefit corporation (hereinafter "SRI"), having a
place of business located at 333 Ravenswood Avenue, Menlo Park, California
94025-3493, and CONNECTSOF COMMUNICATIONS CORPORATION, a Delaware corporation
(hereinafter "CCC"), having a place of business located at 11130 NE 33rd Place,
Suite 250, Bellevue, Washington 98004.
WITNESSETH
WHEREAS, SRI owns or has rights in certain software commonly referred to by
SRI as its Open Agent Architecture Facilitator and Libraries;
WHEREAS, CCC desires to have SRI develop certain derivative works of the
Core OAA as defined below on the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the terms defined in this article shall
have the respective meanings set forth below:
1.1 "CORE OAA" shall have the meaning set forth in the License
Agreement.
1.2 "Confidential Information" shall mean with respect to a party hereto
(the "Disclosing Party"), collectively, all technical, financial and
business information of any kind whatsoever, and all tangible and
intangible embodiments thereof of any kind whatsoever, disclosed by
the Disclosing Party to the other party hereto (the "Receiving
Party") or obtained by the Receiving Party through observation or
examination of the foregoing, but only to the extent such
information or embodiment is maintained as confidential by the
Disclosing Party and is marked or otherwise identified as
confidential when disclosed to the Receiving Party or, in the case
of information given verbally, is identified as confidential in a
written document received by the Receiving Party within forty-five
(45) days after verbal disclosure to the Receiving Party.
<PAGE>
SRI Agreement No. ____________
1.3 "DEVELOPMENT PERIOD" shall mean the period commencing on the
Effective Date, and, unless terminated earlier as provided in this
Agreement or extended by the mutual written agreement of the
parties, expiring on the date that SRI delivers the Port to CCC in
accordance with the Statement of Work.
1.4 "DEVELOPMENT PROGRAM" shall mean the software development work
performed by SRI in accordance with the Statement of Work.
1.5 "EFFECTIVE DATE" shall mean the date first-written above.
1.6 "LICENSE AGREEMENT" shall mean the License Agreement dated s of the
date of this Agreement, between the parties (as renewed, amended or
restated from time to time).
1.7 "OBJECT CODE" shall mean any machine executable code derived in
whole or part from the Source Code.
1.8 "PERSON" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, assoc8iation, joint stock
company, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, governmental authority or any other
form of entity not specifically listed herein.
1.9 "PORT" shall mean the program which results from SRI's conversion
pursuant to the Development Program of all or part of the Core OAA
to a new programming paradigm using a refined communications model
to better support distributed objects. Port does not include
enhancements made by CCC to the4 Core OAA and agent library that are
outside4 the current scope of OAA.
1.10 "SOURCE CODE" shall mean all human readable code which documents
the4 Licensed Software (as defined in the License Agreement),
including all related compilers, utilities, listings, rest suites,
build scripts, libraries, design documentation, and technical
documentation.
1.11 "SRI INTELLECTUAL PROPERTY RIGHTS" shall mean all parents, patent
applications, copyrights, know-how and other intellectual property
rights in any country of any type whatsoever, in or to the Port, and
any other discoveries, inventions and results by SRI under the
Development Program.
1.12 "STATEMENT OF WORK" shall mean the description of the research and
development to be performed, attached hereto as Exhibit A, and
incorporated herein by this reference, as advised from time to time
by the written agreement of the parties.
<PAGE>
SRI Agreement No. ____________
2. DEVELOPMENT PROGRAM
2.1 Conduct of Development. During the Development Period, SRI shall
conduct the Development Program in accordance with the Statement of
Work and in compliance in all material respects with all applicable
laws and regulations. SRI shall develop and provide CCC with the
Port in accordance with the Statement of Work. SRI shall use its
commercially reasonable efforts to provide CCC with the Port by
March 6, 1998.
2.2 Fees. In consideration for the development services to be performed
by SRI. CCC will pay SRI for the consulting and development
services in accordance with SRI's standard hourly rates for
comparable development services plus approved travel expenses. SRI
estimates that the Development Program can be completed for $126,000
plus approved travel expenses. All such travel expenses shall be
approved in writing in advance by CCC. SRI shall not incur charges
in conducting the Development Program in excess of the total amount
estimated, and CCC shall have no obligation to reimburse SRI for
charges incurred in excess of such total amount estimated, unless
otherwise expressly agreed to in writing by CCC. If it appears to
SRI that the Development Program cannot be completed without
incurring charges or expenses in excess of the total amount
estimated, SRI shall promptly notify CCC and CCC shall determine
whether to (a) discontinue the Development Program and terminate
this Agreement, or (b) authorize SRI to spend additional amounts, or
(c) revise the scope of the Development Program as appropriate.
Development fees are payable as follows:
PAYMENT DATE AMOUNT
--------------------------------------------- ------------
Upon execution of this Agreement $30,000
On the date 31 days after the Effective Date, $20,000
provided that this Agreement has not been
previously terminated by CCC pursuant to
Section 6.2 below
When the fees and expenses for work performed by SRI have reached an
aggregate of $50,000, SRI shall thereafter invoice CCC monthly for
fees and expenses incurred in the immediately preceding month, with
such invoices being due and payable thirty (30) days from receipt of
the invoice by CCC.
Upon receipt of the first payment listed above, SRI shall initiate
work on the Development Program.
2.3 RECORDS. SRI shall maintain records, in sufficient detail and in
good scientific manner, which shall reflect all work done and
results achieved in the performance of the Development Program
(including all data in the form required under any applicable laws
and regulations).
<PAGE>
SRI Agreement No. ____________
3. DISCLAIMER OF WARRANTIES
3.1 EXCEPT AS EXPRESSLY STATED HEREIN OR IN THE LICENSE AGREEMENT, SRI
EXCLUDES AND DISCLAIMS ALL WARRANTIES, EITHER EXPRESSED OR IMPLIED,
INLCUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANGEABILITY, AND FITNESS FOR A PARTICULR PURPOSE AND
NON-INFRINGEMENT, WITH RESPECT TO THE WORK PERFORMED UNDER THE
DEVELOPMENT PROGRAM. SRI DOES NOT WARRNT THE ACCOMPANYING
DOCUMENTATION AND ALL RESPONSIBILITY PERTAINING TO THE USE THEREOF
UNDER THIS AGREEMENT IS HEREBY ASSUMED BY CCC.
3.2 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION
MADE OR WARRANTY GIVEN BY SRI THAT ANY PATENT WILL ISSUE BASED UPON
ANY WORK PERFORMED BY SRI UNDER THE DEVELOPMENT PROGRAM OR, SUBJECT
TO THE REPRESENTATIONS GIVEN IN PARAGRAPH 2.2 OF THE LICENSE
AGREEMENT, THAT SUCH WORK WILL NOT INFRINGE UPON THE PATENT OR
PROPRIETARY RIGHTS OF ANY OTHER PERSON.
4. CONFIDENTIALITY
4.1 CONFIDENTIAL INFORMATION. Each party shall maintain in confidence
the Source code and other Confidential Information disclosed by the
other party. Subject to the provisions of Section 3.2 of the
License Agreement neither party shall use, disclose or grant the use
of the other's Confidential Information except on a need-to-know
basis to those directors, officers, employees, agents, sublicensees
and permitted assignees, to the extent such disclosure is reasonably
necessary in connection with its activities as expressly authorized
by this Agreement, prior to disclosure, the party wishing to
disclose the other's confidential Information shall obtain the
written agreement of any such Person, who is not otherwise bound by
fiduciary obligations to it, to hold in confidence and not make use
of the confidential Information for any purpose other than those
permitted by this Agreement. Each party shall notify the other upon
discovery of any unauthorized use or disclosure of that party's
Confidential Information.
4.2 PERMITTED DISCLOSURES. The nonuse and nondisclosure obligations
contained in this article shall not apply to the extent that:
(a) The Receiving Party is required to
(i) disclose information by law, order or regulation of
governmental agency or a court of competent
jurisdiction; or
<PAGE>
SRI Agreement No. ____________
(ii) the information was rightfully known by the Receiving
Party (as shown by its written records) prior to the
date of disclosure to it by the Disclosing Party; or
(iii) the information was disclosed to the Receiving Party on
an unrestricted basis from a third party not under a
duty of confidentiality to the Disclosing Party or
(iv) the information was independently developed by
employees or agents of the Receiving Party without
access to the Confidential Information of the
Disclosing Party.
4.3 TERMS OF THIS AGREEMENT. Except as otherwise provided in this
article, SRI and CCC shall not disclose any terms or conditions of
this Agreement to any third party without the prior consent of the
other party.
4.4 USE OF NAMES: Except as required by law, neither CCC nor SRI shall
issue any press release or other public statements in connection
with this Agreement intended for use in the public media in a manner
suggesting any endorsement by the other of CCC or SRI, respectively,
without the prior approval of such other party, which approval shall
not be unreasonably withheld or delayed. Notwithstanding the above,
with the prior approval of the other as to form, either SRI or CCC
may acknowledge to third parties the other party's contributions to
the Licensed Software or to CCC's Licensed Products under the
License Agreement.
5. INTELLECTUAL PROPERTY RIGHTS
SRI shall exclusively own all right, title and interest in and to the Port
and any other discoveries, inventions and results of the Development
Program, together with all SRI Intellectual Property Rights. CCC shall
acquire no right, title, license or interest in or to the Port and any
other discoveries, inventions and results of the Development Program or in
the SRI Intellectual property Rights pursuant to this Agreement. Any and
all license rights granted by SRI to CCC therein or thereto shall be
expressly set forth in the License Agreement executed simultaneously with
this Agreement or in a subsequent written document duly negotiated,
executed and delivered by both parties.
6. TERMINATION
6.1 EXPIRATION. This Agreement shall expire at the end of the
Development Period, unless terminated earlier as provided herein or
extended by mutual written agreement of the parties.
6.2 TERMINATION BY CCC FOR PATENT INFRINGEMENT REASONS. If patent
counsel for CCC reasonably determines that the Licensed Software is
reasonably likely to infringe the valid patent claims of a third
party and (as a result thereof) CCC reasonably
<PAGE>
SRI Agreement No. ____________
believes that it will be unable to commercialize the Licensed
Software, CCC shall have the right (but not the obligation) to
terminate this Agreement by giving SRI express written notice
thereof on or before the date 30 days after the Effective Date. SRI
will reasonably cooperate with CCC and its patent counsel to conduct
patent due diligence during such time period. If CCC fails to
timely give such notice, then CCC shall have no right to terminate
this Agreement pursuant to this Section 6.2.
6.3 TERMINATION FOR BREACH. Except as otherwise provided in the article
below regarding force majeure, a party may terminate this Agreement:
(a) upon or after the material breach of this Agreement or the
License Agreement by the other party if that party has not
cured such breach within either
(i) ten (10) days after receipt of written notice thereof
by the non-breaching party for breaches involving the
payment of money; or
(ii) thirty (30) days after receipt of written notice
thereof by the non-breaching party for breaches not
involving the payment of money; or
(b) if the other party voluntarily commences any action or seeks
any relief regarding its liquidation, reorganization,
dissolution or similar act or any other relief under any
bankruptcy, insolvency or similar law against the other party,
without its consent, which continues undismissed or unstayed
for a period of sixty (60) days.
6.4 SURVIVAL.
6.4.1 Termination of this Agreement for any reason shall not
release either party hereto from any liability which at the
time of such termination has already accrued to the other
party.
6.4.2 Expiration or termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such
expiration or termination, and the provisions of Article 4
shall survive the expiration or termination of this
Agreement.
6.5 PAYMENT DUE AFTER TERMINATION. In the event of termination by
either party (other than by CCC under Section 6.3 above), SRI shall
be entitled to receive payment of all unpaid amounts for services
completed prior to the date of termination, for contractual
commitments made to third parties prior to the notice of termination
to the extent that liability for such commitments cannot be
mitigated and for such reasonable costs and expenses as are
necessary to terminate the services.
<PAGE>
SRI Agreement No. ____________
7. LIMITED LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY THIRD PARTY
FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING
LOST PROFITS OR ANTICIPATED REVENUES) ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR WITH RESPECT TO ANY CLAIM, DEMAND, ACTION OR OTHER PROCEEDING
RELATING TO THIS AGREEMENT HOWEVER CAUSED, AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE) WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF UCH DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS AGREEMENT, IN NO EVENT SHALL SRI'S LIABILITY OWING TO CCC OR ANY THIRD
PARTY WITH RESPECT TO ANY CLAIM, DEMAND, ACTION OR OTHER PROCEEDING
RELATING TO THIS AGREEMENT, EXCEED THE TOTAL AMOUNT ACTUALLY PAID BY CCC TO
SRI UNDER THIS AGREEMENT AND THE LICENSE AGREEMENT.
8. DISPUTE RESOLUTION
8.1 COMMERCIAL ARBITRATION. Except for the right of either party to
apply to a court of competent jurisdiction for a temporary
restraining order or preliminary injunction to preserve the status
quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, any dispute arising under
this Agreement shall be resolved through mediation and arbitration.
The parties agree to first try to resolve the dispute informally
with the help of a mutually agreed upon mediator. If the parties
cannot agree on a mediator or fail to arrive at a mutually
satisfactory solution through mediation, the parties agree to submit
their dispute to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall take place in San Francisco,
California if initiated by CCC and in Seattle, Washington if
initiated by SRI.
8.2 SELECTION OF ARBITRATORS. The arbitration may be conducted by one
impartial arbitrator by mutual agreement or by three arbitrators if
the parties are unable to agree on a single arbitrator within ten
(10) days of first demand for arbitration. All arbitrators are to
be selected from a panel provided by the American Arbitration
Association. The chair shall be an attorney at law, and all
arbitrators shall have a background or training either in computer
law, computer software technology or marketing of computer software
products.
8.3 DISCOVERY AND ARBITRATION PROCEDURES. Upon request of a party, the
arbitrators shall have the authority to permit discovery to the
extent they deem appropriate. A court reporter shall record the
arbitration hearing and the reporter's transcript shall be the
official transcript of the proceeding. The arbitrators shall have
no power to add or detract from the agreements of the parties and
may not make any
<PAGE>
SRI Agreement No. ____________
ruling or award that does not conform to the terms and conditions of
this Agreement. The arbitrators shall have no authority to award
punitive damages or any other damages not measured by the prevailing
party's actual damages. The arbitrators shall specify the basis for
any damage award and the types of damages awarded. The decision of
the arbitrators shall be final and binding on the parties and may be
entered and enforced in any court of competent jurisdiction by
either party.
8.4 COSTS AND ATTORNEY'S FEES. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorneys fees, expert
witness costs and expenses and all other costs and expenses incurred
in connection with the proceedings, unless the arbitrators shall for
good cause determine.
9. REPRESENTATIONS AND WARRANTIES
9.1 CORPORATE EXISTENCE AND POWER. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of
the state in which it is incorporated; (b) has the corporate power
and authority and the legal right to own and operate its property
and assets, to lease the property and assets it operates under
lease, and to carry on its business as it is now being conducted and
(c) is in compliance with all requirements of applicable law, except
to the extent that any noncompliance would not have a material
adverse effect on the properties, business, financial or other
condition of it and would not materially adversely affect its
ability to perform its obligations under the Agreement.
9.2 AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Such party (a) has
the corporate power and authority and the legal right to enter into
the Agreement and to perform its obligations hereunder and (b) has
taken all necessary corporate action on its part to authorize the
execution and delivery of the Agreement and the performance of its
obligations hereunder. The Agreement has been duly executed and
delivered on behalf of such party, and constitutes a legal, valid,
binding obligation, enforceable against such party in accordance
with its terms.
9.3 NO CONSENTS. All necessary consents, approvals and authorizations
of all governmental authorities and other Persons required to be
obtained by such party in connection with the Agreement have been
obtained.
9.4 NO CONFLICT. The execution and delivery of the Agreement and the
performance of such party's obligations hereunder (a) do not
conflict with or violate any requirement of applicable laws or
regulations, and (b) do not conflict with, or constitute a default
under, any contractual obligation of it.
10. GENERAL
<PAGE>
SRI Agreement No. ____________
10.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of California, without
regard to conflicts of laws principles.
10.2 INDEPENDENT CONTRACTORS. The relationship of CCC and SRI
established by this Agreement is that of independent contractors.
Nothing in this Agreement shall be construed to create any other
relationship between CCC and SRI. Neither party shall have any
right, power or authority to assume, create or incur any expense,
liability or obligation, express or implied, on behalf of the other.
10.3 ASSIGNMENT. This Agreement may not be assigned or transferred
(directly or indirectly) by either party whether voluntarily, by
operation of law, change in control or otherwise, without the prior
express written consent of the other party, except to any entity
under common control with a party or an entity that succeeds to all
or substantially all of the assigning party's business or assets
relating to this Agreement whether by sale, merger, operation of law
or otherwise; provided that such assignee or transferee agrees in
writing to be bound by the terms and conditions of this Agreement.
Any assignment or transfer in violation of this section shall be
void.
10.4 FORCE MAJEURE. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any
term of this Agreement (other than the payment of money) to the
extent, and for so long as, such failure or delay is caused by or
results from causes beyond the reasonable control of the affected
party including but not limited to fires, earthquakes, floods,
embargoes, wars, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other
labor disturbances, acts of God or acts, omissions or delays in
acting by any governmental authority or other party.
10.5 NOTICES. Any consent, notice or other communication required or
permitted to be given or made under this Agreement by one party to
the other party shall be made in writing and delivered by any lawful
means and addressed to the other party t its address indicated
below, or to such other address or to such other address as the
addressee shall have last furnished in writing to the addressor.
Except as otherwise provided in this Agreement, such consent,
notice, or communication shall be effective upon receipt by the
addressee.
If to SRI: If to CCC:
--------- ---------
SRI International ConnectSoft Communications
333 Ravenswood Avenue Corporation
Menlo Park, California 94205 11130 NE 33rd Place, Suite 250,
Attn: Harold E. Kruth Bellevue, Washington 98004
Telephone: (415) 859-2061 Attn: President
Facsimile: (415) 859-3834 Telephone: 206-803-5431
<PAGE>
SRI Agreement No. ____________
Facsimile: 206-803-5439
With a copy to:
--------------
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel
Citicorp Center
153 W. 53rd Street
New York, New York 10022
Attn: Alan Sudin
Telephone: (212) 801-9286
Facsimile: (212) 223-7161
10.6 MODIFICATION; WAIVER. This Agreement may not be altered, amended or
modified in any way except by a writing signed by the party against
whom enforcement is sought. The failure of a party to enforce any
provision of this Agreement shall not be construed to be a waiver of
the right of such party to thereafter enforce that provision or any
other provision or right.
10.7 HEADINGS. Headings included herein are for convenience only, do not
form a part of this Agreement and shall not be used in any way to
construe or interpret this Agreement.
10.8 SEVERABILITY. If any provision of this Agreement shall be found by
a court to be void, invalid or unenforceable, the same shall be
reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of
the remainder of this Agreement.
10.9 ENTIRE AGREEMENT. The parties hereto acknowledge that this
Agreement, the License Agreement and their respective Exhibits set
forth the entire agreement and understanding of the parties hereto
as to the subject matter hereof and thereof, and supersedes all
prior discussions, agreements and writings in respect hereto.
10.10 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
SRI INTERNATIONAL CONNECTSOFT COMMUNICATIONS
CORPORATION
_____________________ ------------------------
<PAGE>
SRI Agreement No. ____________
By: Donna Linne By: Robert Marcus
Title: Senior Contract Administrator Title: President
<PAGE>
SRI Agreement No. ____________
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (hereinafter "Agreement") is made as of August 21,
1997, (the "Effective Date") by and between SRI INTERNATIONAL, a California
nonprofit public benefit corporation, having a place of business at 333
Ravenswood Avenue, Menlo Park, CA 94025 (hereinafter "SRI") and CONNECTSOFT
COMMUNICATIONS CORPORATION, a Delaware corporation (hereinafter "CCC"), having a
place of business at 11130 NE 33rd Place, Suite 250, Bellevue, Washington 98004.
WITNESSETH
WHEREAS, SRI has developed, is continuing to develop and has rights to
certain software commonly referred to by SRI as its Open Agent Architecture
Facilitator and Libraries;
WHEREAS, concurrently herewith, the parties are entering into a Software
Development Agreement pursuant to which CCC is engaging SRI to develop certain
derivative works of such software;
WHEREAS, CCC desires to obtain, and SRI is willing to grant, a license to
such software and derivative works on the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and provisions hereinafter set forth, the parties do hereby agree as follows:
ARTICLES
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
indicated:
1.1 "ADD-ONS OR PLUG-IN" shall mean enhancements to Core OAA whose
purpose is to facilitate the writing, debugging, documentation, and
distribution of OAA agents.
1.2 "CONFIDENTIAL INFORMATION" shall mean with respect to a party hereto
(the "Disclosing Party"), collectively, all technical, financial and
business information of any kind whatsoever, and all tangible and
intangible embodiments thereof of any kind whatsoever, and all
tangible and intangible embodiments thereof of any kind whatsoever,
disclosed by the Disclosing Party to the other party hereto (the
"Receiving Party") or obtained by the Receiving Party through
observation or examination of the foregoing, but only to the extent
such information or embodiment is maintained as confidential by the
Disclosing Party and is marked or otherwise identified as
confidential when disclosed to the Receiving Party or, in the case
of information given verbally, is identified as confidential in a
written document received by the Receiving Party within forty-five
(45) days after verbal disclosure to the Receiving Party.
<PAGE>
SRI Agreement No. ____________
1.3 "CORE OAA" shall mean the current version of the Source Code, Object
Code, materials, information, data and documentation, which exists
and is in the custody and control of SRI as its Open Agent
Architecture Facilitator and Libraries and is more particularly
described on Exhibit A.
1.4 "CORE OAA ENHANCEMENTS" shall mean those certain algorithms and
documentation which constitute modifications or enhancements to the
Core OAA and which are developed by SRI prior to the third
anniversary of the date of this Agreement.
1.5 "DERIVATIVE WORK" shall mean a work that is based upon the Port,
such as revision, modification, translation, expansion, or any other
form in which such Port may be recast, transformed or adapted and
that if prepared without the authorization of SRI would constitute
copyright infringement or other infringement of the proprietary
rights of SRI.
1.6 "LICENSED PRODUCT" shall mean a product or process which, directly
or indirectly, incorporates, contains, is derived by use of or is
made using the Licensed Software or a Derivative Work.
1.7 "LICENSED SOFTWARE" shall mean, collectively, the Core OAA, the Core
OAA Enhancements and the Port, in both Source Code and Object Code
Form.
1.8 "NET SALES" shall mean, with respect to any Licensed Product, the
invoiced sales price of such Licensed Product billed to independent
customers who are not affiliates, less to the extent included in the
invoiced sales price, (a) credits, allowances, discounts and rebates
to, and chargebacks from the account of, such independent customers
for damaged, rejected or returned Licensed Product; (b) actual
freight and insurance costs incurred in transporting such Licensed
Product in final form to such customers; (c) cash, quantity and
trade discounts; and (d) sales, use, value-added and other taxes or
governmental charges incurred in connection with the exportation or
importation of such Licensed Product in final form.
1.9 "OBJECT CODE" shall mean any machine executable code derived in
whole or in part from the Source Code.
1.10 "PERSON" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization, governmental authority or any other
form of entity not specifically listed herein.
1.11 "PORT" shall have the meaning set forth in the Software Development
Agreement.
<PAGE>
SRI Agreement No. ____________
1.12 "SOFTWARE DEVELOPMENT AGREEMENT" shall mean the Software Development
Agreement dated as of the date of this Agreement, between the
parties (as amended or restated from time to time).
1.13 "SOURCE CODE" shall mean all human readable code which documents the
Licensed Software, including all related compilers, utilities,
listings, test suites, build scripts, libraries, design
documentation, and technical documentation.
1.14 "SRI INTELLECTUAL PROPERTY RIGHTS" shall mean all patents, patent
applications, copyrights, know-how and other intellectual property
rights in any country of any type whatsoever, owned by or licensed
to SRI, in or to the Licensed Software, all to the extent and only
to the extent that it is owned by or licensed to SRI, and SRI has
the right to grant CCC licenses, immunities and other rights
thereunder without payment of any fees or royalties to third
parties.
2. REPRESENTATIONS
2.1 Each party hereby represents and warrants to the other party as
follows;
2.1.1 CORPORATE EXISTENCE AND POWER. Such party (a) is a
corporation duly organized, validly existing and in good
standing under the laws of the state in which it is
incorporated; (b) has the corporate power and authority and
the legal right to own and operate its property and assets,
to lease the property and assets it operates under lease,
and to carry on its business as it is now being conducted;
and (c) is in compliance with all requirements of applicable
law, except to the extent that any noncompliance would not
have a material adverse effect on the properties, business,
financial or other condition of it and would not materially
adversely affect its ability to perform its obligations
under this Agreement.
2.1.2 AUTHORIZATION AND ENFORCEMENT OF OBLIGATIONS. Such party
(a) has the corporate power and authority and the legal
right to enter into this Agreement and to perform its
obligations hereunder and (b) has taken all necessary
corporate action on its part to authorize the execution and
delivery of this Agreement and the performance of its
obligations hereunder. This Agreement has been duly
executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable
against such party in accordance with its terms.
2.1.3 NO CONSENTS. All necessary consents, approvals and
authorizations of all governmental authorities and other
Persons required to be obtained by such party in connection
with this Agreement have been obtained.
2.1.4 NO CONFLICT. The execution and delivery of this Agreement
and the performance of such party's obligations hereunder
(a) do not confict with
<PAGE>
SRI Agreement No. ____________
or violate any requirement of applicable laws or
regulations, and (b) do not conflict with, or constitute a
default under, any contractual obligation of it.
2.2 SRI represents and warrants to CCC as follows:
2.2.1 the Licensed Software does not infringe the copyrights of
any third party or constitute a misappropriation of the
trade secrets of any third party;
2.2.2 to the best current actual knowledge of Raymond Perrault,
Adam Cheyer, Harold E. Kruth, Luc Julia, Doug Moran and Ed
Davis, the Licensed Software does not infringe the patent
rights of any third party; and
2.2.3 to the best current actual knowledge of Raymond Perrault,
Adam Cheyer, Harold E. Kruth, Luc Julia, Doug Moran and Ed
Davis, there is no pending or threatened litigation,
including court, administrative or arbitration proceedings,
which if decided adversely to SRI would materially adversely
affect SRI's ownership rights in the Licensed Software, or
the right of SRI to grant the licenses hereunder.
3. LICENSE
3.1 GRANT. On the terms and subject to the conditions of this
Agreement, SRI hereby grants to CCC a non-exclusive, worldwide,
royalty-bearing, license, with the right to grant sublicenses
(subject to the provisions of Section 3.2 below), under the SRI
Intellectual Property Rights (a) to use, copy and reproduce the
Licensed Software, (b) to prepare Derivative Work based upon the
Licensed Software and to use, coy and reproduce such Derivative
Works, and (c) to market, distribute and otherwise exploit the
Licensed Software and such Derivative Works by sale or other
transfer of ownership, or by rental, lease or lending.
3.2 SUBLICENSES. CCC shall not transfer the Source Code to any third
party, for any purpose whatsoever, except
(a) to a customer, contractor or collaborator of CCC who has a need
to know and then only for the purpose of developing Licensed
Products for CCC or incorporating CCC software into another
Licensed Product for CCC; provided, however, that any such
customer, contractor or collaborator shall agree in writing to
maintain in confidence, the Source Code and all other SRI
Confidential Information, as defined in Article 5, to refrain
from transferring the Source Code and all other SRI
Confidential Information to any third party, and to only use
the Source Code and all other SRI Confidential Information for
the limited purpose for which CCC has transferred that
information.
<PAGE>
SRI Agreement No. ____________
(b) Upon request, CCC shall deliver to SRI a copy of each
sublicense of the Licensed Software executed under this
Agreement. Each sublicense shall be subject to the terms and
conditions of this Agreement.
3.3 GOVERNMENTAL RIGHTS. The parties understand that some or all of the
SRI Intellectual Property Rights may have been developed with
funding from the United States Government and, if so, that the
United States Government may have certain rights thereto under 35
U.S.C. Sections 200 ET SEQ.
3.4 RETAINED RIGHTS.
Notwithstanding Section 3.1 above, the parties acknowledge and agree
that the license granted to CCC by this Agreement is subject to
SRI's reservation of the below rights:
(a) the right to use the Licensed Software for research and
government purposes without restriction;
(b) certain rights in favor of the United States Government
pursuant to Title 35 United States Code Chapter 18 and the
regulations promulgated thereunder; and
(c) the right to license the Port to third parties subject to the
following restrictions on SRI and such third parties (other
than the United States government) for the period beginning on
the date on which the parties execute this Agreement and ending
either eighteen (18) months thereafter or twelve (12) months
after the first commercial sale hereunder by CCC, whichever is
earlier.
(i) the third party licensee may not sell or distribute
products which, directly or indirectly, incorporate,
contain, are derived byuse of or are made using the
Port; and
(ii) neither the third party licensee nor SRI may publicly
announce that the third party's products incorporate or
are based upon the Port.
After the expiration of the above period, SRI shall have the
right to license Port to any third party for any commercial
purpose without restriction.
3.5 TECHNICAL ASSISTANCE
3.5.1 Upon execution of this Agreement, SRI shall disclose and
make available to CCC such information as is available to
SRI and was not previously disclosed to CCC regarding the
Licensed Software. From time to time during the term of
this Agreement, SRI shall disclose and make available to CCC
such additional information as is available to SRI and was
not
<PAGE>
SRI Agreement No. ____________
previously disclosed to CCC regarding the Licensed Software.
Notwithstanding anything to the contrary in this Agreement,
except as expressly set forth in the Software Development
Agreement, SRI shall have no obligation to develop any
updates or enhancements to, or future versions of the
Licensed Software.
3.5.2 EXCEPT AS EXPRESSLY SET FORTH IN SECTION 2.2 ABOVE, THE
LICENSED SOFTWARE AND ALL INFORMATION PROVIDED BY SRI UNDER
THIS AGREEMENT ARE PROVIDED "AS IS" AND WITHOUT ANY
REPRESENTATION OR WARRANTY OF MERCHANTIBILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE
INFORMATION OR MATERIALS WILL NOT INFRINGE OR VIOLATE ANY
PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER
PERSON.
3.6 OPTION TO CERTAIN IMPROVEMENTS. If SRI develops any Add-ons or
Plug-ins to the Core OAA and desires to license the same to any
third party prior to the third anniversary of the date of this
Agreement, then to the extent that SRI has the right to grant CCC
licenses, immunities and other rights thereunder without payment of
any fees or royalties to third parties, SRI shall offer to CCC the
opportunity to obtain a non-exclusive license thereto on terms and
conditions no less favorable to CCC than the terms and conditions
that SRI offers to any third party.
4. ROYALTIES
4.1 ROYALTY RATE. In consideration for the grant of the licenses
hereunder, CCC shall pay to SRI royalties in the amount of one
percent (1%) of Net Sales of Licensed Products.
4.2 REPORTS, EXCHANGE RATES. During the term of this Agreement, CCC
shall furnish to SRI a quarterly written report showing in
reasonably specific detail (a) the gross sales of each Licensed
Product sold by CCC, its affiliates and its sublicensees during the
reporting period; (b) the calculation of Net Sales from such gross
sales; (c) the calculation of the royalties payable in United States
dollars, if any, which shall have accrued hereunder based upon Net
Sales of each Licensed Product; and (d) the exchange rates used in
determining the amount of United States dollars. With respect to
sales of Licensed Products invoiced in United States dollars, the
gross sales, Net Sales, and royalties payable shall be expressed in
United States dollars. With respect to sales of Licensed Products
invoiced in a currency other than United States dollars, the gross
sales, Net Sale and royalties payable shall be expressed in the
domestic currency of the party making the sale together with the
United States dollar equivalent of the royalty payable, calculated
using the average of the closing buying rate for such currency
quoted in the continental terms method of quoting exchange rates
(local currency
<PAGE>
SRI Agreement No. ____________
per US$1) by Bank of America NT&SA in London, England on each of
the last business day of each month in the quarter prior to the date
of payment. Reports shall be due on the sixtieth (60th) day
following the close of each quarter. CCC shall keep complete and
accurate records in sufficient detail to properly reflect all gross
sales and Net Sales and to enable the royalties payable hereunder to
be determined.
4.3 AUDITS
4.3.1 Upon the prior written request of SRI and not more than once
in each calendar year, CCC shall permit an independent
certified public accounting firm of nationally recognized
standing, selected by SRI and reasonably acceptable to CCC,
at SRI's expense, to have access during normal business
hours to such of the records of CCC as may be reasonably
necessary to verify the accuracy of the royalty reports
hereunder for any calendar year ending not more than
thirty-six (36) months prior to the date of such request.
The accounting firm shall disclose to SRI only whether the
records are correct or not and the specific details
concerning any discrepancies. No other information shall be
shared.
4.3.2 If such accounting firm concludes that additional royalties
were owed during such period, CCC shall pay the additional
royalties within thirty (30) days of the date SRI delivers
to CCC such accounting firm's written report so concluding.
The fees charged by such accounting firm shall be paid by
SRI; PROVIDED, HOWEVER, if the audit discloses that the
royalties payable by CCC for the audited period are more
than one hundred five percent (105%) of the royalties
actually paid for such period, then CCC shall pay the
reasonable fees and expenses charged by such accounting
firm.
4.3.3 CCC shall include in each permitted sublicense granted by it
pursuant to this Agreement a provision requiring the
sublicensee to make reports to CCC, and to keep and maintain
records of sales made pursuant to such sublicense.
4.3.4 SRI shall treat all financial information subject to review
under this Article 4 or under any sublicense agreement as
confidential, and shall cause its accounting firm to retain
all such financial information in confidence.
4.4 PAYMENT TERMS. Royalties shown to have accrued by each royalty
report provided for under this Article 4 shall be due and payable on
the date such royalty report is due. Payment of royalties in whole
or in part may be made in advance of such due date.
4.5 PAYMENT METHOD. All payments by CCC to SRI under this Agreement
shall be paid in United States dollars, and all such payments shall
be originated from a
<PAGE>
SRI Agreement No. ____________
United States bank located in the United States and made by bank
wire transfer in immediately available funds to such account as SRI
shall designate before such payment is due.
4.6 EXCHANGE CONTROL. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any
country where the Licensed Product is sold, payment shall be made
through such lawful means or methods as CCC reasonably shall
determine and to which SRI does not reasonably object.
4.7 WITHHOLDING TAXES. All amounts owing from CCC to SRI under this
Agreement are net amounts, and shall be grossed-up to account for
any withholding taxes, value-added taxes or other taxes, levies or
charges with respect to such amounts payable by CCC or required to
be withheld by CCC, other than (a) United States taxes, and (b)
taxes are imposed solely by reason of SRI having a permanent
establishment in any other country or otherwise being subject to
taxation by such other country (except solely by reason of the
license granted under this Agreement).
5. CONFIDENTIALITY
5.1 CONFIDENTIAL INFORMATION. Each party shall maintain in confidence
the Source Code and other Confidential Information disclosed by the
other party. Subject to the provisions of Section 3.2 above,
neither party shall use, disclose or grant the use of the other's
Confidential Information except on a need-to-know basis to those
directors, officers, employees, agents, collaborators, sublicensees
and permitted assignees, to the extent such disclosure is reasonably
necessary in connection with its activities as expressly authorized
by this Agreement. To the extent that disclosure is authorized by
this Agreement, prior to disclosure, the party wishing to disclose
the other's Confidential Information shall obtain the written
agreement of any such Person, who is not otherwise bound by
fiduciary obligations to it, to hold in confidence and not make use
of the Confidential Information for any purpose other than those
permitted by this Agreement. Each party shall notify the other upon
discovery of any unauthorized use or disclosure of the other party's
Confidential Information.
5.2 PERMITTED DISCLOSURES. The nonuse and nondisclosure obligations
contained in this article shall not apply to the extent that:
(a) The Receiving Party is required to
(i) disclose information by law, order or regulation of a
governmental agency or a court of competent
jurisdiction; or
(ii) disclose information to any governmental agency for
purposes of obtaining approval to test or market a
product, provided in either case that the Receiving
Party shall provide written notice thereof to
<PAGE>
SRI Agreement No. ____________
the Disclosing Party and sufficient opportunity to
object, time permitting, to any such disclosure or to
request confidential treatment thereof; or
(b) The Receiving Party can demonstrate that
(i) the information was public knowledge at the time of
such disclosure by the Receiving Party, or thereafter
became public knowledge, other than as a result of acts
attributable to the Receiving party in violation
hereof; or
(ii) the information was rightfully known by the Receiving
Party (as shown by its written records) prior to the
date of disclosure to it by the Disclosing Party; or
(iii) the information was disclosed to the Receiving Party on
an unrestricted basis from a third party not under a
duty of confidentiality to the Disclosing Party; or
(iv) the information was independently developed by
employees or agents of the Receiving Party without
access to the Confidential Information of the
Disclosing Party.
5.3 OTHER PERMITTED DISCLOSURES. CCC may disclose SRI's Confidential
Information and/or the terms of this Agreement to potential
investors and potential corporate partners provided CCC uses
reasonable means to protect the confidentiality of the SRI
Confidential Information disclosed.
5.4 CONFIDENTIAL TERMS. Except as expressly provided herein (including
without limitation in connection with CCC's exercise of its right to
grant sublicenses), each party agrees not to disclose any terms of
this Agreement to any third party without the consent of the other
party, except as required by securities or other applicable laws, to
prospective investors and to such party's accountants, attorneys and
other professional advisors, or otherwise under reasonable
conditions of confidentiality.
6. DUE DILIGENCE
CCC shall have discretion over the commercialization of the Licensed
Products. However, CCC agrees to use its commercially reasonable efforts
to introduce commercially one or more Licensed Product(s) as soon as
practical, consistent with sound and reasonable business practices and
judgments. CCC shall be deemed to have satisfied its obligations under
this Section 6.1 if CCC has an ongoing and active development program or
marketing program, as appropriate, directed toward bringing such Licensed
Products to market and meeting the market demand therefor.
<PAGE>
SRI Agreement No. ____________
7. TERMINATION
7.1 AUTOMATIC TERMINATION. This Agreement shall terminate
automatically, without further action by either party, upon
termination of the Development Agreement by CCC pursuant to Section
6.2 thereof.
7.2 TERMINATION BY CCC. After termination of the Software Development
Agreement, CCC may terminate this Agreement at any time upon ninety
(90) days prior express written notice to SRI.
7.3 TERMINATION FOR BREACH. Except as otherwise provided in the article
below regarding force majeure, a party may terminate this Agreement:
(a) upon or after the material breach of this Agreement or the
Development Agreement by the other party if that party has not
cured such breach within either
(i) ten (10) days after receipt of written notice thereof
by the non-breaching party for breaches involving the
payment of money; or
(ii) thirty (30) days after receipt of written notice
thereof by the non-breaching party for breaches not
involving the payment of money; or
(b) if the other party voluntarily commences any action or seeks
any relief regarding its liquidation, reorganization,
dissolution or similar act or under any bankruptcy, insolvency
or similar law; or
(c) if a proceeding is commenced or an order, judgment or decree is
entered seeking the liquidation, reorganization, dissolution or
similar law against the other party, without its consent, which
continues undismissed or unstayed for a period of sixty (60)
days.
7.4 SURVIVAL
7.4.1 Termination of this Agreement for any reason shall not
release either party hereto from any liability which at the
time of such termination has already accrued to the other
party.
7.4.2 In the event this Agreement is terminated for any reason,
CCC and its Affiliates shall have the right to sell or
otherwise dispose of the stock of any Licensed Products then
on hand.
7.4.3 Articles 5 and 8 shall survive the expiration and any
termination of this Agreement. Except as otherwise provided
in this Article 7, all rights and
<PAGE>
SRI Agreement No. ____________
obligations of the parties under this Agreement shall
terminate upon the expiration or termination of this
Agreement.
7.4.4 Upon termination of this Agreement, all licenses granted
herein shall cease, except that (i) termination (other than
termination pursuant to Section 7.1 above) shall not affect
the rights of any users of License Products that acquired
such Licensed Products prior to the effective date of
termination, and (ii) following termination (other than
termination pursuant to Section 7.1 above), CCC shall have a
perpetual limited license to use the License Software solely
for the purpose of providing technical support to users of
the Licensed Products that acquired such Licensed Products
prior to the effective date of the termination.
8. INDEMNIFICATION
8.1 INDEMNIFICATION BY CCC. CCC shall hold SRI and its directors,
trustees, officers, employees, agents and the successors and assigns
of any of the foregoing harmless against any and all losses,
liabilities, damages and expenses (including reasonable attorneys'
fees and costs) incurred as a result of any claim, demand, action or
proceeding by any third party resulting from, in conjunction with,
or arising out of the acts or omissions of CCC including but not
limited to the:
(a) use by CCC, its directors, trustees, officers, employees,
contractors, subcontractors and agents, of the Licensed
Software or the SRI Intellectual Property Rights; or
(b) development, design, manufacture, distribution or use of
Licensed Products.
8.2 INDEMNIFICATION BY SRI. SRI shall hold CCC and its directors,
officers, employees, agents and the successors and assigns of any of
the foregoing harmless from any and all losses, liabilities, damages
and expenses (including reasonable attorneys' fees and costs)
incurred as a result of any claim, demand, action or proceeding by
any third party resulting from, in conjunction with, or arising out
of any material misrepresentation by SRI under Article 2 of this
Agreement.
8.3 PROCEDURE. A party (the "Indemnitee") that intends to claim
indemnification under this article shall promptly notify the other
party (the "Indemnitor") of any claim, demand, action or other
proceeding with respect to which the Indemnitee intends to claim
such indemnification. The Indemnitor shall have the right to
participate in, and to the extent it so desires, jointly with any
other Indemnitor similarly noticed, to assume the defense thereof
with counsel selected by the Indemnitor at the Indemnitor's sole
expense. The Indemnitee shall have the right in its discretion to
be represented by independent counsel of its own selection at its
sole expense; PROVIDED, HOWEVER, that the expenses of such
independent
<PAGE>
SRI Agreement No. ____________
counsel shall be paid by the Indemnitor if representation of the
Indemnitor by the counsel retained by the Indemnitor would be
inappropriate due to actual or potential differing interests between
the Indemnitee and any other party represented by such counsel in
such claim, demand, action or other proceeding. The Indemnitor's
indemnity obligations under this article shall not apply to amounts
paid in any settlement if effected without the prior express written
consent of the Indemnitor, which consent shall not be unreasonably
withheld or delayed. The Indemnitor shall not settle or consent to
an adverse judgment in any such claim, demand, action or other
proceeding that adversely affects the rights or interests of any
Indemnitee or imposes additional obligations on such Indemnitee,
without the prior written consent of such Indemnitee. The
Indemnitee, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any
claim, demand, action or other proceeding covered by this
indemnification.
9. USE OF NAMES
EXCEPT AS REQUIRED BY LAW, NEITHER CCC NOR SRI SHALL ISSUE ANY PRESS
RELEASE OR OTHER PUBLIC STATEMENTS IN CONNECTION WITH THIS AGREEMENT
INTENDED FOR USE IN THE PUBLIC MEDIA IN A MANNER SUGGESTING ANY ENDORSEMENT
BY THE OTHER OF CCC OR SRI, RESPECTIVELY, WITHOUT THE PRIOR APPROVAL OF
SUCH OTHER PARTY, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED. NOTWITHSTANDING THE ABOVE, WITH THE PRIOR APPROVAL OF THE OTHER
AS TO FORM, EITHER SRI OR CCC MAY ACKNOWLEDGE TO THIRD PARTIES THE OTHER
PARTY'S CONTRIBUTIONS TO THE LICENSED SOFTWARE OR TO CCC'S LICENSED
PRODUCTS UNDER THIS AGREEMENT. WHERE PRACTICAL, CCC SHALL ACKNOWLEDGE
SRI'S DEVELOPMENT OF CORE OAA AND THE LICENSED SOFTWARE WHEN MARKETING ANY
OF THE LICENSED PRODUCTS WHICH INCORPORATE, RELY ON, OR IN ANY WAY USE CORE
OAA OR THE LICENSED SOFTWARE.
10. DISPUTE RESOLUTION
10.1 COMMERCIAL ARBITRATION. Except for the right of either party to
apply to a court of competent jurisdiction for a temporary
restraining order or preliminary injunction to preserve the status
quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, any dispute arising under
this Agreement shall be resolved through mediation and arbitration.
The parties agree to first try to resolve the dispute informally
with the help of a mutually agreed upon mediator. If the parties
cannot agree on a mediator or fail to arrive at a mutually
satisfactory solution through mediation within ten days following
the commencement of such mediation, the parties agree to submit
their dispute to binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association. The arbitration shall take place in San
<PAGE>
SRI Agreement No. ____________
Francisco, California if initiated by CCC and in Seattle, Washington
if initiated by SRI.
10.2 SELECTION OF ARBITRATORS. The arbitration may be conducted by one
impartial arbitrator by mutual agreement or by three arbitrators if
the parties are unable to agree on a single arbitrator within ten
(10) days of first demand for arbitration. All arbitrators are to
be selected from a panel provided by the American Arbitration
Association. The chair shall be an attorney at law, and all
arbitrators shall have a background or training either in computer
law, computer software technology or marketing of computer software
products.
10.3 DISCOVERY AND ARBITRATION PROCEDURES. Upon request of a party, the
arbitrators shall have the authority to permit discovery to the
extent they deem appropriate. A court reporter shall record the
arbitration hearing and the reporter's transcript shall be the
official transcript of the proceeding. The arbitrators shall have
no power to add or detract from the agreements of the parties and
may not make any ruling or award that does not conform to the terms
and conditions of this Agreement. The arbitrators shall have no
authority to award punitive damages or any other damages not
measured by the prevailing party's actual damages. The arbitrators
shall specify the basis for any damage award and the types of
damages awarded. The decision of the arbitrators shall be final and
binding on the parties and may be entered and enforced in any court
of competent jurisdiction by either party.
10.4 COSTS AND ATTORNEY'S FEES. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorney fees, expert
witness costs and expenses and all other costs and expenses incurred
in connection with the proceedings, unless the arbitrators shall for
good cause determine otherwise.
11. GENERAL
11.1 GOVERNING LAW. This Agreement shall be governed by, and construed
and interpreted in accordance with, the laws of California, without
regard to conflicts of laws principles.
11.2 INDEPENDENT CONTRACTORS. The relationship of CCC and SRI
established by this Agreement is that of independent contractors.
Nothing in this Agreement shall be construed to create any other
relationship between CCC and SRI. Neither party shall have any
right, power or authority to assume, create or incur any expense,
liability or obligation, express or implied, on behalf of the other.
11.3 ASSIGNMENT. This Agreement may not be assigned or transferred
(directly or indirectly) by CCC whether voluntarily, by operation of
law, change in control or otherwise, without the prior express
written consent of SRI, except to an entity under common control
with CCC or an entity that succeeds to all or substantially all of
CCC's business or assets relating to this Agreement whether by sale,
<PAGE>
SRI Agreement No. ____________
merger, operation of law or otherwise, provided that such assignee
or transferee agrees in writing to be bound by the terms and
conditions of this Agreement. Any assignment or transfer in
violation of this section shall be void.
11.4 INSURANCE. CCC shall maintain comprehensive general liability
insurance, including contractual and product liability (when it has
products) insurance, against claims for bodily injury or property
damage arising from its activities contemplated by this Agreement,
with insurance companies reasonably acceptable to SRI, and in
amounts not less than $1,000,000 per occurrence and $2,000,000 in
the aggregate. CCC shall maintain such insurance for so long as it
continues to conduct its activities contemplated by this Agreement
and thereafter for so long as CCC maintains insurance for itself
covering such activities. Upon request, CCC shall provide SRI with
certificates of insurance evidencing CCC's compliance with the
insurance requirements of this section.
11.5 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH IN ARTICLE 8, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING
LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE SAME),
ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH
CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS
ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME. NOTWITHSTANDING
ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL SRI'S
LIABILITY OWING TO CCC OR ANY THIRD PARTY WITH RESPECT TO ANY CLAIM,
DEMAND, ACTION OR OTHER PROCEEDING RELATING TO THIS AGREEMENT OR THE
DEVELOPMENT AGREEMENT EXCEED THE TOTAL AMOUNT ACTUALLY PAID BY CCC
TO SRI UNDER THIS AGREEMENT AND THE SOFTWARE DEVELOPMENT AGREEMENT.
11.6 FORCE MAJEURE. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached
this Agreement for failure or delay in fulfilling or performing any
term of this Agreement (other than the payment of money) to the
extent, and for so long as, such failure or delay is caused by or
results from causes beyond the reasonable control of the affected
party including but not limited to fires, earthquakes, floods,
embargoes, wars, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other
labor disturbances, acts of God or acts, omissions or delays in
acting by any governmental authority or other party.
11.7 NOTICES. Any consent, notice or other communication required or
permitted to be given or made under this Agreement by one party to
the other party shall be made in writing and delivered by any lawful
means and addressed to the other party at
<PAGE>
SRI Agreement No. ____________
its address indicated below, or to such other address or to such
other address as the addressee shall have last furnished in writing
to the addressor. Except as otherwise provided in this Agreement,
such consent, notice, or communication shall be effective upon
receipt by the addressee.
<PAGE>
SRI Agreement No. ____________
IF TO SRI: IF TO CCC:
--------- ---------
SRI INTERNATIONAL CONNECTSOFT COMMUNICATIONS CORPORATION
333 RAVENSWOOD AVENUE 11130 NE 33RD PLACE, SUITE 250
MENLO PARK, CALIFORNIA 94025 BELLEVUE, WASHINGTON 98004
ATTN: HAROLD E. KRUTH ATTN: PRESIDENT
TELEPHONE: (415) 859-2061 TELEPHONE: (206) 803-5431
FACSIMILE: (415) 859-3834 FACSIMILE: (206) 803-5439
WITH A COPY TO:
--------------
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL
CITICORP CENTER
153 E. 53RD STREET
NEW YORK, NEW YORK 10022
ATTN: ALAN SUTIN
TELEPHONE: (212) 801-9286
FACSIMILE: (212) 223-7161
11.8 COMPLIANCE WITH LAW. CCC and SRI each shall comply with all
applicable federal, state and local laws and regulations in
connection with its activities pursuant to this Agreement.
11.9 MODIFICATION: WAIVER. This Agreement may not be altered, amended
or modified in any way except by a writing signed by the party
against whom enforcement is sought. The failure of a party to
enforce any provision of this Agreement shall not be construed to be
a waiver of the right of such party to thereafter enforce that
provision or any other provision or right.
11.10 HEADINGS. Headings included herein are for convenience only, do not
form a part of this Agreement and shall not be used in any way to
construe or interpret this Agreement.
11.11 SEVERABILITY. If any provision of this Agreement shall be found by
a court to be void, invalid or unenforceable, the same shall be
reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of
the remainder of this Agreement.
11.12 ENTIRE AGREEMENT. The parties hereto acknowledge that this
Agreement, the Software Development Agreement and their respective
Exhibits set forth the
<PAGE>
SRI Agreement No. ____________
entire agreement and understanding of the parties hereto as to the
subject matter hereof, and thereof and supersedes all prior
discussions, agreements and writings in respect hereto.
11.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
SRI INTERNATIONAL CONNECTSOFT COMMUNICATIONS
CORPORATION
/s/ Harold E. Kruth /s/ Robert Marcus
------------------------- -----------------------
By: Harold E. Kruth By: Robert Marcus
Title: Senior Vice President and Title: President
General Counsel
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 15th day
of August, 1997, by and between CONNECTSOFT COMMUNICATIONS CORPORATION, a
Delaware corporation having its principal offices at 11130 N.E. 33rd Place,
Suite 250, Bellevue, Washington 98004 (the "Company"), and ROBERT M. RUBIN, an
individual residing at 25 Highland Boulevard, Dix Hills, New York 11746 (the
"Employee");
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employee has extensive experience relating to the management
and finance of computer software and computer related technology companies; and
WHEREAS, in order to preserve the goodwill of the Company and to assist in
the strategic direction of the Company, the Company desires to assure itself of
the right to the Employee's services, on the terms and conditions of this
Agreement; and
WHEREAS, the Employee is willing and able to render his services to the
Company on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. NATURE OF EMPLOYMENT.
---------------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of Chairman of the Board of the Company, and/or such other titles as may
be assigned to the Employee from time to time by the Board of Directors of the
Company (the "Board"). In such capacity, the Employee shall aid and assist the
Company in obtaining financing and in connection with their general policies and
procedures, including without limitation, ongoing merger and acquisition
strategy, new business development, corporate finance, marketing and positioning
in the marketplace, strategic partnership arrangements, personnel and management
hiring activities and other matters as from time to time requested by the Board
of Directors of the Company and agreed to by the Employee. The Employee shall be
required to devote no more than 10% of his business time to the provision of
such services.
<PAGE>
(b) Throughout the period of his employment hereunder, the Employee
shall: (i) devote his attention, knowledge and skills, faithfully, diligently
and to the best of his ability, to the active performance of his duties and
responsibilities hereunder on behalf of the Company and (ii) observe and carry
out such reasonable rules, regulations, policies, directions and restrictions as
may be established from time to time by the Board, including but not limited to
the standard policies and procedures of the Company as in effect from time to
time.
2. TERM OF EMPLOYMENT.
-------------------
(a) The term of this Agreement shall begin upon the effective date of an
initial public offering of equity securities by the Company (the "Effective
Date") and shall terminate upon the earliest of (i) the Employee's death, (ii)
any termination pursuant to paragraph (b) of this Section 2 or (iii) the date on
which shall be three (3) years from the Effective Date.
(b) The Company shall have the right to terminate this Agreement at any
time for "cause" upon written notice to the Employee, and such termination shall
be effective upon delivery of such notice. For purposes of this Agreement,
"Cause" shall mean a material breach of this Agreement by the Employee
determined to have occurred in good faith by a resolution of the Company's Board
of Directors, including willful and deliberate malfeasance or gross negligence.
3. COMPENSATION AND BENEFITS.
--------------------------
(a) COMPENSATION. In consideration for the services to be rendered by the
Employee hereunder, the Company shall pay the Employee an annual base salary of
$75,000. This compensation shall be paid in installments at such times as the
Company customarily pays its senior management, but in no event less frequently
than once per month.
(b) FRINGE BENEFITS. The Company may also make available to the Employee,
throughout the period of his employment hereunder, such benefits and perquisites
as are generally provided by the Company to its employees, including but not
limited to eligibility for participation in any group life, health, dental,
disability or accident insurance, pension plan, profit-sharing plan, or other
such benefit plan or policy which may presently be in effect or which may
hereafter be adopted by the Company for the benefit of its employees generally;
PROVIDED, HOWEVER, that nothing herein contained may be deemed to require the
Company to adopt or maintain any particular plan or policy. Participation in
such benefit plans may be subject to standard waiting periods following the
commencement of full-time employment.
(c) EXPENSES. The Company will pay or reimburse the Employee for all
reasonable and necessary direct out-of-pocket expenses incurred in connection
with the performance by the Employee of his responsibilities hereunder in
accordance with the Company's usual and customary practices.
2
<PAGE>
(d) VACATION. The Employee may be entitled to take, from time to time,
normal and reasonable vacations with pay, consistent with the Company's standard
policies and procedures in effect from time to time, at such times as shall be
mutually convenient to the Employee and the Company, and so as not to interfere
unduly with the conduct of the business of the Company.
4. RESTRICTIVE COVENANTS.
----------------------
(a) The Employee hereby acknowledges and agrees that (i) the business
contacts, customers, suppliers, technology, product designs and specifications,
know-how, trade secrets, marketing techniques, promotional methods and other
aspects of the business of the Company have been and are of value to the
Company, and have provided and will hereafter provide the Company with
substantial competitive advantage in the operation of its business, and (ii) he
has and will continue to have detailed knowledge and possesses and will possess
confidential information concerning the business and operations of the Company.
The Employee hereby further acknowledges that his business skills are not
uniquely suited to businesses of the type conducted by the Company, and that, if
required, he could readily adapt and utilize such skills in one or more other
types of businesses.
(b) The Employee shall not, directly or indirectly, for himself or through
or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise disclose or
cause to be divulged, transmitted or otherwise disclosed, any business contacts,
client or customer lists, technology, know-how, trade secrets, marketing
techniques, contracts or other confidential or proprietary information of the
Company of whatever nature, whether now existing or hereafter created or
developed (provided, however, that for purposes hereof, information shall not be
considered to be confidential or proprietary if (A) it is a matter of common
knowledge or public record, (B) it is generally known in the industry, or (C)
the Employee can demonstrate that such information was already known to the
recipient thereof other than by reason of any breach of any obligation under
this Agreement or any other confidentiality or non-disclosure agreement); and/or
(ii) at any time during the period from the date hereof through
and including the date of the termination of the Employee's employment with the
Company, and for an additional period of one (1) year thereafter unless the
Employee's employment was terminated by reason of an Unjustified Termination
(collectively, the "Restrictive Period"), invest, carry on, engage or become
involved, either as an employee, agent, advisor, officer, director, stockholder
(excluding ownership of not more than 3% of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or operational
responsibility), manager, partner, joint venturer, participant or consultant, in
any business enterprise (other than American United Global, Inc. (so long as it
is an affiliate of the Company), the Company or any of their respective
subsidiaries, affiliates, successors or assigns) which derives any material
revenues from the offer or sale in the United States, at wholesale or retail, of
any computer software products or other goods or services offered or sold by the
Company or its subsidiaries,
3
<PAGE>
affiliates, successors or assigns from time to time during the Restrictive
Period, or which engages in any other business similar to or competitive with
the business of the Company or its subsidiaries, affiliates, successors or
assigns (as such business is constituted at the time that the Employee proposes
to become involved in such other business enterprise).
(c) The Employee and the Company hereby acknowledge and agree that, in the
event of any breach by the Employee, directly or indirectly, of the foregoing
restrictive covenants, it will be difficult to ascertain the precise amount of
damages that may be suffered by the Company by reason of such breach; and
accordingly, the parties hereby agree that, as liquidated damages (and not as a
penalty) in respect of any such breach, the breaching party or parties shall be
required to pay to the Company, on demand from time to time, cash amounts equal
to any and all gross revenues derived by the breaching party or parties,
directly or indirectly, from any and all violative acts or activities. The
parties hereby agree that the foregoing constitutes a fair and reasonable
estimate of the actual damages that might be suffered by reason of any breach of
this paragraph 4 by the Employee, and the parties hereby agree to such
liquidated damages in lieu of any and all other measures of damages that might
be asserted in respect of any subject breach.
(d) The Employee and the Company hereby further acknowledge and agree that
any breach by the Employee, directly or indirectly, of the foregoing restrictive
covenants will cause the Company irreparable injury for which there is no
adequate remedy at law. Accordingly, the Employee expressly agrees that, in the
event of any such breach or any threatened breach hereunder by the Employee,
directly or indirectly, the Company shall be entitled, in addition to any and
all other remedies available (including but not limited to the liquidated
damages provided for in paragraph 4(c) above), to seek and obtain injunctive
and/or other equitable relief to require specific performance of or prevent,
restrain and/or enjoin a breach under the provisions of this paragraph 4.
(e) In the event of any dispute under or arising out of this paragraph 4,
the prevailing party in such dispute shall be entitled to recover from the
non-prevailing party or parties, in addition to any damages and/or other relief
that may be awarded, its reasonable costs and expenses (including reasonable
attorneys' fees) incurred in connection with prosecuting or defending the
subject dispute.
5. INVENTIONS; INTELLECTUAL PROPERTY.
----------------------------------
The Employee acknowledges and confirms that any and all inventions,
product designs and specifications, and other intellectual property developed or
utilized by the Employee during the period of his employment hereunder
constitutes, as between the Company and the Employee, the sole and exclusive
property of the Company for which the Employee is being adequately compensated
hereunder; and the Employee shall execute and deliver any and all applications,
assignments and other documents as may be requested by the Company to establish,
protect and enforce the Company's rights in and to such intellectual property.
4
<PAGE>
6. NON-ASSIGNABILITY.
In light of the unique personal services to be performed by the
Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
7. NOTICES.
Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally, one (1) day after being sent by recognized
overnight courier service will all charges prepaid or charged to the sender's
account, or three (3) days after being mailed by certified mail, return receipt
requested, addressed to the party being notified at the address of such party
first set forth above, or at such other address as such party may hereafter have
designated by notice; PROVIDED, HOWEVER, that any notice of change of address
shall not be effective until its receipt by the party to be charged therewith.
8. GENERAL.
(a) Neither this Agreement nor any of the terms or conditions hereof
may be waived, amended or modified except by means of a written instrument duly
executed by the party to be charged therewith. Any waiver or amendment shall
only be applicable in the specific instance, and shall not constitute or be
construed as a waiver or amendment in any other or subsequent instance. No
failure or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party's right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the express prior written consent of the
other party.
(c) The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of Washington.
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
5
<PAGE>
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be brought
for injunctive and/or any other equitable relief as contemplated by paragraph
4(d) above, any dispute involving the interpretation or application of this
Agreement shall be resolved by final and binding arbitration before one or more
arbitrators designated by the American Arbitration Association in Seattle,
Washington. The award of such arbitrator(s) may be enforced in any court of
competent jurisdiction. The prevailing party in any action or proceeding
hereunder shall be entitled to an award for its costs and reasonable attorneys'
fees in connection with such action or proceeding, and the arbitrator(s) in any
arbitration hereunder shall be empowered and directed to make such an award in
his, her or their discretion.
(h) This Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By: /s/ Robert Marcus
------------------------------------------
Name: Robert Marcus
Title: President and CEO
/s/ Robert M. Rubin
---------------------------------------------
ROBERT M. RUBIN
6
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of this 15th day
of August, 1997, by and between CONNECTSOFT COMMUNICATIONS CORPORATION, a
Delaware corporation having its principal offices at 11130 N.E. 33rd Place,
Suite 250, Bellevue, Washington 98004 (the "Company"), and HOWARD B. KATZ, an
individual residing at 11315 Ohde Circle, Kirkland, Washington (the "Employee");
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Employee has extensive experience relating to the management
and finance of computer software and computer related technology companies; and
WHEREAS, in order to preserve the goodwill of the Company and to assist in
the strategic direction of the Company, the Company desires to assure itself of
the right to the Employee's services, on the terms and conditions of this
Agreement; and
WHEREAS, the Employee is willing and able to render his services to the
Company on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. NATURE OF EMPLOYMENT.
---------------------
(a) Subject to the terms and conditions of this Agreement, the
Company shall, throughout the term of this Agreement, retain the Employee, and
the Employee shall render services to the Company, in the capacity and with the
title of Executive Vice President of the Board of the Company, and/or such other
titles as may be assigned to the Employee from time to time by the Board of
Directors of the Company (the "Board"). In such capacity, the Employee shall
aid and assist the Company in obtaining financing and in connection with their
general policies and procedures, including without limitation, ongoing merger
and acquisition strategy, new business development, corporate finance, marketing
and positioning in the marketplace, strategic partnership arrangements,
personnel and management hiring activities and other matters as from time to
time requested by the Board of Directors of the Company and agreed to by the
Employee. The Employee shall be required to devote no more than 10% of his
business time to the provision of such services.
(b) Throughout the period of his employment hereunder, the Employee
shall: (i) devote his attention, knowledge and skills, faithfully, diligently
and to the best of his ability, to the active performance of his duties and
responsibilities hereunder on behalf of the Company
<PAGE>
and (ii) observe and carry out such reasonable rules, regulations, policies,
directions and restrictions as may be established from time to time by the
Board, including but not limited to the standard policies and procedures of the
Company as in effect from time to time.
2. TERM OF EMPLOYMENT.
-------------------
(a) The term of this Agreement shall begin upon the effective date of an
initial public offering of equity securities by the Company (the "Effective
Date") and shall terminate upon the earliest of (i) the Employee's death, (ii)
any termination pursuant to paragraph (b) of this Section 2 or (iii) the date on
which shall be three (3) years from the Effective Date.
(b) The Company shall have the right to terminate this Agreement at any
time for "cause" upon written notice to the Employee, and such termination shall
be effective upon delivery of such notice. For purposes of this Agreement,
"Cause" shall mean a material breach of this Agreement by the Employee
determined to have occurred in good faith by a resolution of the Company's Board
of Directors, including willful and deliberate malfeasance or gross negligence.
3. COMPENSATION AND BENEFITS.
--------------------------
(a) COMPENSATION. In consideration for the services to be rendered by the
Employee hereunder, the Company shall pay the Employee an annual base salary of
$75,000. This compensation shall be paid in installments at such times as the
Company customarily pays its senior management, but in no event less frequently
than once per month.
(b) FRINGE BENEFITS. The Company may also make available to the Employee,
throughout the period of his employment hereunder, such benefits and perquisites
as are generally provided by the Company to its employees, including but not
limited to eligibility for participation in any group life, health, dental,
disability or accident insurance, pension plan, profit-sharing plan, or other
such benefit plan or policy which may presently be in effect or which may
hereafter be adopted by the Company for the benefit of its employees generally;
PROVIDED, HOWEVER, that nothing herein contained may be deemed to require the
Company to adopt or maintain any particular plan or policy. Participation in
such benefit plans may be subject to standard waiting periods following the
commencement of full-time employment.
(c) EXPENSES. The Company will pay or reimburse the Employee for all
reasonable and necessary direct out-of-pocket expenses incurred in connection
with the performance by the Employee of his responsibilities hereunder in
accordance with the Company's usual and customary practices.
2
<PAGE>
(d) VACATION. The Employee may be entitled to take, from time to time,
normal and reasonable vacations with pay, consistent with the Company's standard
policies and procedures in effect from time to time, at such times as shall be
mutually convenient to the Employee and the Company, and so as not to interfere
unduly with the conduct of the business of the Company.
4. RESTRICTIVE COVENANTS.
(a) The Employee hereby acknowledges and agrees that (i) the business
contacts, customers, suppliers, technology, product designs and specifications,
know-how, trade secrets, marketing techniques, promotional methods and other
aspects of the business of the Company have been and are of value to the
Company, and have provided and will hereafter provide the Company with
substantial competitive advantage in the operation of its business, and (ii) he
has and will continue to have detailed knowledge and possesses and will possess
confidential information concerning the business and operations of the Company.
The Employee hereby further acknowledges that his business skills are not
uniquely suited to businesses of the type conducted by the Company, and that, if
required, he could readily adapt and utilize such skills in one or more other
types of businesses.
(b) The Employee shall not, directly or indirectly, for himself or through
or on behalf of any other person or entity:
(i) at any time, divulge, transmit or otherwise disclose or
cause to be divulged, transmitted or otherwise disclosed, any business contacts,
client or customer lists, technology, know-how, trade secrets, marketing
techniques, contracts or other confidential or proprietary information of the
Company of whatever nature, whether now existing or hereafter created or
developed (provided, however, that for purposes hereof, information shall not be
considered to be confidential or proprietary if (A) it is a matter of common
knowledge or public record, (B) it is generally known in the industry, or (C)
the Employee can demonstrate that such information was already known to the
recipient thereof other than by reason of any breach of any obligation under
this Agreement or any other confidentiality or non-disclosure agreement); and/or
(ii) at any time during the period from the date hereof through
and including the date of the termination of the Employee's employment with the
Company, and for an additional period of one (1) year thereafter unless the
Employee's employment was terminated by reason of an Unjustified Termination
(collectively, the "Restrictive Period"), invest, carry on, engage or become
involved, either as an employee, agent, advisor, officer, director, stockholder
(excluding ownership of not more than 3% of the outstanding shares of a publicly
held corporation if such ownership does not involve managerial or operational
responsibility), manager, partner, joint venturer, participant or consultant, in
any business enterprise (other than American United Global, Inc. (so long as it
is an affiliate of the Company), the Company or any of their respective
subsidiaries, affiliates, successors or assigns) which derives any material
revenues from the offer or sale in the United States, at wholesale or retail, of
any computer software products or other goods or services offered or sold by the
Company or its subsidiaries,
3
<PAGE>
affiliates, successors or assigns from time to time during the Restrictive
Period, or which engages in any other business similar to or competitive with
the business of the Company or its subsidiaries, affiliates, successors or
assigns (as such business is constituted at the time that the Employee proposes
to become involved in such other business enterprise).
(c) The Employee and the Company hereby acknowledge and agree that, in the
event of any breach by the Employee, directly or indirectly, of the foregoing
restrictive covenants, it will be difficult to ascertain the precise amount of
damages that may be suffered by the Company by reason of such breach; and
accordingly, the parties hereby agree that, as liquidated damages (and not as a
penalty) in respect of any such breach, the breaching party or parties shall be
required to pay to the Company, on demand from time to time, cash amounts equal
to any and all gross revenues derived by the breaching party or parties,
directly or indirectly, from any and all violative acts or activities. The
parties hereby agree that the foregoing constitutes a fair and reasonable
estimate of the actual damages that might be suffered by reason of any breach of
this paragraph 4 by the Employee, and the parties hereby agree to such
liquidated damages in lieu of any and all other measures of damages that might
be asserted in respect of any subject breach.
(d) The Employee and the Company hereby further acknowledge and agree that
any breach by the Employee, directly or indirectly, of the foregoing restrictive
covenants will cause the Company irreparable injury for which there is no
adequate remedy at law. Accordingly, the Employee expressly agrees that, in the
event of any such breach or any threatened breach hereunder by the Employee,
directly or indirectly, the Company shall be entitled, in addition to any and
all other remedies available (including but not limited to the liquidated
damages provided for in paragraph 4(c) above), to seek and obtain injunctive
and/or other equitable relief to require specific performance of or prevent,
restrain and/or enjoin a breach under the provisions of this paragraph 4.
(e) In the event of any dispute under or arising out of this paragraph 4,
the prevailing party in such dispute shall be entitled to recover from the
non-prevailing party or parties, in addition to any damages and/or other relief
that may be awarded, its reasonable costs and expenses (including reasonable
attorneys' fees) incurred in connection with prosecuting or defending the
subject dispute.
5. INVENTIONS; INTELLECTUAL PROPERTY.
----------------------------------
The Employee acknowledges and confirms that any and all inventions,
product designs and specifications, and other intellectual property developed or
utilized by the Employee during the period of his employment hereunder
constitutes, as between the Company and the Employee, the sole and exclusive
property of the Company for which the Employee is being adequately compensated
hereunder; and the Employee shall execute and deliver any and all applications,
assignments and other documents as may be requested by the Company to establish,
protect and enforce the Company's rights in and to such intellectual property.
4
<PAGE>
6. NON-ASSIGNABILITY.
------------------
In light of the unique personal services to be performed by the
Employee hereunder, it is acknowledged and agreed that any purported or
attempted assignment or transfer by the Employee of this Agreement or any of his
duties, responsibilities or obligations hereunder shall be void.
7. NOTICES.
--------
Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally, one (1) day after being sent by recognized
overnight courier service will all charges prepaid or charged to the sender's
account, or three (3) days after being mailed by certified mail, return receipt
requested, addressed to the party being notified at the address of such party
first set forth above, or at such other address as such party may hereafter have
designated by notice; PROVIDED, HOWEVER, that any notice of change of address
shall not be effective until its receipt by the party to be charged therewith.
8. GENERAL.
--------
(a) Neither this Agreement nor any of the terms or conditions hereof
may be waived, amended or modified except by means of a written instrument duly
executed by the party to be charged therewith. Any waiver or amendment shall
only be applicable in the specific instance, and shall not constitute or be
construed as a waiver or amendment in any other or subsequent instance. No
failure or delay on the part of either party in respect of any enforcement of
obligations hereunder shall in any manner affect such party's right to seek or
effect enforcement at any other time or in respect of any other required
performance.
(b) Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the express prior written consent of the
other party.
(c) The captions and paragraph headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
(d) This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of Washington.
(e) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
5
<PAGE>
(f) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
(g) Except for any legal or judicial proceeding which may be brought
for injunctive and/or any other equitable relief as contemplated by paragraph
4(d) above, any dispute involving the interpretation or application of this
Agreement shall be resolved by final and binding arbitration before one or more
arbitrators designated by the American Arbitration Association in Seattle,
Washington. The award of such arbitrator(s) may be enforced in any court of
competent jurisdiction. The prevailing party in any action or proceeding
hereunder shall be entitled to an award for its costs and reasonable attorneys'
fees in connection with such action or proceeding, and the arbitrator(s) in any
arbitration hereunder shall be empowered and directed to make such an award in
his, her or their discretion.
(h) This Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
(i) This Agreement is intended for the sole and exclusive benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns, and no other person
or entity shall have any right to rely on this Agreement or to claim or derive
any benefit herefrom absent the express written consent of the party to be
charged with such reliance or benefit.
(j) If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the date first set forth above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By: /s/ Robert Marcus
---------------------------------------
Name: Robert Marcus
Title: President and CEO
/s/ Howard B. Katz
------------------------------------------
HOWARD B. KATZ
6
<PAGE>
Exhibit 10.9
AMERICAN UNITED GLOBAL, INC.
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
August 1, 1997
Connectsoft Communications Corporation
11130 N.E. 33rd Place, Suite 250
Bellevue, Washington 98004
Re: Premises at 11130 N.E. 33rd Place,
Bellevue, Washington ("Leased Premises")
----------------------------------------
Gentlemen:
We are the tenant of the Leased Premises, leased by us from Rosen Bel-Kirk
Associates ("Lessor"), in accordance with the covenants, agreements, terms,
provisions and conditions of the lease ("Lease") for the Leased Premises.
This letter confirms our sublease agreement with you concerning your
sublease of a portion of the Leased Premises.
We hereby sublet to you a portion of the Leased Premises, which right shall
commence on the date hereof and shall terminate one day prior to the expiration
of the Lease. You shall use and occupy the portion of the Leased Premises for
your general corporate and business purposes. You shall not permit any other
user or occupant without our consent. Your use of a portion of the Leased
Premises pursuant to this sublease agreement shall conform in all respects to
the Lease and you shall not do nor permit any use or activity which would
constitute a breach of the Lease or permit Lessor to declare a default under the
Lease.
We shall have the right to permit other affiliates or subsidiaries to use
and occupy portions of the Leased Premises or to enter into other subleases with
respect thereto without your consent.
Your use and occupancy of the Leased Premises pursuant to this sublease
agreement shall be on an "as is" basis and we shall have no obligation to
perform any alterations or install any improvements to any portion of the Leased
Premises. You shall advise us of any repair or restoration which may be required
from time to time in any portion of the Leased Premises so that we may notify
Lessor and obtain performance of Lessor's obligations under the Lease.
You shall pay to us as rent hereunder an amount equal to a proportionate
share of our annual rental and all other payments made by us as additional rent
or utility costs under the Lease equal to the proportion of the square footage
of the Leased Premises that you use and occupy under this agreement to the
total square footage of the Leased Premises. These rental amounts shall be paid
by you to us from time to time as such costs are incurred by us and billed to
you.
You shall pay all insurance costs and costs arising from or related to
compliance with laws or regulations applicable to your use and occupancy of a
portion of the Leased Premises as provided for herein. Any insurance coverage
provided by you shall conform to the Lease and shall cover any interests of
Lessor and of the undersigned.
Please countersign this letter to confirm your agreement.
Very truly yours,
CONNECTSOFT HOLDINGS, INC.
By: /s/ Robert Rubin
-------------------------
Name: Robert Rubin
Title:
AGREED TO:
CONNECTSOFT COMMUNICATIONS
CORPORATION
By: /s/ Howard Katz
-----------------------------
Name: Howard Katz
Title:
<PAGE>
Exhibit 10.10
TRANSFER OF CERTAIN ASSETS OF AMERICAN UNITED GLOBAL, INC.
TO CONNECTSOFT COMMUNICATIONS CORPORATION
-----------------------------------------------------------
THIS ASSET TRANSFER AGREEMENT ("Agreement"), dated as of the 31st day of
July, 1997, by and between AMERICAN UNITED GLOBAL, INC., a Delaware corporation
("Seller"), having a business address at 11130 NE 33rd Place, Suite 250,
Bellevue, WA 98004 and CONNECTSOFT COMMUNICATIONS CORPORATION, a Delaware
corporation ("ConnectSoft"), having a business address at 11130 NE 33rd Place,
Suite 250, Bellevue, WA 98004.
WHEREAS, effective July 31, 1997, ConnectSoft Holdings, Inc., a Washington
corporation ("Old ConnectSoft"), transferred the exclusive rights to the
development of unified, intelligent communications proprietary software product
for office and residential applications ("FreeAgent") to Seller, including the
Hewlett-Packard software license agreement (the "HP Agreement") (collectively,
the "FreeAgent Business") ; and
WHEREAS, Seller desires to transfer the FreeAgent Business to ConnectSoft.
NOW THEREFORE, in consideration of the covenants and agreements made
herein, and for the sum of Ten and no/100 ($10.00) Dollars and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. The Seller, as its full interests in the FreeAgent Business may appear,
hereby absolutely and unconditionally grants, transfers and assigns to
ConnectSoft all of the right, title and interest of Seller in and to all of the
FreeAgent Business currently held by Seller, including the assets (the
"FreeAgent Assets") as more specifically identified below, and the Seller
acknowledges the separate values for each of such categories of specified
FreeAgent Assets and the total value of THREE HUNDRED EIGHTY ONE THOUSAND FOUR
HUNDRED ELEVEN DOLLARS AND SEVENTY-ONE CENTS
<PAGE>
($381,411.71) for all of the FreeAgent Assets (the "Total Asset Value"), as set
forth on SCHEDULE A annexed hereto. In addition, ConnectSoft does hereby agree
to employ all of the employees identified on SCHEDULE B annexed hereto in
connection with its development of the FreeAgent Business, and the Seller agrees
to use its best efforts to make such persons available for employment by
ConnectSoft as employees at will (subject to certain of such persons being
employed by ConnectSoft under the terms of employment agreements, as determined
in the discretion of ConnectSoft). ConnectSoft does hereby agree to assume
certain third-party liabilities of Seller related to the operation of the
FreeAgent Business (the "Assumed Third-Party Liabilities") as identified on
SCHEDULE C annexed hereto. Finally, the Seller and ConnectSoft have agreed to
enter into the Sublease Agreement in the form of EXHIBIT I annexed hereto, which
Sublease Agreement shall take effect in accordance with the terms thereof.
2. (i) In consideration for the transfer of the FreeAgent Business,
ConnectSoft does hereby agree to pay to the Seller, as the full purchase price
for its acquisition of the FreeAgent Business under the terms of this Agreement,
the "Total Value". The amount of the Total Value shall equal the aggregate of
the purchase price for the FreeAgent Assets (the "Purchase Price"), plus the
assumption by ConnectSoft of the Assumed Third-Party Liabilities.
The Purchase Price shall be payable as follows:
A. ConnectSoft shall issue and deliver to the Seller stock
certificates evidencing Two Million Nine Hundred Ninety-Nine Thousand Nine
Hundred Ninety-Nine (2,999,999) shares of Common Stock, $.001 par value, of
ConnectSoft (the "Common Stock") as the "Stock Price", which Stock Price the
parties hereto value at One Million ($1,000,000) Dollars; and
B. ConnectSoft shall pay the balance of the Purchase Price, ONE
MILLION ONE HUNDRED THIRTY-NINE THOUSAND FIVE HUNDRED SIXTY-FIVE DOLLARS AND
THIRTY-SIX CENTS ($1,139,565.36) (the "Note Price"), by delivery to the Seller
of a demand note bearing
2
<PAGE>
interest at 8% per annum (the "Asset Transfer Promissory Note"); PROVIDED, that
in the event that the initial public offering of ConnectSoft equity securities
("IPO") closes on or before December 31, 1997, a portion of the net proceeds of
such IPO shall be used to repay all of the Note Price and all accrued interest
thereon.
(ii) Immediately following the full execution of this Agreement by all
parties hereto, the Seller shall deliver to ConnectSoft documentation, as may be
required, which transfers the FreeAgent Assets to ConnectSoft, ConnectSoft shall
deliver to the Seller the Stock Price and the Note Price and ConnectSoft and
Seller shall execute and deliver such additional documentation , as required,
which transfers to and results in the assumption by ConnectSoft of the Assumed
Third-Party Liabilities.
3. Seller does hereby indemnify and hold ConnectSoft harmless to the
fullest extent permitted by law for and against any losses, claims, liabilities,
damages, debt, actions [including reasonable and documented costs (including
without limitation, costs of preparation and reasonable attorney's fees and
disbursements) and expenses, including reasonable expenses of investigation)]
which arise out of the business and operations of Old ConnectSoft on or prior to
the Closing Date, other than matters arising after September 1, 1996 which are
related to the FreeAgent Business, the activities of Old ConnectSoft related to
the development and utilization of the FreeAgent Business and the obligations
which may have been incurred by Old ConnectSoft in connection with the
development and utilization of the FreeAgent Business; PROVIDED, that
notwithstanding any limitations contained herein, Seller's obligation to
indemnify ConnectSoft shall include matters which arise at any time and which
relate in any way to (i) Old ConnectSoft's acts of transfer to Seller of the
FreeAgent Business, (ii) Seller's acts of transfer of the FreeAgent Business to
ConnectSoft, and (iii) the results of such transfers upon Old ConnectSoft,
and/or ConnectSoft.
4. This Agreement shall be governed by and in accordance with the laws of
the State of Washington without regard to principles and conflicts of law. All
amounts payable hereunder or under
3
<PAGE>
the Asset Transfer Promissory Note or under any other document evidencing,
securing or pertaining to the Asset Transfer Promissory Note shall be payable to
the Seller in the State of Washington.
5. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
6. Any waiver by any party of any provision of this Agreement or of any
right, remedy or option hereunder shall not be controlling, nor shall it prevent
or stop such party from thereafter enforcing such provision, right, remedy or
option, and the failure or refusal of any party to insist in any one or more
instances upon the strict performance of any of the terms or provisions of this
Agreement shall not be construed as a waiver or relinquishment for the future of
any such term or provision, but the same shall continue in full force and
effect, it being understood and agreed that any party's remedies and options
hereunder are and shall be cumulative and are in addition to all other rights,
remedies and options of such party in law or in equity or under any other
agreement.
7. All personal pronouns used in this Agreement whether used in the
masculine, feminine or neuter gender shall include all other genders; the
singular shall include the plural and vice versa.
8. In the event that any provision of this Agreement or the application
thereof to any party or any circumstance in any jurisdiction governing this
Agreement shall, to any extent, be invalid or unenforceable under any applicable
statute, regulation, or rule of law, then such provisions shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform to such statute, regulation or rule of law, and the
remainder of this Agreement and the application of any such invalid or
unenforceable provision to parties, jurisdictions or circumstances other than to
whom or to which it is held invalid or unenforceable shall not be affected
thereby nor shall same affect type validity or enforceability of any other
provision of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CONNECTSOFT COMMUNICATIONS CORPORATION
(a Delaware corporation)
By: /s/ Robert Marcus
-----------------------------
Name: Robert Marcus
Title: President and CEO
AMERICAN UNITED GLOBAL, INC.
(a Delaware corporation)
By: /s/ Robert Rubin
-----------------------------
Name: Robert Rubin
Title: Chairman and CEO
5
<PAGE>
SCHEDULE A
----------
Computer Equipment $ 268,912
Furniture and Fixtures 12,500
Trademarks and Patents --
- ------------------------------------------------------------
Total Fixed Assets $ 381,412
6
<PAGE>
SCHEDULE B
----------
Jeffrey J. Bach
John T. Billingsley
Daniel E. Boerner
Alexander F. Caskey
D. Benjamin Clark
Robert A. Dain
David Dolson
Gerald S. Downey
Randy W. Goodson
Howard H. Heflin
Steve. S. Kaiser
Bruce D. Long
Robert H. Marcus
Charles Martin
Justin E. Meaney
Marco Menato
Alan R. Mitchell
Jon E. Pickett
Patricia E. Snow
Arjun J. Teneja
Nathan F. Waddoups
Douglas Wallis
7
<PAGE>
SCHEDULE C
----------
Obligations under HP Agreement $ 750,000
Accounts Payable and other Liabilities 325,183
- ---------------------------------------------------------------------
Total $1,075,183
8
<PAGE>
EXHIBIT I
---------
9
<PAGE>
Exhibit 10.11
ASSET TRANSFER PROMISSORY NOTE
------------------------------
$1,139,565 July 31, 1997
FOR VALUE RECEIVED, the undersigned, CONNECTSOFT COMMUNICATIONS
CORPORATION, a Delaware corporation, having an address at 11130 NE 33rd Place,
Suite 250, Bellevue, WA 98004 (the "Maker"), promises to pay to the order of
AMERICAN UNITED GLOBAL. INC., a Delaware corporation, having an address at 11130
NE 33rd Place, Suite 250, Bellevue, WA 98004 (the "Payee"), the principal sum of
ONE MILLION ONE HUNDRED THIRTY NINE THOUSAND FIVE HUNDRED AND SIXTY FIVE
($1,139,565) DOLLARS (the "Note"), and the principal of the Note shall bear
interest accrued from July 31, 1997, at the rate of eight (8%) percent per
annum, with all principal to be due and payable on demand, with annual interest
on the unpaid principal of the Note to be accrued and the amount thereof
accumulated and added to principal, subject to the terms of this Note concerning
mandatory prepayment.
1. OPTIONAL PREPAYMENT.
The Maker shall have the right to prepay, without penalty, at any time or
times after the date hereof, all or any portion of the outstanding principal
balance of this Note, along with the payment of related accrued interest, out
of the net income and available cash flow of Maker in the discretion of the
Board of Directors of Maker, subject to the amount of any prepayment being first
applied to accrued and unpaid interest.
2. MANDATORY PREPAYMENT.
The Maker shall make mandatory payment of the full amount of unpaid Note
principal and related accrued unpaid interest (the "Mandatory Payment") out of
the net proceeds to Maker from the consummation of an initial public offering of
equity or debt securities issued by Maker (the "IPO").
3. EVENTS OF DEFAULT.
The following are Events of Default hereunder:
(a) Any failure by the Maker (i) to pay all or any portion of unpaid
principal of this Note, as increased by any unpaid accrued interest, on
demand prior to consummation of the IPO, or (ii) to make payment of the
Mandatory Prepayment (as applicable).
(b) If the Maker (i) admits in writing its inability to pay generally
its debts as they mature, or (ii) makes a general assignment for the
benefit of their creditors, or (iii) is adjudicated a bankrupt or
insolvent, or (iv) files a voluntary petition in bankruptcy, or (v) takes
advantage, as against their creditors, of any bankruptcy law statute of the
United States of America or any state or subdivision thereof now or
hereafter in effect,
<PAGE>
or (vi) has a petition or proceeding filed against it under any provision
of any bankruptcy or insolvency law or statute of the United States of
America or any state or subdivision thereof, which petition or proceeding
is not dismissed within sixty (60) days after the date of the commencement
thereof, (vii) has a trustee, receiver or other similar such person
appointed by any court to its affairs or assets or business and such
appointment is not vacated or discharged within sixty (60) days thereafter,
or (viii) takes any action in furtherance of any of the foregoing.
4. REMEDIES OF DEFAULT.
If any Event of Default shall occur and be continuing; the entire unpaid
balance of this Note shall automatically be immediately due and payable, without
requirement of notice or demand, and the interest rate on such unpaid balance
following occurrence of an Event of Default shall be increased to twelve (12%)
per annum for all purposes hereof.
5. CERTAIN WAIVERS.
Except as otherwise expressly provided in this Note, the Maker hereby
waives diligence, presentment for payment, protest, dishonor, nonpayment, and
notice of any and all of the foregoing.
6. AMENDMENTS.
This Note may not be changed orally, but only by an agreement in writing
and signed by the party against whom enforcement of waiver, change, modification
or discharge is sought.
7. GOVERNING LAW; CONSENT TO JURISDICTION.
This Note shall be deemed to be a contract made under the laws of the State
of Washington and shall be governed by, and construed in accordance with, the
laws of the State of Washington. The Maker hereby consents to the jurisdiction
of all courts (state and federal) sitting in the State of Washington in
connection with any claim, action, or proceeding relating to or for the
collection of enforcement of this Note.
8. COLLECTION COSTS.
In the event that all or any portion of this Note shall not be paid when
due and payable (whether upon demand, by acceleration or otherwise), the Maker
shall further be liable for and shall pay to the Payee all collection costs and
expenses incurred by the Payee, including reasonable attorneys' fees.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note on
and as of the date first set forth above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By:
--------------------------------
Name:
Title:
3
<PAGE>
Exhibit 10.12
LINE OF CREDIT AGREEMENT
------------------------
THIS AGREEMENT ("Agreement"), is made as of the 31st day of July, 1997,
between CONNECTSOFT COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), with its principal place of business located at 11130 NE 33rd
Place, Suite 250, Bellevue, WA 98004; and AMERICAN UNITED GLOBAL, INC., a
Delaware corporation ("AUGI"), with its principal place of business located
at 11130 NE 33rd Place, Suite 250, Bellevue, WA 98004.
WHEREAS, the Company is a wholly-owned subsidiary of AUGI, the Company is
commencing the continued development and marketing of an innovative
technology acquired from AUGI and the Company has not generated sufficient
revenues or net income, and has limited prospects in the immediate future to
generate sufficient revenues and net income, to support internally the
continuing development of the technology acquired from AUGI; and
WHEREAS, AUGI has agreed, from time to time, to extend to the Company a
line of credit (the "Line of Credit") to support its ongoing operations and its
technology development activities, with advances thereunder to be evidenced by a
promissory note dated as of the "Closing Date" (as hereinafter defined) from the
Company payable to the order of AUGI or its affiliates (the "AUGI Note"), in the
form annexed hereto as EXHIBIT A; and
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, the parties agree as follows.
1. THE LINE OF CREDIT: AUGI does hereby extend to the Company,
simultaneously with delivery of the AUGI Note, a line of credit in the
maximum aggregate principal of TWO MILLION SEVEN HUNDRED FIFTY THOUSAND
($2,750,000) Dollars (the "Line of Credit"), with interest thereunder payable
in accordance with the terms of the AUGI Note. The Company may take advances
under such Line of Credit by written request to AUGI by the Company from time
to time over the next eighteen (18) months; PROVIDED, that no advances under
the Line of Credit contemplated hereby shall be made (i) if a default or
event of default under this Agreement or under the AUGI Note shall have
occurred and shall be continuing, or (ii) on or after the closing of the IPO
(as hereinafter defined). Subject to the foregoing, and in accordance with
the terms of the AUGI Note, on each occasion that the Company shall request
an advance under the Line of Credit, AUGI shall deliver to the Company, by
wire transfer of immediately available funds to a bank account designated by
the Company or check payable to the order of the Company or its designated
payee, the proceeds of such advance in respect of the Line of Credit. All
amounts of unpaid principal and accrued interest outstanding under the AUGI
Note shall be repaid at the earlier of thirty-six (36) months from the date
hereof or in accordance with Section 2 of this Agreement.
<PAGE>
2. MANDATORY PREPAYMENT; NOTE RESTRUCTURING.
The Company shall make mandatory prepayment of the difference
between $2,500,000 plus accrued interest on the Asset Transfer Note (as
hereinafter defined) and the entire amount used to retire the Asset Transfer
Note, dated July 31, 1997, made by the Maker to the order of AUGI (the "Asset
Transfer Note") on the closing of the IPO (as hereinafter defined), which
amount (the "Mandatory Prepayment") shall be applied first against any
related accrued unpaid interest on unpaid principal, and second against
unpaid Note principal (including amounts added to principal for unpaid
interest) out of the net proceeds to the Company from the consummation of an
initial public offering of equity or debt securities issued by the Company
(the "IPO"), and upon the consummation of the IPO the Company shall have no
further right to draw advances, and AUGI shall have no further obligation to
disburse advances, under the Line of Credit to the Company. Following
delivery to AUGI of the Mandatory Prepayment amount, the balance of the
unpaid principal and related accrued unpaid interest shall be due and payable
by the Company subject to the following terms: the balance of the unpaid
principal (including accrued annual interest accumulated and added to
principal) and related accrued unpaid interest shall bear interest of ten
(10%) per annum, with all principal and accrued interest thereon to be due
and payable on the earlier of (i) the third anniversary of the date hereof,
or (ii) the completion of any public or private, debt or equity financing
subsequent to December 31, 1997 (the "Maturity Date").
3. EVENTS OF DEFAULT.
The following are Events of Default hereunder:
(a) Any failure by the Maker (i) to pay all or any portion of
principal of the AUGI Note, as increased by any unpaid accrued interest, on
demand, or (ii) subsequent to consummation of the IPO and payment of the
Mandatory Prepayment, the payment of any accrued and unpaid interest when due at
the Maturity Date (as applicable).
(b) If the Company (i) admits in writing its inability to pay
generally its debts as they mature, or (ii) makes a general assignment for the
benefit of its creditors, or (iii) is adjudicated bankrupt or insolvent, or (iv)
files a voluntary petition in bankruptcy, or (v) takes advantage, as against its
creditors, of any bankruptcy law statute of the United States of America or any
state or subdivision thereof now or hereafter in effect, or (vi) has a petition
or proceeding filed against it under any provision of any bankruptcy or
insolvency law or statute of the United States of America or any state or
subdivision thereof, which petition or proceeding is not dismissed within sixty
(60) days after the date of the commencement thereof, (vii) has a trustee,
receiver or other similar such person appointed by any court to its affairs or
assets or business and such appointment is not vacated or discharged within
sixty (60) days thereafter, or (viii) takes any action in furtherance of any of
the foregoing.
2
<PAGE>
4. MISCELLANEOUS
(a) All notices hereunder shall be in writing and shall be mailed by
first class registered or certified mail, postage prepaid, return receipt
requested, or by telecopy with confirmation back, or by nationally recognized
courier for next day delivery, or hand delivery, and all communications shall be
addressed to the addresses of the Company and AUGI as shown above or such other
address (or telecopy number) as the parties shall designate by notice to the
other party, with such notice being deemed given three (3) days following such
deposit in the U.S. mail, upon hand delivery, one day following delivery to such
overnight courier, or upon the date and time of the telecopy confirmation.
(b) This Agreement contains the final, complete and exclusive
understanding of the parties with respect to its subject matter, and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein. Except as otherwise expressly
provided herein, all the terms and conditions of this Agreement shall bind and
inure to the benefit of, and be enforceable by, the heirs and the respective
successors and assigns of the parties hereto. This Agreement may not be
modified or amended except by an instrument in writing signed by the party to be
charged therewith.
(c) The titles and headings of the sections of this Agreement are
included for the convenience of the parties only and are not part of this
Agreement.
(d) Whenever possible, each provision of this Agreement will be
interpreted in such manner so as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable under any applicable law or rule in any jurisdiction, provided
that such provision will be ineffective only to the extent of such invalidity,
illegality or unenforceability in such jurisdiction, without invalidating the
remainder of this Agreement in such jurisdiction or any provision hereof in any
other jurisdiction.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute but one and the same document.
(f) At any time, and from time to time, each party agrees, at its own
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the purposes of this Agreement.
(g) This Agreement shall be governed in all respects, whether as to
validity, construction, interpretation, capacity, performance or otherwise, by
the laws of the State of Washington.
3
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By:
--------------------------
Name:
Title:
AMERICAN UNITED GLOBAL, INC.
By:
--------------------------
Name:
Title:
4
<PAGE>
Exhibit 10.13
LINE OF CREDIT PROMISSORY NOTE
$2,750,000 July 31, 1997
FOR VALUE RECEIVED, the undersigned, CONNECTSOFT COMMUNICATIONS
CORPORATION, a Delaware corporation, having an address at 11130 NE 33rd
Place, Suite 250, Bellevue, WA 98004 (the "Maker"), promises to pay to the
order of AMERICAN UNITED GLOBAL. INC., a Delaware corporation, having an
address at 11130 NE 33rd Place, Suite 250, Bellevue, WA 98004 (the "Payee"),
the principal sum of up to TWO MILLION SEVEN HUNDRED FIFTY THOUSAND
($2,750,000) DOLLARS (the "Note"), which amount shall be drawn as requested
(the "Advances") from time to time by Maker through January 31, 1999, subject
to the terms of this Note, on written notice to Payee. Each request for an
Advance shall be accompanied by a statement of the proposed uses of the
proceeds of the Advance. The amounts and dates of the Advances shall be
noted on Schedule A annexed hereto. The principal of the Note shall bear
interest accrued from July 31, 1997, at the rate of eight (8%) percent per
annum, with all principal to be due and payable thirty-six (36) months from
the date hereof (the "Maturity Date"), with annual interest on the unpaid
principal of the Note to be accrued and the amount thereof accumulated and
added to principal, subject to the terms of this Note concerning mandatory
prepayment.
1. OPTIONAL PREPAYMENT.
The Maker shall have the right to prepay, without penalty, at any time
or times after the date hereof, all or any portion of the outstanding principal
balance of this Note, along with the payment of related accrued interest, out
of the net income and available cash flow of Maker in the discretion of the
Board of Directors of Maker, subject to the amount of any prepayment being first
applied to accrued and unpaid interest.
2. MANDATORY PREPAYMENT; NOTE RESTRUCTURING.
The Maker shall make mandatory prepayment of the difference between
$2,500,000 plus accrued interest on the Asset Transfer Note (as hereinafter
defined) and the entire amount used to retire the Asset Transfer Note,
dated July 31, 1997, made by the Maker to the order of AUGI (the "Asset
Transfer Note") on the closing of the IPO (as hereinafter defined), which
amount (the "Mandatory Prepayment") shall be applied first against any
related accrued unpaid interest on unpaid principal, and second against
unpaid Note principal (including amounts added to principal for unpaid
interest) out of the net proceeds to Maker from the consummation of an
initial public offering of equity or debt securities issued by Maker (the
"IPO"). On the date of and following consummation of the IPO (the "IPO
Date"), Maker shall have no right to request additional Advances under the
Note, and Payee shall have no obligation to make additional Advances under
the Note. Following delivery to the Payee of the Mandatory Prepayment amount,
the balance of the unpaid principal of the Note (including accrued annual
interest accumulated and added to principal) and related accrued unpaid
interest shall be due and payable by Maker subject to the following terms:
the balance of the unpaid principal of the Note (including accrued annual
interest accumulated and added to principal) and any related accrued unpaid
interest shall bear additional interest from the IPO Date of ten (10%) per
annum. All unpaid principal of the Note (including accrued annual interest
accumulated and added to principal) and accrued unpaid interest due thereon,
including any additional interest accrued from the IPO Date, shall be due and
payable on the earlier of (i) the Maturity Date, or (ii) the completion of
any public or private, debt or equity financing subsequent to December 31,
1997 (the "Accelerated Maturity Date").
<PAGE>
3. EVENTS OF DEFAULT.
The following are Events of Default hereunder:
(a) Any failure by the Maker (i) to pay all or any portion of unpaid
principal of this Note, as increased by any unpaid accrued interest, or
(ii) the payment of any accrued and unpaid interest when due at the
Maturity Date, (the Accelerated Maturity Date, or otherwise in accordance
with the terms of this Note as applicable).
(b) If the Maker (i) admits in writing its inability to pay generally
its debts as they mature, or (ii) makes a general assignment for the
benefit of their creditors, or (iii) is adjudicated a bankrupt or
insolvent, or (iv) files a voluntary petition in bankruptcy, or (v) takes
advantage, as against their creditors, of any bankruptcy law statute of the
United States of America or any state or subdivision thereof now or
hereafter in effect, or (vi) has a petition or proceeding filed against it
under any provision of any bankruptcy or insolvency law or statute of the
United States of America or any state or subdivision thereof, which
petition or proceeding is not dismissed within sixty (60) days after the
date of the commencement thereof, (vii) has a trustee, receiver or other
similar such person appointed by any court to its affairs or assets or
business and such appointment is not vacated or discharged within sixty
(60) days thereafter, or (viii) takes any action in furtherance of any of
the foregoing.
4. REMEDIES OF DEFAULT.
If any Event of Default shall occur and be continuing; the entire
unpaid balance of this Note shall automatically be immediately due and payable,
without requirement of notice or demand, and the interest rate on such unpaid
balance following occurrence of an Event of Default shall be increased to twelve
(12%) per annum for all purposes hereof.
5. CERTAIN WAIVERS.
Except as otherwise expressly provided in this Note, the Maker hereby
waives diligence, presentment for payment, protest, dishonor, nonpayment, and
notice of any and all of the foregoing.
6. AMENDMENTS.
This Note may not be changed orally, but only by an agreement in
writing and signed by the party against whom enforcement of waiver, change,
modification or discharge is sought.
7. GOVERNING LAW; CONSENT TO JURISDICTION.
This Note shall be deemed to be a contract made under the laws of the
State of Washington and shall be governed by, and construed in accordance with,
the laws of the State of Washington. The Maker hereby consents to the
jurisdiction of all courts (state and federal) sitting in the State of
Washington in connection with any claim, action, or proceeding relating to or
for the collection of enforcement of this Note.
2
<PAGE>
8. COLLECTION COSTS.
In the event that all or any portion of this Note shall not be paid
when due and payable (whether upon demand, by acceleration or otherwise), the
Maker shall further be liable for and shall pay to the Payee all collection
costs and expenses incurred by the Payee, including reasonable attorneys' fees.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note on
and as of the date first set forth above.
CONNECTSOFT COMMUNICATIONS CORPORATION
By: /s/ Robert Marcus
-----------------------------------
Name: Robert Marcus
Title: President and CEO
3
<PAGE>
SCHEDULE A
Initials of
Principal Advance Date of Advance Officer of Holder
- ----------------- --------------- ------------------
<PAGE>
Exhibit 10.14
MEMORANDUM OF UNDERSTANDING
---------------------------
This Memorandum of Understanding confirms that ConnectSoft Communications
Corporation ("ConnectSoft"), a Delaware corporation with business addresses at
1130 NE 33rd Place, Suite 250, Bellevue WA 98004, and Bell Communications
Research (Bellcore), a New Jersey corporation with business addresses at 331
Newman Springs Road, Red Bank, NJ 07701-5699, (collectively, the Parties) intend
to negotiate and enter into one or more Binding Agreements (as hereinafter
defined) with respect to joing marketing and the provision of related software
and systems integration support services for FreeAgent -TM-, ConnectSoft's
proprietary unified, intelligent communications software system (the System).
The scope of these Binding Agreements shall include, but not be limited to the
following transactions and arrangements:
1) That the Parties shall jointly market Free Agent to major
telecommunications companies defined as Publicly Switched Telephone Network
(P.S.T.N.) access providers, irrespective of whether such access is via
wireline, wireless or Internet service provision, and irrespective of
whether such services are for local or long distance communications.
2) That the Territory for such activities shall be the world
telecommunications market without geographical limitation except as may be
limited by third party contract or by law.
3) That the joing-marketing activities shall be supported by the Parties and
shall include without limitation:
a) The sharing of booth space at exhibitions, trade show, conferences and
symposia.
b) The sharing of sales leads and prospects.
c) The provision of resources for sales and other related activities.
d) Cooperation in the completion of RFIs and RFPs.
e) Cooperation in the development of technical specifications and other
such documents.
f) The right to utilize logos and other marketing material for the
purposes of marketing.
4) That software support and systems integration services shall be provided at
the first level by Bellcore and at the second level by ConnectSoft and
shall include without limitation:
a) The implementation of FreeAgent in Bellcore's laboratory, for the
purposes of customer evaluation of the System.
b) Systems integration services, including but not limited to:
i) specification, analysis and design of customer implementations;
ii) installation management and related consulting services;
iii) software implementation services;
iv) development and implementation of system test procedures;
v) technical training.
c) Support services, including but not limited to:
i) on-site maintenance;
ii) implementation of software upgrades;
iii) office-hours on-site support;
- -------------------------------
- -TM- FreeAgent is a trademark of ConnectSoft Communications Corporation.
Bellcore - ConnectSoft Memorandum of Understanding 08/21/97 1
<PAGE>
5) FEES. The Binding Agreements shall provide financial terms and conditions
that are mutually satisfactory. Financial terms and conditions shall be
negotiated and defined in detail in the Binding Agreements. Until such
time as a final and binding contract has been signed, the Parties shall
have no binding financial obligation one to the other.
6) PUBLICITY. The Parties shall have the right to publicly announce the
exist3ence of this Memorandum of Understanding and will determine the text
and timing of any public press releases or statements pertaining to this
Memorandum of Understanding, the Binding Agreements, and/or the
transactions contemplated thereby. The text of any such public press
release or statement shall be subject to approval by the Parties, which
approval shall not be unreasonably withheld or delayed.
7) CONFIDENTIALITY. The Parties acknowledge that they are bound under the
terms of a mutual Non-Disclosure Agreement signed by both parties dated
8/1//97. Until such time as a final binding agreement is singed, neither
party shall disclose to any third party, information regarding confidential
intellectual property, contractual arrangements or other terms and
conditions set forth in this Memorandum of Understanding, without the prior
written consent of the other.
8) NON-BINDING NATURE OF MEMORANDUM OF UNDERSTANDING. This letter constitutes
only a Memorandum of Understanding and a statement of our respective
present intentions regarding the arrangements contemplated herein and is
not intended to, nor shall it be deemed to be, a binding legal commitment.
Further, the transactions contemplated in this Letter of Intent are
specifically subject to an conditioned upon the execution and delivery of
acceptable written agreements, between the parties hereto that this letter
of Intent does not state all the essential terms and conditions of such
agreements. The parties hereto agree to promptly proceed in good faith to
arrive at such acceptable Binding Agreements upon execution hereof, and
will each use their best efforts to conclude such agreements within ninety
(90) days of the date of this Memorandum of Understanding.
9) All discussions and negotiations are subject to Bellcore's obligations
under the Telecommunications Act of 1996 (the Act). ConnectSoft
understands that Bellcore will only provide services or license software
products consistent with the limitations imposed by the Act. Bellcore will
not provide any services directed to the manufacture, including design, of
any telecommunications equipment or customer-premises equipment.
10) It is understood that any agreement which may be reached by the Parties is
subject to agreement in price, warranty, and other commercial terms and
conditions. It is also understood that any agreement which may be reached
by the Parties would be subject to all requisite managerial approvals. In
the event the parties fail to execute one or more contracts within ninety
(90) days, the parties agree to return all confidential information and all
copies (including internal copies) of such information to the disclosing
party, unless mutually agreed to in writing.
11) This Memorandum of Understanding shall be governed by and construed in
accordance with the laws of the State of New York. By entering into this
Memorandum of Understanding,
Bellcore - ConnectSoft Memorandum of Understanding 08/21/97 2
<PAGE>
Bellcore is not subjecting itself to the jurisdiction of any court outside
the State of New York, and no claim or suit arising out of or related to
this Memorandum of Understanding shall be filed against Bellcore outside
the State of New York.
12) This Memorandum of Understanding contains our entire understanding with
regard to this matter, and this Memorandum may not be amended or changed
except in writing signed by both parties.
If this Memorandum of Understanding accurately sets forth our understanding with
respect to the matters set forth herein, please so indicate by executing the
enclosed copy of this letter and returning it to the undersigned, time being of
the essence/
- --------------------------------------------------------------------------------
CONFIRMED AND AGREED CONFIRMED AND AGREED
this 21st day of August, 1997 this 21st day of August, 1997
- --------------------------------------------------------------------------------
By: /s/Robert Marcus By: /s/Derek Messulam
Name: Robert Marcus Name: Derek Messulam
Title: President and Chief Title: General Manager
Executive Officer BELL COMMUNICATIONS RESEARCH, INC.
CONNECTSOFT COMMUNICATIONS
CORPORATION
- --------------------------------------------------------------------------------
Bellcore - ConnectSoft Memorandum of Understanding 08/21/97 3
<PAGE>
Exhibit 10.15
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of this 31st day of July 1997, by and between CONNECTSOFT
COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), and AMERICAN
UNITED GLOBAL, INC., a Delaware corporation ("AUGI"), each having an office at
11130 N.E. 33rd Place, Suite 250, Bellevue, Washington 98004.
WHEREAS, the Company has requested AUGI to provide, and AUGI has
agreed to provide, certain management and administrative services to the Company
pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. ENGAGEMENT OF AUGI. During the term of this Agreement, AUGI shall
provide to the Company certain management and administrative services
("Services"), as more fully described and defined below, as may be necessary or
desirable, or as the Company may reasonably request or require, in connection
with the business, operations and affairs of the Company. "Services" means and
includes, without limitation, the furnishing of advice, assistance and guidance,
and, where necessary, certain personnel and equipment to implement the same, in
connection with, among other things, the use of AUGI's management information
and accounting system, the preparation of all federal and state tax returns,
cash management, the administration of insurance and worker's compensation
programs, legal and employee benefit services and the preparation of payrolls.
2. TERM; TERMINATION. This Agreement shall commence as of the date
hereof and continue thereafter unless and until terminated by either party at
any time for any reason upon not less than thirty (30) days prior notice to the
other.
3. PAYMENTS TO AUGI. In consideration of the Services provided by AUGI
hereunder, the Company shall pay to AUGI fees equal to the sum of:
(a) the actual cost or fair rental value (as applicable and
appropriate) of any and all materials and equipment utilized in connection with
such Services;
(b) an hourly charge for the time spent by AUGI employees in
rendering the Services, which shall be equal to the hourly rate of compensation
then payable by AUGI to each such person (based on a 35-hour work week); and
(c) an allocable pro rata portion of AUGI's administrative,
overhead, office and related expenses for purposes of furnishing Services to the
extent not billed to the
<PAGE>
Company directly.
Promptly following the end of each month and receipt of an appropriate statement
from AUGI with respect thereto, the Company shall pay such fees to AUGI.
4. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless AUGI against
and in respect of any and all claims, suits, actions, proceedings (formal or
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, and legal and other expenses (collectively, "Losses") as and when
incurred, arising out of, in connection with or based upon any act or omission,
or alleged act or alleged omission, by AUGI in connection with the acceptance
of, or the performance or non-performance by, AUGI of any of its Services under
this Agreement.
(b) AUGI shall give the Company prompt notice of any claim asserted
or threatened against AUGI on the basis of which AUGI intends to seek
indemnification from the Company as herein permitted; however, the obligations
of the Company under this Section 4 shall not be conditioned upon receipt of
such notice.
(c) Notwithstanding anything to the contrary contained in this
Section 4, the Company shall not be liable to indemnify AUGI in connection with
any claim to the extent that AUGI's actions or omissions relating thereto (i)
were not taken in good faith or not in a manner reasonably believed to be in, or
not opposed to, the best interests of the Company, (ii) exceeded the scope of
its authority as set forth herein, or (iii) constituted gross negligence or
willful misconduct on the part of AUGI.
(d) AUGI shall indemnify and hold harmless the Company against and in
respect any and all Losses, as and when incurred, arising out of or in
connection with any act or omission of AUGI constituting gross negligence or
willful misconduct in the performance or non-performance of Services.
2
<PAGE>
5. GENERAL.
(a) All notices, requests, demands and other communications required
or permitted under this Agreement shall be in writing and shall be deemed to
have been duly given if personally delivered or mailed by regular first-class
mail, in each case, however, only against receipt, or if mailed by first class
registered or certified mail, return receipt requested, addressed to the
parties, Attention: President or Secretary, at their respective addresses set
forth in the first page of this Agreement, or to such other person or address as
may be designated by like notice hereunder. Any such notice, etc. shall be
deemed to have been given on the date actually received, if personally delivered
or mailed by regular first-class mail, or on the second day after the date of
mailing, if mailed by registered or certified mail.
(b) Neither this Agreement nor any rights or obligations hereunder
may be transferred, assigned or delegated, in whole or in part, by any party
without each other party's prior written consent. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective legal representatives,
successors and assigns, but no other person or entity shall acquire or have any
rights under this Agreement.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington, without reference to conflict or
choice of laws principles.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CONNECTSOFT COMMUNICATIONS CORPORATION
By: /s/ Robert Marcus
------------------------------------
Name: Robert Marcus
Title: President and CEO
AMERICAN UNITED GLOBAL, INC.
By: /s/ Robert M. Rubin
------------------------------------
Name: Robert M. Rubin
Title: Chairman and CEO
3
<PAGE>
Exhibit 11.1
Period from September 1, 1996
(inception) to July 31, 1997
Net loss $ (2,833,000)
Pro forma weighted average
number of shares outstanding 3,000,000
-------------
Pro forma net loss per share $ (0.94)
-------------
-------------
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
---------------------------
None
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated August 27, 1997 relating
to the financial statements of Connectsoft Communications Corporation, which
appears in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
Seattle, Washington
September 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> JUL-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 382,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 382,000
<CURRENT-LIABILITIES> 2,215,000
<BONDS> 0
0
0
<COMMON> 3,000
<OTHER-SE> (1,836,000)
<TOTAL-LIABILITY-AND-EQUITY> 382,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,715,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,000
<INCOME-PRETAX> (2,833,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,833,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,833,000)
<EPS-PRIMARY> (0.94)
<EPS-DILUTED> (0.94)
</TABLE>
