<PAGE>
As filed with the Securities and Exchange Commission on October 29, 1999
Registration No. 333-89069
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
C-bridge Internet Solutions, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7371 52-2001899
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number ) Identification Number)
of Incorporation or
organization)
--------------------
C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
(617) 497-1707
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
Joseph M. Bellini
President and Chief Executive Officer
C-bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02139
(617) 497-1707
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
John A. Burgess, Esq. Mark L. Johnson, Esq.
Joseph E. Mullaney III, Esq. Richard G. Costello, Esq.
Hale and Dorr LLP Foley, Hoag & Eliot LLP
60 State Street One Post Office Square
Boston, Massachusetts 02109 Boston, Massachusetts 02109
Telephone: (617) 526-6000 Telephone: (617) 832-1000
Telecopy: (617) 526-5000 Telecopy: (617) 832-7000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum Amount of
Title of Each Class of Aggregate Registration
Securities to be Registered Offering Price(1) Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per share......... $50,000,000 $13,900
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange +
+Commission is effective. This prospectus is not an offer to sell securities, +
+and we are not soliciting offers to buy these securities, in any state where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1999
LOGO
Shares
Common Stock
C-bridge Internet Solutions, Inc. is offering shares of its common
stock. This is our initial public offering, and no public market currently
exists for our shares. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "CBIS." We anticipate
that the initial public offering price will be between $ and $ per share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to C-bridge............................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
--------------
Robertson Stephens
SG Cowen
SoundView Technology Group
The date of this prospectus is , 1999
<PAGE>
Description of the two page graphical foldout:
The outside cover of the gatefold is comprised of a bridge spanning the bottom
of the page. Under the bridge is water. Over the bridge is blue sky. In the
center of the page is the C-bridge logo with the text "Evolution In Technology"
and a small orange line underneath and the text "Revolution In Business"
underneath the orange line.
The background of the inside flap of the gatefold is comprised of a bridge
spanning the bottom of both the inside flap and inside front cover pages. Under
the bridge is water. Over the bridge is blue sky. Above the bridge, but below
the center of the foldout, are four screen shots of client web sites, two per
page.
The top of the left-hand page of the gatefold contains our logo with the text
"Internet...Intranet...Extranet" to the right. The remainder of the page
contains a graphic under the heading "C-bridge's Strategic eBusiness Approach."
The graphic begins with the text "Profit Life Cycle Management." The graphic is
comprised of three topics presented in an oval form. The first topic, presented
to the left top of the oval, contains the text "Enterprise Goals" with the
bullets "Measurements," "Operations," Resource Management," and "Scheduling"
underneath. The second topic, presented to the right center of the oval,
contains the text "Technology" with the bullets "Internet & Processes," "Data
Management" and "Backend Systems Integration" underneath. The third topic,
presented to the middle bottom of the oval, contains the text "Process" with the
bullets "Business Rules & Policies," "Supply & Service Chain" and "Industry
Specific" underneath. The three topics are connected by circular arrows around
the perimeter of the oval.
The top of the inside front cover of the gatefold contains a graphic that begins
with the text "Profit Life Cycle Management." The graphic is comprised of three
topics presented in an oval form. The first topic, presented to the left top of
the oval, contains the text "What to Change?" with the bullets "Strategy" and
"Diagnosis" underneath. The second topic, presented to the right center of the
oval, contains the text "What to Change to?" with the bullets "Rapid Solution,"
"Delivery Process" and "Change Management" underneath. The third topic,
presented to the middle bottom of the oval, contains the text "How to Make the
Change Happen" with the bullets "Implementation & On-going Profit Improvement"
and "Education & Empowerment" underneath. The three topics are connected by
circular arrows around the perimeter of the oval. Under the graphic are three
paragraphs with the headings to the left of each paragraph. The first paragraph
has the heading "Financial:" and contains the text "Profit Life Cycle Management
enables the organization to increase profits and return on resources with
consistent on-time delivery resulting in higher return on investment." The
second paragraph has the heading "Strategic:" and contains the text "Profit Life
Cycle Management provides the competitive edge for increased market share by
creating faster time-to-market throughout the enterprise." The third paragraph
has the heading "Operational:" and contains the text "Profit Life Cycle
Management synchronizes all levels of management, from senior management to
resource managers, by making decisions based on the same criteria and driving
rapid implementation."
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 23
Business................................................................. 31
Management............................................................... 44
Certain Transactions..................................................... 52
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Where You Can Find More Information...................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
C-BRIDGE is a registered trademark of C-bridge. All other trademarks or
trade names referred to in this prospectus are the property of their respective
owners.
3
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully.
C-bridge Internet Solutions
Our Business
We are a full service provider of eBusiness solutions which help companies
create strategic business solutions through the use of Internet technologies.
We add value to our clients by incorporating our expertise in business issue
diagnosis and resolution, business and technology strategy development and the
delivery of advanced Internet applications and eBusiness solutions.
Additionally, we offer clients executive eBusiness education services on topics
relevant to senior executives' efforts to successfully develop and implement
Internet technologies and eBusiness strategies.
Our Services
We help companies interact effectively, both internally with employees and
externally with vendors, suppliers and customers, by employing eBusiness
solutions. We educate senior-level executives from Global 1000 companies at
executive education seminars around the world, diagnose new business strategies
and systems architectures shortcomings and then deliver strategic eBusiness
solutions that are designed to enhance our clients' core businesses, operations
and communications.
We deliver our services through our proprietary methodology that provides
an integrated framework for each stage of a client engagement. The methodology
is based on a number of underlying principles:
. value driven;
. iterative development and change management;
. design patterns and reusable software; and
. proactive risk management.
Our diagnosis services are structured to improve our clients' understanding
of the power and potential of eBusiness solutions. During the diagnosis phase
we work with clients to help them understand the various ways to incorporate
Internet technologies into their business strategies, enable them to identify
and quantify prominent business opportunities where the Internet can be
leveraged to gain a competitive advantage and realize business value, evaluate
their current Internet capabilities and explore and create a vision of how a
chosen Internet strategy will result in measurable business value.
We use standard design patterns and reusable software components to
assemble our eBusiness solutions, increase reliability and product quality,
reduce costs and keep project teams focused on delivering business
functionality. Application development efforts are based on well-defined
specifications with release schedules that are closely aligned with business
priorities.
Our Market
We believe we are well-positioned to capitalize on the opportunity
presented by the rapid growth of the Internet. According to International Data
Corporation, the amount of commerce conducted over the Internet will exceed
$1.0 trillion by 2003. Faced with growing competition, deregulation and
globalization, companies are increasingly looking to utilize Internet
technologies to help build a competitive advantage. However,
4
<PAGE>
companies frequently require major technology investments in order to realize
the full value of their Internet strategies and often need outside technical
expertise to identify and evaluate viable Internet tools, develop feasible
systems architectures and implement strategies. The market for third-party
Internet professional service providers who perform these services has grown
significantly in recent years. International Data Corporation has forecasted
that the size of this market will grow from $7.8 billion in 1998 to $78.5
billion by 2003.
Our Strategy
Our goal is to become the leading provider of eBusiness services to Global
1000 companies. To achieve this objective, we are actively pursuing the
following strategies:
. continue to enhance our eBusiness framework and design patterns;
. develop and expand client relationships;
. capture and disseminate reusable knowledge and best practices;
. leverage and expand our industry-specific expertise; and
. expand our geographic presence.
Our Clients
We provide our services primarily to Global 1000 companies. Our customers
include Allmerica, Chevron, General Motors, Liz Claiborne, Polo Ralph Lauren
and Toyota. Our eBusiness solutions are designed to increase sales and improve
communications both internally and externally in order to achieve greater
customer satisfaction and enhance business identity.
Examples of a few of our business solutions include:
. creating an Internet-based solution that connects 8,000 Chevron gas
stations and convenience stores in order to recognize greater revenues
and profits by utilizing better economies of scale to assist Chevron
and its franchisees in optimizing their product mix and services;
. improving the Internet-based parts ordering system of Aviall, the
largest independent distributor of original aviation parts, to improve
speed and functionality as well as to provide additional electronic
commerce features;
. working with Aquent, formerly MacTemps, the world's largest placement
agency, to develop an eBusiness solution that addresses the changing
temporary placement market and extends Aquent's traditional placement
capabilities to the Internet; and
. refocusing Central Carolina Bank's eBusiness strategy towards specific
revenue-driven, customer-centric responses to banking patterns in the
industry to enable them to use the Internet to offer value-added
products and services, acquire and retain customers and increase cross-
selling of banking products.
Our Address
C-bridge was organized as a Delaware corporation in October 1996. Our
principal office is located at 219 Vassar Street, Cambridge, Massachusetts
02139 and our telephone number is (617) 497-1707. Our web site can be located
at www.c-bridge.com. Information contained on our web site should not be
considered a part of this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by C-bridge........ shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds......................... General corporate and working capital
purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.. CBIS
</TABLE>
The number of shares outstanding after this offering is based on our shares
of common stock outstanding as of September 30, 1999 and excludes:
. 6,745,062 shares subject to options outstanding as of September 30,
1999 at a weighted average exercise price of $1.20 per share;
. 1,947,515 additional shares reserved for issuance under our stock
option plans; and
. 784,504 shares subject to warrants outstanding as of September 30, 1999
at a weighted average exercise price of $0.38.
--------------------
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
6
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
Set forth below are our summary consolidated statements of operations data
for the period from inception (October 31, 1996) through December 31, 1996, for
the years ended December 31, 1997 and 1998, and for the nine months ended
September 30, 1998 and 1999, and summary balance sheet data as of September 30,
1999, on an actual basis, on a pro forma basis to give effect to our sale of
1,645,555 shares of series A convertible preferred stock in October 1999 for
net proceeds of $9.8 million and the conversion of all of our outstanding
preferred stock into common stock that will occur upon the consummation of this
offering and on a pro forma as adjusted basis to give effect to the sale by us
of shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
inception Year Ended Nine Months Ended
(October 31, 1996) December 31, September 30,
through ---------------- ------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ------------------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total net revenues...... $ -- $ 3,169 $ 5,047 $ 3,208 $ 13,838
Loss from operations.... (193) (1,218) (3,640) (3,256) (3,118)
Net loss................ (193) (1,215) (3,869) (3,421) (2,931)
Basic and diluted net
loss per share........ $ (0.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
Basic and diluted
weighted average
shares outstanding.... 10,000 10,000 9,992 9,912 10,713
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
Balance Sheet Data: ------- --------- -----------
<S> <C> <C> <C>
Working capital deficit.......................... $(1,811) 6,622
Total assets..................................... 5,858 14,407
Line of credit................................... 1,449 189
Capital lease obligations........................ 317 317
Total stockholders' (deficit) equity ............ (671) 9,137
</TABLE>
7
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should consider carefully
the following risks before you decide to buy our common stock. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. This could cause the
market price of our common stock to decline, and you could lose all or part of
your investment.
Risks Related to Our Business
Because we have a short operating history, there is a limited amount of
information about us upon which you can evaluate our business and potential for
future success.
We were incorporated in October 1996 and have only a limited operating
history upon which you can evaluate our business and prospects. You must
consider the risks and uncertainties frequently encountered by early stage
companies in new and rapidly evolving markets, such as the market for Internet
professional services. Some of these risks and uncertainties relate to our
ability to:
. anticipate and adapt to changes in our rapidly evolving market;
. increase our brand recognition;
. retain current clients and attract new clients;
. implement and successfully execute our business strategy and sales and
marketing initiatives;
. attract, retain and motivate qualified personnel;
. respond effectively to competitive and technological developments; and
. effectively manage our anticipated growth.
If we are unsuccessful in addressing these risks and uncertainties, our
ability to execute our business plan would be materially and adversely
affected.
We had an accumulated deficit of $8.3 million as of September 30, 1999, and we
expect to continue to incur operating losses for the foreseeable future.
We have had substantial losses since our inception and our operating losses
may continue and even increase in the future. We expect our operating expenses
to increase significantly, especially in the areas of sales, marketing and
recruiting, and, as a result, we will need to generate increased quarterly
revenues to become profitable. Accordingly, we cannot assure you that we will
ever become or remain profitable. If our revenues fail to grow at anticipated
rates or our operating expenses increase without a commensurate increase in our
revenues, our financial condition will be adversely affected. It is unlikely
that the growth rates we have experienced in recent periods will continue at
their current levels. Our inability to become profitable on a quarterly or
annual basis would have a material adverse effect on our business and financial
condition.
Our results of operations may vary from quarter to quarter in future periods,
and, as a result, we may fail to meet the expectations of our investors and
analysts, which could cause our stock price to fluctuate or decline.
Our revenues and results of operations have fluctuated significantly in the
past and could fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. These factors include:
. demand for our services;
. our ability to attract and retain clients;
. our ability to attract, retain and motivate qualified personnel;
8
<PAGE>
. the number, timing and significance of new services introduced by our
competitors;
. our ability to develop, market and introduce new and enhanced services
on a timely basis;
. the level of service and price competition;
. changes in operating expenses; and
. changes in the mix of services offered.
A substantial portion of our operating expense is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and
are therefore relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenue. If
actual revenues are below our expectations, our results of operations and
financial condition would be materially and adversely affected.
Due to all of the foregoing factors and the other risks discussed in this
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.
Our success depends on a limited number of significant clients, and our
revenues could be negatively affected by the loss of a major client or
significant project.
We generate much of our revenues from a limited number of clients. As a
result, if we lose a major client or large project, our revenues could be
materially and adversely affected. In 1998, for example, our three largest
clients, Chevron, Johnstone Supply and Toyota, accounted for approximately 51%
of our total net revenues. During the nine months ended September 30, 1999, our
three largest professional services clients, Allmerica, Chevron and U.S. West,
collectively accounted for approximately 54% of our total net revenues. In
addition, a fourth client, CEE, for whom we perform educational services,
accounted for 18% of our total net revenues for the nine months ended September
30, 1999.
We perform varying amounts of work for specific clients from year to year.
A major client in one year may not use our services in another year. In
addition, we may derive revenues from a major client that constitutes a large
portion of a particular quarter's total revenues. If we lose any major clients
or any of our clients cancel or significantly reduce a large project's scope,
our results of operations and financial condition could be materially and
adversely affected. In addition, we expect the size of these contracts to grow,
resulting in a continued dependence on significant clients. Also, if we fail to
collect a large account receivable, we could be subjected to significant
financial exposure.
Our lack of long-term client contracts reduces the predictability of our
revenues because these contracts may be canceled on short notice and without
penalty.
Our clients generally retain us on a project-by-project basis, rather than
under long-term contracts. As a result, a client may not engage us for further
services once a project is completed. Also, most of our clients can reduce or
cancel their contracts with little or no notice and without penalty. If a
significant client, or a number of clients, terminate, significantly reduce or
modify their contracts with us, our results of operations would be materially
and adversely affected. Consequently, you should not predict or anticipate our
future revenues based on the number of clients we have or the number and size
of our existing projects. When a client postpones, modifies or cancels a
project, we must shift our consultants to other projects to minimize the
adverse impact on our operating results. We cannot assure you that we will be
successful in efficiently shifting our consultants to new projects in the event
of project terminations.
We may lose money on fixed-price contracts.
As part of our strategy, we intend to enter into more fixed-price
contracts, rather than contracts based on payment for time and materials. For
the nine months ended September 30, 1999, fixed-price contracts
9
<PAGE>
represented approximately 12% of our professional services revenues. In
addition, the average size of our contracts has increased in recent periods,
which increases our exposure to the financial risks of fixed-price contracts.
We assume greater financial risk on fixed-price contracts than on time-and-
materials engagements, and we cannot assure you that we will be able to
successfully price our larger contracts. We have only a limited history in
estimating our costs for our engagements, particularly for larger projects. In
the past, we have had to commit unanticipated resources to complete certain
projects, resulting in lower gross margins on these projects. We may experience
similar situations in the future. If we fail to estimate accurately the
resources and time required for an engagement, to manage client expectations
effectively or to complete fixed-price engagements within our budget, on time
and to our clients' satisfaction, we would be exposed to cost overruns,
potentially leading to losses on these engagements. This failure could
materially and adversely affect our results of operations and financial
condition.
We depend on our key personnel, and the loss of any key personnel could disrupt
our operations, adversely affect our business and result in reduced revenues.
Our future success will depend on the continued services and on the
performance of our senior management and other key employees, in particular the
services of:
. Joseph M. Bellini, our President and Chief Executive Officer;
. Richard C. Putz, our Executive Vice President, Worldwide Industries;
. R. Jeffrey Spurrier, our Executive Vice President, Worldwide
Operations;
. Mark A. Cosway, our Executive Vice President, Sales and Marketing; and
. Richard O. Wester, our Vice President, Finance and Administration and
Chief Financial Officer.
While we currently have employment agreements with each of these
executives, they can terminate their employment under these agreements with 60
days notice without penalty. The loss of the services of any of these
individuals could seriously impair our ability to execute our business plan,
which could reduce our revenues and have a material adverse effect on our
business and results of operations.
Our ability to hire, train and retain qualified employees is crucial to our
ability to compete effectively.
To succeed, we must hire, train, motivate, retain and successfully manage
employees with skills related to the Internet and its rapidly changing
technologies. Because of the recent and rapid growth of the Internet,
professionals who have Internet expertise and can perform the services we offer
are scarce, and competition for these individuals is intense. We might not be
able to hire enough experienced professionals or to train, motivate, retain and
successfully manage the employees we do hire. This could hinder our ability to
complete existing projects and bid for new projects. In addition, because the
competition for qualified professionals in the Internet industry is intense,
hiring, training, motivating and retaining professionals with the strategic,
technical and creative skills we need is both time-consuming and expensive.
While our key employees are subject to non-competition agreements, these
agreements may be difficult to enforce. As a result, our employees may leave us
and work for our competitors or start their own companies in competition with
us. If we fail to attract, train and retain key personnel, our business would
be materially and adversely affected.
We may not be able to successfully manage our growth which could adversely
affect our business.
We have grown rapidly and expect to continue to grow rapidly, both by
hiring new employees and serving new industry and geographic markets. Our
recent growth has placed, and is expected to continue to place, a significant
strain on our management and our operating and financial systems. Our headcount
has grown from 57 as of December 31, 1997 to 183 as of September 30, 1999, and
several members of our senior management team have only recently joined us. We
do not believe our recent growth rate is sustainable for the long term.
10
<PAGE>
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
projects, clients and the increased size of our operations, we will need to
hire, train and retain appropriate personnel to manage our operations. We will
also need to improve our financial and management controls, reporting systems
and operating systems. We currently plan to redesign several internal systems,
including our recruiting and engagement management systems. We may encounter
difficulties in developing and implementing these new systems, which could have
a material adverse effect on our results of operations.
Historically, we have depended on third-party educational seminars to generate
a substantial majority of our client engagements, and the success of our
business will depend on our ability to develop effective sales and marketing
capabilities.
Historically, we have derived a substantial majority of our client
engagements from sales leads generated by educational seminars produced in
conjunction with CEE and Professor John J. Donovan. In the event that either
CEE or Professor Donovan is no longer able to perform these services, our
revenues could be adversely affected. While these seminars will continue to be
an important source of sales leads for client engagements, we have begun to
develop our own sales and marketing capabilities as well. However, there is
intense competition for sales personnel in our business, and there can be no
assurance that we will be successful in attracting, integrating, motivating and
retaining new sales personnel. In addition, we have limited experience in
marketing our services with a direct sales force. Unlike our educational
seminars, our direct sales force may be unable to establish client contacts at
senior management levels, which may limit the effectiveness of those contacts
and limit future revenue growth.
Our future success will depend on our ability to keep pace with the Internet's
rapid technological changes, evolving industry standards and changing client
requirements.
The market for Internet professional services is relatively new and
evolving rapidly. Our future success will depend, in part, upon our ability to
provide services that are accepted by our existing and future clients as an
integral part of their business model. Demand and market acceptance for
recently introduced services are subject to a high level of uncertainty. The
level of demand for Internet professional services will depend upon a number of
factors, including the following:
. the growth in consumer access to, and acceptance of, new interactive
technologies such as the Internet;
. the adoption of Internet-based business models; and
. the development of technologies that facilitate two-way communication
between companies and targeted audiences.
Significant issues concerning the commercial use of Internet technologies,
including security, reliability, cost, ease of use and quality of service,
remain unresolved and may inhibit the growth of eBusiness solutions that
utilize these technologies. Our future success will depend, in part, on our
ability to meet these challenges. Among the most important challenges facing us
are the need to:
. effectively use leading technologies;
. continue to develop our strategic and technical expertise;
. influence and respond to emerging industry standards and other
technological changes;
. enhance our current services;
. develop new services that meet changing customer needs; and
. advertise and market our services.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges, and our failure to do so could materially and adversely affect our
business.
11
<PAGE>
Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. Many of these historical
predictions have overstated the growth of the Internet. These predictions
should not be relied upon as conclusive. The market for our services may not
develop, our services may not be adopted and individual personal computer users
in business or at home may not use the Internet or other interactive media for
commerce and communication. If the market for Internet professional services
fails to develop, or develops more slowly than expected, or if our services do
not achieve market acceptance, our business would be materially and adversely
affected.
Future acquisitions or investments could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
business.
We anticipate that a portion of any future growth may be accomplished by
acquiring existing businesses. The success of any acquisitions will depend
upon, among other things, our ability to integrate acquired personnel,
operations, products and technologies into our organization effectively, to
retain and motivate key personnel of acquired businesses and to retain
customers of acquired firms. We cannot assure you that we will be able to
identify suitable acquisition opportunities, obtain any necessary financing on
acceptable terms or successfully integrate acquired personnel and operations.
In addition, as a public company, it may be more difficult to acquire
additional companies and the cost of acquiring businesses may increase relative
to the cost of similar acquisitions when we were a private company. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and materially and adversely affect our
results of operations. Any future acquisitions would involve certain other
risks, including the assumption of additional liabilities, potentially dilutive
issuances of equity securities and diversion of management's attention from
other business concerns. Furthermore, we may issue equity securities or incur
debt to pay for any future acquisitions. If we issue equity securities, your
percentage ownership of our company would be reduced.
Competition in the Internet professional services market is intense, and
therefore we may lose projects to our competitors or prospective clients'
internal IT departments.
While the market for Internet professional services is relatively new, it
is already highly competitive. In many cases we compete with the in-house
technical staff of our prospective clients. In addition, the market is
characterized by an increasing number of entrants that have introduced or
developed services similar to those offered by us. We believe that competition
will intensify and increase in the future. Our target market is rapidly
evolving and is subject to continuous technological change. As a result, our
competitors may be better positioned to address these developments or may react
more favorably to these changes, which could have a material adverse effect on
our business. We compete on the basis of a number of factors, including the
following:
. integrated strategy, technology and architectural design services;
. architectural design and systems engineering expertise;
. technological innovation;
. quality, pricing and speed of service delivery;
. understanding clients' strategies and needs;
. client references; and
. vertical industry knowledge.
Many of these factors are beyond our control. Existing or future
competitors may develop or offer Internet professional services that provide
significant technological, creative, performance, price or other advantages
over the services we offer.
12
<PAGE>
We currently compete for client assignments and experienced personnel
principally with the following:
. Internet service firms: AGENCY.COM, iXL, Modem Media.Poppe Tyson,
Online Marketing Communications, Organic Online, Proxicom, Razorfish,
Scient, USWeb/CKS and Viant.
. Systems integrators: Andersen Consulting, Cambridge Technology
Partners, Cap Gemini, EDS, Sapient and WM-Data.
. Management consulting firms: Bain, Booz-Allen & Hamilton, Boston
Consulting Group and McKinsey.
. Computer hardware and service vendors: Compaq, DEC, Hewlett-Packard
and IBM.
. Advertising agencies: Bates, DDB Needham, Grey Advertising, McCann-
Erickson and Ogilvy & Mather.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we do.
There are relatively low barriers to entry into our business. We have no
patented or other proprietary technology that would preclude or inhibit
competitors from entering the Internet professional services market.
Therefore, we must rely on the skill of our personnel and the quality of our
client service. The costs to develop and provide Internet professional
services are low. We expect that we will continue to face additional
competition from new entrants into the market in the future, and we are
subject to the risk that our employees may leave us and may start competing
businesses. Any one or more of these factors could have a material and adverse
effect on our business.
We may not be able to protect our intellectual property rights, which could
adversely affect our business.
Our future success will depend, in part, upon our intellectual property
rights and our ability to protect these rights. We do not have any patents or
patent applications pending. Existing trade secret and copyright laws afford
us only limited protection. Third parties may attempt to disclose, obtain or
use our solutions or technologies. This is particularly true in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. Others may independently
develop and obtain patents or copyrights for technologies that are similar or
superior to our technologies. If that happens, we may need to license these
technologies and we may not be able to obtain licenses on reasonable terms, if
at all.
Generally, we develop software applications for specific client
engagements. Issues relating to ownership of and rights to use software
applications and frameworks can be complicated. We may become involved in
disputes that affect our ability to resell or reuse these applications and
frameworks. Also, we may have to pay economic damages in these disputes which
could adversely affect our results of operations and financial condition.
Difficulties in transitioning to new software systems may negatively affect
our business.
We currently use PC and network-based software for our management systems.
Our current financial software is designed for small to medium-sized
companies. Our human resources, recruiting and resource management systems are
mainly database and spreadsheet driven. We have purchased and are currently
planning to implement Oracle's integrated financial, human resources and
project software. We are also evaluating our recruiting and customer
relationship management systems. However, these new systems are expensive, and
we may encounter difficulties in transitioning to them. Difficulties
encountered with developing, implementing or operating such systems could
materially and adversely affect our business.
13
<PAGE>
Our failure to meet client expectations or deliver error-free services could
result in losses and negative publicity.
Our client engagements involve the creation, implementation and maintenance
of eBusiness solutions that are often critical to our clients' businesses. Any
defects or errors in these applications or a failure to meet client
expectations could result in:
. delayed or lost revenues due to adverse client reaction;
. the provision of additional services to a client at no charge;
. negative publicity regarding us and our services, which could
adversely affect our ability to attract or retain clients; and
. claims for substantial damages against us, regardless of our
responsibility for any damages.
Our contracts generally contain provisions intended to limit our liability
for damages that may arise from negligent acts, errors, mistakes or omissions
in rendering services to our clients. However, we cannot assure you that these
contractual provisions will protect us from liability for damages. Furthermore,
our general liability insurance coverage may not continue to be available on
reasonable terms or be sufficient to cover large claims. In addition, the
insurer may disclaim coverage as to any future claim. The successful assertion
of any large claim against us could materially and adversely affect our
financial condition.
Problems relating to the "Year 2000 Issue" could adversely affect our business.
Year 2000 issues may adversely affect our business and our clients'
businesses. Many currently installed computer systems and software products are
coded to accept only two-digit year entries in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish 21st century dates from
20th century dates. As a result, computer systems and software used by many
companies, including us, our clients and our prospective clients, may need to
be upgraded to comply with such "Year 2000" requirements. Any failure on the
part of our principal internal systems, the systems that we create for our
prospective clients and other existing systems of our clients, could seriously
harm our business, financial condition and operating results. For a more
detailed description of our Year 2000 assessment, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of Year
2000."
To remain competitive, we may need additional financing, which may not be
available on terms acceptable to us, if at all.
We expect the net proceeds from this offering, together with current cash
and available borrowings under our credit facilities, will be sufficient for us
to meet our working capital and capital expenditure requirements for at least
the next 12 months. However, we may need additional financing sooner if we:
. decide to expand faster than planned;
. develop new or enhanced services or products ahead of schedule;
. need to respond to competitive pressures; or
. decide to acquire complementary products, businesses or technologies.
If we raise additional funds through the sale of equity or convertible debt
securities, your percentage ownership will be reduced. In addition, these
transactions may dilute the value of our common stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock. We cannot assure you that we will be able to raise additional funds on
terms acceptable to us, if at all. If future financing is not available or is
not available on terms acceptable to us, we may not be able to fund our
business plan which would have a material adverse effect on our financial
condition.
Our international expansion plans may not succeed.
A key element of our strategy is to expand our operations into
international markets. We currently have professionals operating in London,
England and Sydney, Australia. We have limited experience in marketing,
14
<PAGE>
selling and delivering our services internationally, and we may have difficulty
in managing our international operations because of distance, as well as
language and cultural differences. We cannot assure you that we will be able to
market and deliver our services successfully in foreign markets.
Other risks related to our international operations include:
. fluctuations in currency exchange rates and the conversion to the euro
by all members of the European Union by year-end 2003;
. difficulties arising from staffing and managing foreign operations;
. longer payment cycles;
. restrictions and the reduced protection of intellectual property;
. restrictions on the import and export of sensitive U.S. technologies,
such as data security and encryption technologies that we may wish to
use in solutions we develop for customers;
. legal and regulatory requirements of different countries, such as
differing tax or labor laws; and
. potential political and economic instability.
If any of these risks materialize, we may have difficulty in managing our
international operations and expansion, which could have a material adverse
effect on our business and results of operations.
Risks Related to the Internet Professional Services Industry
Our future success will depend on the continued growth and development of the
Internet and its infrastructure.
Our future success will depend on the continued growth and use of the
Internet. We cannot assure you that this growth will continue or that a
sufficient number of consumers will adopt and continue to use the Internet.
Internet usage may be inhibited for a number of reasons, including:
. inadequate Internet infrastructure;
. security concerns;
. inconsistent quality of service; or
. unavailability of cost-effective, high-speed access services.
We cannot assure you that the Internet infrastructure will be able to
support expected growth or that the performance and reliability of the Internet
will not decline as a result of this growth. Recently, many web sites,
including those of our clients, have experienced a variety of interruptions in
their service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently occur in
the future, web usage could grow more slowly than anticipated or decline.
Our future success will depend on the development of the eBusiness market,
which remains uncertain.
Our future success will depend upon the widespread acceptance and use of
the Internet as an effective medium of commerce by businesses and consumers.
Rapid growth in the use of the Internet and commercial online services is a
recent phenomenon. Demand for recently introduced services and products over
the Internet and online services is subject to a high level of uncertainty. The
continued development of the Internet and eBusiness as a viable commercial
marketplace is subject to a number of factors, including the following:
. the willingness of buyers to shift their purchasing habits from
traditional vendors to eBusiness vendors;
. insufficient availability of telecommunications services providing
sufficiently fast response times; and
. adverse publicity and consumer concern about the security of eBusiness
transactions.
15
<PAGE>
Breaches of security and computer viruses on the Internet may adversely affect
our business by slowing the growth of eBusiness.
The need to securely transmit confidential information, such as credit card
and other personal information, over the Internet has been a significant
barrier to eBusiness and Internet communications. Any well-publicized
compromise of security could deter consumers and businesses from using the
Internet to conduct transactions that involve transmitting confidential
information, such as purchases of goods or services. Furthermore, computer
viruses that spread over the Internet could disable or damage the systems we
develop for our clients. Decreased Internet traffic or eBusiness sales as a
result of general security concerns or viruses could cause companies to reduce
their amount of technology spending, which could hurt our results of
operations.
We face risks associated with government regulation of, and legal uncertainties
surrounding, the Internet.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could increase our cost of doing business or
otherwise have a material adverse effect on our business, results of operations
and financial condition. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws governing intellectual property, copyright, privacy,
obscenity, libel and taxation apply to the Internet. In addition, the growth
and development of eBusiness may prompt calls for more stringent consumer
protection laws, both in the United States and abroad.
Risks Associated With This Offering
The future sale of substantial amounts of our common stock may negatively
affect our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. In addition, we have
a significant number of shares that are subject to outstanding options and
warrants. The exercise of these options and warrants and the subsequent sale of
the underlying common stock could cause a further decline in our stock price.
These sales also might make it difficult for us to sell equity securities in
the future at a time and at a price that we deem appropriate.
The future issuance of preferred stock may dilute the rights of our common
stockholders.
Following this offering, our board of directors will have the authority to
issue up to 5,000,000 shares of preferred stock and to determine the price,
privileges and other terms of the shares. The board of directors may exercise
this authority without any further approval of the stockholders. The rights of
the holders of common stock may be adversely affected by the rights of the
holders of any preferred stock that may be issued in the future.
We have various mechanisms in place to discourage takeover attempts.
Certain provisions of our certificate of incorporation and bylaws, as well
as Section 203 of the Delaware General Corporation Law, may discourage, delay
or prevent a change in control of our company that you as a stockholder may
consider favorable. These provisions include:
. authorizing the issuance of "blank check" preferred stock that could
be issued by our board of directors to increase the number of
outstanding shares and thwart a hostile takeover attempt;
. prohibiting cumulative voting in the election of directors, which will
allow a majority of stockholders to control the election of all
directors;
. requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
16
<PAGE>
. limitations on who may call special meetings of stockholders;
. prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
. establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans may discourage, delay or prevent a change in control of
our company.
We expect the market price of our common stock to be volatile, and it may drop
unexpectedly.
The initial public offering price will be determined through negotiations
between us and the representatives of the underwriters based on factors that
may not be indicative of future market performance. The initial public offering
price may bear no relationship to the price at which the common stock will
trade upon completion of this offering. An active public market for our common
stock may not develop or be sustained after this offering, and the market price
could fall below the initial public offering price.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business and the market price of our common stock.
Our directors, executive officers and principal stockholders will have
substantial control over our affairs.
Our directors, executive officers and principal stockholders will
beneficially own approximately % of our common stock following this offering.
In particular, three stockholders will own approximately % of our outstanding
common stock. These stockholders acting together will have the ability to exert
substantial influence over all matters requiring approval by our stockholders.
These matters include the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they may dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a
change in control or impeding a merger or consolidation, takeover or other
business combination which you, as a stockholder, would otherwise view
favorably.
We do not have a plan for the use of the net proceeds of this offering and will
therefore have discretion as to the use of these proceeds, which we may not use
effectively.
We have no plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from expenses of the business and general working capital. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering and may use the proceeds in ways with which stockholders
disagree. We may not be able to invest these funds effectively.
You will suffer substantial dilution in the net tangible book value of the
common stock you purchase.
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. Based on an assumed
initial public offering price of $ per share, if you purchase shares of
common stock in this offering, you will suffer immediate and substantial
dilution of $ per share in the net tangible book value of the common stock.
17
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found
in the material set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" as well as in the
prospectus generally. We generally use words such as "believes," "intends,"
"expects," "anticipates," "plans," and similar expressions to identify forward-
looking statements. This prospectus also contains third-party estimates
regarding the size and growth of the Internet professional services market and
Internet usage in general. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described above and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, they relate only to events as of the date on which
the statements are made, and we cannot assure you that our future results,
levels of activity, performance or achievements will meet these expectations.
Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of the forward-looking statements. We are under no
duty to update any of the forward-looking statements after the date of this
prospectus to conform these statements to actual results or to changes in our
expectations.
This prospectus contains data related to the eCommerce market and the
Internet professional services industry. These market data have been included
in studies published by the market research firm of International Data
Corporation. These data include projections that are based on a number of
assumptions, including increasing worldwide business use of the Internet, the
growth in the number of web access devices per user, the absence of any failure
of the Internet and the continued improvement of security on the Internet. If
any of these assumptions is incorrect, actual results may differ from the
projections based on those assumptions and these markets may not grow at the
rates projected by these data, or at all. The failure of these markets to grow
at these projected rates may have a material adverse effect on our business and
the market price of our common stock.
18
<PAGE>
USE OF PROCEEDS
The net proceeds we expect to receive from the sale of shares of common
stock offered by us are estimated to be $ , assuming an initial public
offering price of $ per share, after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds will be $ million. We intend to use the net proceeds from this
offering for general corporate and working capital purposes, including possible
acquisitions. As of the date of this prospectus, we have not identified any
specific expenditure plans with respect to the proceeds of this offering.
Accordingly, our management will have broad discretion and significant
flexibility in applying the net proceeds of this offering. We intend to invest
the net proceeds from this offering in short-term, investment grade, interest-
bearing instruments until they are used.
The principal purposes of this offering are:
. to increase our equity capital;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace where
several of our current and prospective competitors are, or may in the
future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We intend to continue to consider, from time to time, acquisitions that
could provide additional new product or service offerings, additional industry
expertise, a broader client base or an expanded geographic presence, and a
portion of the net proceeds from this offering may be used for such
acquisitions. From time to time, we have engaged in discussions with third
parties concerning potential acquisitions of product lines, technologies and
businesses. However, there are currently no commitments or agreements with
respect to any acquisition.
DIVIDEND POLICY
We have never paid dividends on our common stock. We currently intend to
retain earnings, if any, to fund the development and growth of our business and
do not anticipate paying cash dividends for the foreseeable future. Payment of
future dividends, if any, will be at the discretion of our board of directors
after taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
The terms of our existing credit agreement also restrict our ability to pay
cash dividends.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1999, our
capitalization on an actual basis, on a pro forma basis to give effect to our
sale of 1,645,555 shares of series A convertible preferred stock in October
1999 for net proceeds of $9.8 million and the conversion of all of our
outstanding preferred stock into common stock that will occur upon the
consummation of this offering and on a pro forma as adjusted basis to give
effect to the sale by us of shares of common stock offered at an assumed
initial public offering price of $ per share, after deducting underwriting
discounts and commissions and the estimated offering expenses payable by us.
This information should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Line of credit................................... $ 1,449 189 $
Current portion of capital lease obligation...... 191 191
------- ------ ------
Total short-term debt.......................... 1,640 380
------- ------ ------
Capital lease obligation, less current portion... 126 126
Stockholders' deficit:
Preferred Stock, $0.01 par value-- ............
Authorized--5,000,000 shares..................
Issued and outstanding--none.................. -- -- --
------- ------ ------
Common stock, $0.01 par value--
Authorized--30,000,000 shares
Issued--12,167,687, 13,813,242 and
shares at September 30, 1999, pro forma and
pro forma as adjusted, respectively.......... 122 138
Additional paid-in capital....................... 14,275 24,067
Notes receivable for issuance of common stock.... (84) (84)
Deferred compensation............................ (6,524) (6,524)
Accumulated deficit.............................. (8,307) (8,307)
Treasury stock, at cost--510,000 shares.......... (153) (153)
------- ------ ------
Total stockholders' (deficit) equity........... (671) 9,137
------- ------ ------
Total capitalization........................ $ (545) 9,263 $
======= ====== ======
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 which gives
effect to our sale of series A convertible preferred stock in October 1999 for
net proceeds of $9.8 million and conversion of all of our outstanding preferred
stock into 1,645,555 shares of common stock that will occur upon consummation
at this offering, was approximately $9.1 million, or $0.66 per share of common
stock. Pro forma net tangible book value per share is determined by dividing
our tangible net worth (tangible assets less liabilities) by the number of
shares of common stock outstanding assuming conversion of all outstanding
shares of preferred stock into 1,645,555 shares of common stock upon the
completion of this offering. Assuming the sale by us of shares of common
stock, and after deducting estimated underwriting discounts and commissions and
the estimated offering expenses payable by us, our pro forma net tangible book
value as of September 30, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of September 30,
1999............................................................... $0.66
Increase per share attributable to this offering...................
-----
Pro forma net tangible book value per share after this offering.....
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999 to give effect to our sale of series A preferred stock in October 1999 and
the conversion of all of our outstanding preferred stock into 1,645,555 shares
of common stock, the number of shares of common stock purchased from us, the
total cash consideration paid and the average price paid per share by the
existing stockholders and by new investors purchasing shares in this offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 13,813,242 % $12,207,143 % $ 0.88
New investors.............
---------- ----- ----------- -----
Total................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above exclude 6,745,062 shares of common stock
issuable pursuant to options outstanding as of September 30, 1999. Of these
stock options, options to purchase approximately 1,330,407 shares were
exercisable as of September 30, 1999, at a weighted average exercise price of
$0.54 per share. In addition, as of September 30, 1999, there were warrants
outstanding to purchase a total of 784,504 shares of common stock with a
weighted average exercise price of $0.38 per share. To the extent that these
options and warrants are exercised, there will be further dilution to new
investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of December 31, 1996, 1997,
1998 and September 30, 1999 and for the period from inception (October 31,
1996) to December 31, 1996, for each of the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999 are derived from our
consolidated financial statements which have been audited by Arthur Andersen
LLP, our independent public accountants, and are included elsewhere in this
prospectus. The selected consolidated financial data for the nine months ended
September 30, 1998 are derived from unaudited consolidated financial statements
included elsewhere in this prospectus. In the opinion of our management, all
unaudited financial data include all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the data for such period. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
Period from
inception
(October 31,
1996) Year Ended Nine Months Ended
through December 31, September 30,
December 31, ---------------- ------------------
1996 1997 1998 1998 1999
------------ ------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues:
Professional services...... $ -- $ 3,169 $ 5,047 $ 3,208 $ 11,342
Educational services....... -- -- -- -- 2,496
------- ------- ------- -------- --------
Total net revenues........ -- 3,169 5,047 3,208 13,838
Costs and expenses:
Direct costs of
professional services.... 50 2,234 4,974 3,690 6,457
Direct costs of educational
services................. -- -- -- -- 1,142
Selling and marketing...... 3 328 1,530 1,217 1,884
General and
administrative........... 140 1,797 2,109 1,500 4,721
Compensation expense
related to stock options
and warrants............. -- 28 74 57 2,752
------- ------- ------- -------- --------
Total operating expenses.. 193 4,387 8,687 6,464 16,956
------- ------- ------- -------- --------
Loss from operations........ (193) (1,218) (3,640) (3,256) (3,118)
Interest and other income
(expense), net............ -- 3 (229) (165) 187
------- ------- ------- -------- --------
Net loss.................... $ (193) $(1,215) $(3,869) $ (3,421) $ (2,931)
======= ======= ======= ======== ========
Basic and diluted net loss
per share................. $ (0.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
======= ======= ======= ======== ========
Basic and diluted weighted
average shares
outstanding............... 10,000 10,000 9,992 9,912 10,713
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1996 1997 1998 1999
------- ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital deficit................ $ (192) $ (128) $(3,187) $(1,811)
Total assets........................... -- 1,797 1,932 5,858
Line of credit......................... -- -- 2,616 1,449
Capital lease obligations.............. -- -- 294 317
Total stockholders' deficit............ (192) (1,375) (2,821) (671)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus.
Overview
We are a full service provider of eBusiness solutions which help companies
create strategic business solutions through the use of Internet technologies.
From our incorporation in October 1996 through December 31, 1996, our operating
activities consisted primarily of recruiting key technical and management
personnel, establishing a business and operations plan and establishing
relationships with prospective clients. In 1997, we retained our first clients,
hired consultants, technical personnel and core services staff to execute
client engagements and began building the sales and marketing and operational
infrastructures to support the projected growth of our business.
Our revenues are derived primarily from providing Internet professional
services. We expect that our revenues will be driven primarily by the number
and scope of our client engagements and by our professional services headcount.
In 1998, three clients accounted for approximately 51% of our total net
revenues, of which 25% were from Chevron, 16% were from Johnstone Supply, and
10% were from Toyota. Revenues from any given client will vary from period to
period; however, we expect that significant customer concentration will
continue for the foreseeable future. To the extent that any significant client
uses less of our services or terminates its relationship with us, our revenues
could decline substantially. As a result, the loss of any significant client
could materially and adversely affect our business and results of operations.
We also generate revenues from providing educational services. In May 1999,
we entered into an outsourcing agreement with our primary sales lead source to
provide the operational aspects of their executive education seminars. Under
this contract, we generate revenues of approximately $1.4 million a quarter.
We market and sell our services through the executive education seminars,
indirectly with our partners, and directly through our sales organization. The
majority of our leads, and our revenues, has come through these executive
education seminars.
Revenues generated pursuant to time and materials contracts are generally
recognized as services are provided. For 1998, approximately 91% of revenues
were derived from time and materials contracts. Revenues generated pursuant to
fixed-fee contracts are generally recognized as services are rendered using the
percentage-of-completion method of accounting. Revenues exclude reimbursable
expenses charged to clients. As we obtain greater experience in estimating the
costs of performing eBusiness services, our strategy is to enter into more
fixed-fee contracts, which we believe are potentially more profitable.
Accordingly, we anticipate that a larger percentage of revenues will be derived
from fixed-fee contracts in the future. In 1998, substantially all clients were
located within North America and all revenues were denominated in U.S. dollars.
Direct costs of professional services consist primarily of the compensation
and benefits of our employees engaged in the delivery of professional services
and non-reimbursable expenses related to client projects. Direct costs of
professional services margins reflect revenues less the professional services
expenses whether or not the employee's time is billed to a client. We expect
that our per capita professional services costs will increase over time due to
wage increases and inflation. In addition, these cash expenses may increase
after this offering because prospective employees that we target after this
offering may perceive that the stock option component of our compensation
package is not as valuable as that component was prior to this offering. Our
professional services margins are affected by trends in hiring and in
consultant utilization, and, as such, will vary in the future. Any significant
decline in consultants' time billed to clients or the loss of a significant
client
23
<PAGE>
would materially adversely affect our professional services margins. Client
engagements currently average three to six months in duration. If a client
engagement ends earlier than we expect, we must re-deploy professional services
personnel. Any resulting non-billable time will adversely affect our
professional services margins.
Direct costs of educational services consist of the salaries, benefits and
direct expenses for personnel related to our educational services. It also
includes the direct expenses of delivering our educational services. We expect
our educational services costs to increase in absolute dollars as we invest in
personnel and incur costs to grow our educational services revenues.
Selling and marketing expenses consist of salaries, commissions, benefits
and related expenses for personnel engaged in sales and marketing activities.
It also includes public relations, trade shows, promotional expenses and other
expenses directly related to sales and marketing. We expect selling and
marketing expenses to increase in absolute dollars as we expand our sales and
marketing efforts and build our brand recognition.
General and administrative expenses consist of compensation, benefits and
related expenses for personnel engaged in executive and general management,
recruiting, human resources, information technology, finance, administrative,
and developing and maintaining our service methodologies. It also includes our
expenses for recruiting, training, leasing and maintaining office space,
professional fees and all other general corporate expenses. We expect general
and administrative expenses to increase in absolute dollars as we continue to
invest in our employees, advance our knowledge management and methodologies,
grow our information technology infrastructure, open new offices, increase our
recruiting efforts and incur additional costs related to the growth of our
business and operations as a public company.
Compensation expense related to stock options and warrants consists of the
non-cash compensation expense related to the granting of stock options and
warrants. We have recorded deferred compensation expense of $8.6 million
related to certain stock option grants through September 30, 1999. This
deferred compensation expense will be recognized based on the vesting of these
stock options. Of the recorded deferred compensation expense, $2.1 million has
been expensed through September 30, 1999. The balance will be recognized based
on vesting of these stock options at approximately $1.4 million for the quarter
ended December 31, 1999 and $512,000 per quarter.
Despite growth in our revenues, we have not been profitable and we expect
to continue to incur net losses. Our net losses may not decrease
proportionately with the increase in our revenues primarily because of
increased expenses related to the hiring of additional employees, expansion of
the number of our offices, increased investment in our knowledge management,
methodologies and operations infrastructure, and our increased marketing and
sales efforts. To the extent that future revenues do not increase significantly
in the same periods in which operating expenses increase, our operating results
would be adversely affected. See "Risk Factors--We had an accumulated deficit
of $8.3 million as of September 30, 1999, and we expect to continue to incur
losses for the foreseeable future."
Our revenues and earnings may fluctuate from quarter to quarter based on
such factors within and outside our control, including the variability in
market demand for the Internet and for Internet professional services, the
length of the sales cycle associated with our service offerings, the number and
scope of our projects, seasonal factors and the efficiency with which we
utilize our employees.
Our number of employees increased from 57 at December 31, 1997 to 183 at
September 30, 1999. We expect the total number of employees to increase further
during the remainder of 1999. Personnel compensation and facilities costs
represent a high percentage of our operating expenses and are relatively fixed
in advance of each quarter. Accordingly, if revenues do not increase at a rate
equal to expenses, our business, financial condition or results of operations
could be materially and adversely affected. In addition, our liquidity may also
be adversely affected if revenues do not increase at a rate equal to these
additional expenses, to the extent we are unable to reduce operating expenses.
24
<PAGE>
Results of Operations
The following table sets forth the percentage of total net revenues of
certain consolidated financial data for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------- --------------------
1997 1998 1998 1999
------ ------ --------- --------
<S> <C> <C> <C> <C>
Net revenues:
Professional services................ 100.0% 100.0% 100.0% 82.0%
Educational services................. -- -- -- 18.0
------ ------ --------- --------
Total net revenues.................. 100.0 100.0 100.0 100.0
Costs and expenses:
Direct costs of professional
services........................... 70.5 98.6 115.0 46.7
Direct costs of educational
services........................... -- -- -- 8.3
Selling and marketing................ 10.3 30.3 38.0 13.6
General and administrative........... 56.7 41.8 46.7 34.1
Compensation expense related to stock
options and warrants............... 1.0 1.5 1.8 19.9
------ ------ --------- --------
Total operating expenses............ 138.5 172.2 201.5 122.6
------ ------ --------- --------
Loss from operations.................. (38.5) (72.1) (101.5) (22.6)
Interest and other income (expense),
net................................. 0.1 (4.5) (5.1) 1.4
------ ------ --------- --------
Net loss.............................. (38.4)% (76.6)% (106.6)% (21.2)%
====== ====== ========= ========
</TABLE>
Comparison of Nine Months Ended September 30, 1998 and September 30, 1999
Professional services revenues. Professional services revenues increased
254% from $3.2 million for the nine months ended September 30, 1998 to $11.3
million for the nine months ended September 30, 1999. The increase reflected
growing demand for Internet professional services and increases in both the
size and number of our client engagements. For the nine months ended September
30, 1998, professional services revenues from four clients totaled 56% of total
net revenues, while professional services revenues from three clients totaled
54% of total net revenues for the nine months ended September 30, 1999,
reflecting continuing concentration of revenues from a small number of clients.
Educational services revenues. We began providing educational services in
May 1999. Educational services revenues were $2.5 million for the nine months
ended September 30, 1999. All educational services revenues were earned through
our outsourcing agreement with CEE and represented 18% of total net revenues
for the nine months ended September 30, 1999. Because we began generating
educational services revenues in May 1999, we expect educational services
revenues to increase in absolute dollars in future periods.
Direct costs of professional services. Direct costs of professional
services increased 75% from $3.7 million for the nine months ended September
30, 1998 to $6.4 million for the nine months ended September 30, 1999. The
increase was primarily due to increased hiring of senior-level consultants and
a general increase in wages for professional employees.
Direct costs of educational services. We started providing educational
services in May 1999. Direct costs of educational services were $1.1 million
for the nine months ended September 30, 1999. Because we began incurring direct
costs of educational services in May 1999, we expect direct costs of
educational services to increase in absolute dollars in future periods.
Selling and marketing expenses. Selling and marketing expenses increased
55% from $1.2 million for the nine months ended September 30, 1998 to $1.9
million for the nine months ended September 30, 1999. The increase was due
primarily to an increase in headcount and an increase in marketing
expenditures. Selling and marketing expenses represented 38% of total net
revenues for the nine months ended September 30, 1998 and 14% of total net
revenues for the nine months ended September 30, 1999.
General and administrative expenses. General and administrative expenses
increased 215% from $1.5 million for the nine months ended September 30, 1998
to $4.7 million for the nine months ended September 30, 1999. This increase was
due primarily to an increase in recruiting costs and an increase in
25
<PAGE>
headcount for the nine months ended September 30, 1999. General and
administrative expenses represented 47% of total net revenues for the nine
months ended September 30, 1998 and 34% of total net revenues for the nine
months ended September 30, 1999.
Compensation expense related to stock options and warrants. For the nine
months ended September 30, 1999, we recorded non-cash compensation expense
related to the issuance of stock options of $2.1 million. In addition, we
recorded deferred compensation expense of $6.5 million related to the issuance
of stock options which will be recognized over the vesting period of the
underlying stock options.
Interest and other income (expense), net. Net interest and other income
(expense) changed from an expense of $165,000 for the nine months ended
September 1998 to income of $187,000 for the nine months ended September 30,
1999. This change was primarily due to a one-time gain of $349,000 related to
the termination of a joint-venture agreement with a third party in May 1999.
Comparison of Period from Inception (October 31, 1996) through December 31,
1996, Fiscal Year 1997 and Fiscal Year 1998
Professional services revenues. Professional services revenues increased
59% from $3.2 million for 1997 to $5.0 million for 1998. There were no
professional services revenues for the period from inception (October 31, 1996)
to December 31, 1996. The increase in professional services revenues reflected
growing demand for Internet professional services and increases in both the
size and number of our client engagements. For 1998, three clients accounted
for approximately 51% of total net revenues, consisting of 25% of total net
revenues from Chevron, 16% of total net revenues from Johnstone, and 10% of
total net revenues from Toyota. For 1997, three clients totaled 51% of total
net revenues, consisting of 28% of total net revenues from Toyota, 12% of total
net revenues from Caterpillar and 11% of total net revenues from OnMoney.
Direct costs of professional services. Direct costs of professional
services increased 123% from $2.2 million for 1997 to $5.0 million for 1998.
Direct costs of professional services increased 4,402% from $50,000 for the
period from inception (October 31, 1996) to December 31, 1996 to $2.2 million
for 1997. These increases were primarily due to the hiring of additional
professionals and, to a lesser extent, higher wages.
Selling and marketing expenses. Selling and marketing expenses increased
367% from $328,000 for 1997 to $1.5 million for 1998. Selling and marketing
expenses increased from $3,000 for the period from inception (October 31, 1996)
to December 31, 1996 to $328,000 for 1997. As a percent of total net revenues,
selling and marketing expenses represented 10% for 1997 and 30% for 1998. This
increase was due primarily to an increase in direct sales and marketing
headcount during 1998 and our not investing in our sales and marketing
organization until the fourth quarter of 1997.
General and administrative expenses. General and administrative expenses
increased 17% from $1.8 million for 1997 to $2.1 million for 1998. General and
administrative expenses increased from $140,000 for the period from inception
(October 31, 1996) to December 31, 1996 to $1.8 million in 1997. As a percent
of total net revenues, general and administrative expenses represented 57% for
1997 and 42% for 1998. General and administrative expenses included significant
recruiting costs for both 1997 and 1998. The overall increase in general and
administrative expenses was due primarily to an increase in the number of
employees.
Interest and other income (expense), net. Net interest and other income
(expense) changed from income of $3,000 for 1997 to an expense of $229,000 for
1998. There was no interest and other income (expense), net for the period from
inception (October 31, 1996) to December 31, 1996. This increase in expense was
related to an increase in interest expense related to working capital and
equipment financing during 1998.
Provision for income taxes. At December 31, 1997 and 1998, we had a net
operating loss carryforward of approximately $1.2 million and $2.6 million,
respectively, which we may use to offset future taxable income, if any. This
carryforward is subject to review and possible adjustment by the Internal
Revenue Service. The Internal Revenue Code contains provisions that may limit
our use of the carryforward in the event there are significant changes in our
ownership.
26
<PAGE>
We have not given recognition to any of our potential tax benefits,
consisting primarily of our net operating loss carryforward, as it is more
likely than not that these benefits will not be realizable in our future years'
tax returns.
Quarterly Results of Operations
The following table sets forth certain quarterly consolidated statements of
operations data for each of the seven most recently completed quarters. In
management's opinion, this information has been prepared on the same basis as
the audited financial statements appearing elsewhere in this prospectus, and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the unaudited quarterly results when read in
conjunction with our consolidated financial statements and related notes
appearing elsewhere in this prospectus. The results of operations for any
quarter are not necessarily indicative of results of operations for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Professional services.. $ 880 $ 973 $1,355 $1,839 $2,441 $3,764 $ 5,137
Educational services... -- -- -- -- -- 1,029 1,467
------- ------- ------ ------ ------ ------ -------
Total net revenues.... 880 973 1,355 1,839 2,441 4,793 6,604
Costs and expenses:
Direct costs of
professional
services.............. 1,172 1,034 1,322 1,446 1,527 2,009 2,921
Direct costs of
educational services.. -- -- -- -- -- 569 573
Selling and marketing.. 382 625 218 305 413 619 852
General and
administrative........ 969 231 454 455 685 1,583 2,453
Compensation expense
related to stock
options and warrants.. -- 50 7 17 -- 425 2,327
------- ------- ------ ------ ------ ------ -------
Total operating
expenses............. 2,523 1,940 2,001 2,223 2,625 5,205 9,126
------- ------- ------ ------ ------ ------ -------
Loss from operations.... (1,643) (967) (646) (384) (184) (412) (2,522)
Interest and other
income (expense), net.. (9) (50) (106) (64) (71) 291 (33)
------- ------- ------ ------ ------ ------ -------
Net loss................ $(1,652) $(1,017) $ (752) $ (448) $ (255) $ (121) $(2,555)
======= ======= ====== ====== ====== ====== =======
<CAPTION>
Percentage of Total Net Revenues
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Professional services.. 100.0% 100.0% 100.0% 100.0% 100.0% 78.5% 77.8%
Educational services... 0.0 0.0 0.0 0.0 0.0 21.5 22.2
------- ------- ------ ------ ------ ------ -------
Total net revenues.... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Direct costs of
professional
services.............. 133.2 106.3 97.6 78.6 62.6 41.9 44.2
Direct costs of
educational services.. 0.0 0.0 0.0 0.0 0.0 11.9 8.7
Selling and marketing.. 43.4 64.2 16.1 16.6 16.9 12.9 12.9
General and
administrative........ 110.1 23.7 33.5 24.7 28.1 33.0 37.1
Compensation expense
related to stock
options and warrants.. 0.0 5.1 0.5 0.9 0.0 8.9 35.2
------- ------- ------ ------ ------ ------ -------
Total operating
expenses............. 286.7 199.3 147.7 120.8 107.6 108.6 138.1
------- ------- ------ ------ ------ ------ -------
Loss from operations.... (186.7) (99.4) (47.7) (20.9) (7.6) (8.6) (38.1)
Interest and other
income (expense), net.. (1.0) (5.1) (7.8) (3.5) (2.9) 6.1 (0.5)
------- ------- ------ ------ ------ ------ -------
Net loss................ (187.7)% (104.5)% (55.5)% (24.4)% (10.4)% (2.5)% (38.6)%
======= ======= ====== ====== ====== ====== =======
</TABLE>
27
<PAGE>
We have historically experienced significant quarterly fluctuations in our
revenues and results of operations and expect these fluctuations to continue.
Factors causing these variations include the number, timing, scope and
contractual terms of client projects, delays incurred in the performance of
such projects, accuracy of estimates of resources and time required to complete
ongoing projects, and general economic conditions. In addition, our future
revenues and results of operations may fluctuate as a result of changes in
pricing in response to client demand and competitive pressures, the ratio of
fixed-price contracts versus time-and-materials contracts and the timing of
collection of accounts receivable. A high percentage of our results of
operations, particularly personnel and rent, are relatively fixed in advance of
any particular quarter. As a result, unanticipated variations in the number and
timing of our projects or in consultant utilization rates may cause significant
variations in operating results in any particular quarter, and could result in
losses. Any significant shortfall of revenues in relation to our expectations,
any material reduction in utilization rates for our consultants, an
unanticipated termination of a major project, a client's decision not to pursue
a new project or proceed to succeeding stages of a current project, or the
completion during a quarter of several major client projects could require us
to pay underutilized employees and have a material adverse effect on our
business, results of operations and financial condition.
Our quarterly results of operations are also subject to certain seasonal
fluctuations. We have in the past hired most of our new consultants in the
second and third quarters, and there has been a delay in revenues associated
with these consultants until they become fully billable. Demand for our
services may be lower in the third and fourth quarters due to reduced activity
during the vacation and holiday seasons and fewer working days for those
customers that curtail operations during these periods. These and other
seasonal factors may contribute to fluctuations in our results of operations
from quarter to quarter.
Liquidity and Capital Resources
Since inception, we have funded our operations through the sale of equity
securities, bank borrowings and lease financing arrangements.
Cash used for operating activities was $193,000 for the period from
inception (October 31, 1996) to December 31, 1996, $1.4 million for 1997, $2.7
million for 1998 and $827,000 for the nine months ended September 30, 1999. For
the period from inception (October 31, 1996) through December 31, 1996 we had
no capital expenditures. For 1997, 1998 and the nine months ended September 30,
1999 we had capital expenditures of $584,000, $191,000 and $527,000,
respectively.
We have a committed and revolving line of credit with a bank which currently
provides for borrowings of up to $3.0 million. Of this amount, $2.5 million is
committed and guaranteed by our affiliates, as well as secured by our assets.
An additional $500,000 is secured by our assets and is revolving and subject to
a maximum balance of 75% of qualified accounts receivable. The line of credit
agreement also provides for the availability of an additional revolving amount
of $500,000 upon our achieving net profit in two consecutive quarters.
Borrowings under this line of credit, which expires on December 29, 1999, bear
interest at the bank's prime rate plus 1.0% (9.25% at September 30, 1999).
Under the same bank agreement, we also have an equipment line of credit which
provides for borrowings of up to $200,000, which bears interest at the bank's
prime rate plus 1.5% (9.75% at September 30, 1999). Under the equipment line,
amounts borrowed between January to June 1999 are paid back over a 36-month
period beginning July 5, 1999 and amounts borrowed between July to December
1999 are paid back over a 36-month period beginning January 5, 2000. Borrowings
under the bank lines of credit may be prepaid in whole or in part without
penalty and are secured by substantially all of our assets. The line of credit
requires compliance with financial covenants including minimum revenues per
quarter and maximum loss/minimum net income per quarter. Outstanding borrowings
under the above credit facilities totaled $1.4 million as of September 30,
1999.
Our cash and cash equivalents were $4,000 at September 30, 1999. In October
1999, we sold 1,645,555 shares of series A convertible preferred stock to five
investors in a private placement at a price of $6.00 per share. We received net
proceeds of approximately $9.8 million from the private placement, after
deducting our expenses. We believe that current cash, the proceeds from the
private placement, available borrowings under our credit facilities and the net
proceeds from this offering will be sufficient for us to meet our working
capital and capital expenditure requirements for at least the next 12 months.
However, there can be no assurance that we will not require additional
financings within this time frame or that such additional financing, if needed,
will be available on terms acceptable to us, if at all.
28
<PAGE>
Impact of Year 2000
Many currently installed computer systems and software products worldwide
are coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between the year 1900
and the year 2000. Accordingly, many companies, including us and our clients,
potential clients, vendors and strategic partners, may need to upgrade their
systems to comply with applicable Year 2000 requirements.
Because we and our clients are dependent, to a very substantial degree,
upon the proper functioning of computer systems, a failure of these systems to
correctly recognize dates beyond January 1, 2000 would disrupt operations. We
may experience operational difficulties caused by undetected errors or defects
in our internal systems. Purchasing patterns of our clients and potential
clients may be affected by Year 2000 issues as companies expend significant
resources to correct their current systems for Year 2000 compliance and may
therefore defer new initiatives until they do so. We may become involved in
disputes regarding Year 2000 problems occurring in solutions we have developed
or implemented or arising from the interactions of our Internet solutions with
other software applications. Year 2000 problems could require us to incur
delays in providing our services to clients and unanticipated expenses.
To address these issues, we formed a Year 2000 assessment and contingency
planning committee, called the Y2K Committee, to review both our information
technology systems and our non-information technology systems, and where
necessary, to plan for and supervise the remediation of those systems. The Y2K
Committee is headed by our Chief Technologist. We have performed an assessment
of the Year 2000 readiness of our critical hardware and software systems. The
providers of these systems have either confirmed to us that these systems are
Year 2000 compliant or provided the information necessary for us to plan and
implement upgrades to make them Year 2000 compliant.
We have also held and continue to hold discussions with our clients
regarding their Year 2000 remediation plans. Based on discussions to date, we
believe that the Year 2000 problem will not materially or adversely impact the
operations of our significant clients or their plans to purchase our services.
Based on work done to date, we believe that the cost of work and materials
to complete our Year 2000 program will be approximately $60,000, of which
approximately $30,000 has been spent to date. This includes the cost of
material upgrades, software modifications and related consulting fees.
We are developing contingency plans for critical individual information
technology systems and non-information technology systems to address Year 2000
risks not fully resolved by our Year 2000 program. These contingency plans
should be completed by the fourth quarter of 1999. To the extent that our
assessment is finalized without identifying any material noncompliant
information technology systems operated by us or by our vendors, we feel the
most reasonably likely worst case Year 2000 scenario is a temporary
telecommunications failure which would impair communications among our offices.
We currently have contingency plans in place to address such a disruption in
our telecommunications systems and believe that such a disruption would not
have a material or adverse effect on our operations. However, a prolonged
telecommunications failure beyond our control could have a material adverse
effect on our business, results of operations and financial condition.
We believe that the Year 2000 risk will not present significant operational
problems for us. However, there can be no assurance that our Year 2000 program
will prevent any material adverse effect on our operations, financial condition
or customer relations.
29
<PAGE>
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. SFAS No. 133, as amended by
SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 133 is not expected to have a material impact on
our consolidated financial statements.
30
<PAGE>
BUSINESS
Overview
We are a full service provider of eBusiness solutions which help companies
create strategic business solutions through the use of Internet technologies.
We add value to our clients by incorporating our expertise in business issue
diagnosis and resolution, business and technology strategy development and the
delivery of advanced Internet applications and eBusiness solutions.
Additionally, through the C-bridge Institute, we offer clients executive
eBusiness education services on topics relevant to senior executives' efforts
to successfully develop and implement Internet technologies and eBusiness
strategies.
We have focused the staffing of our senior management team as well as the
appointment of our board of directors around certain core competencies that are
strategic to our eBusiness solutions. These core competencies include business
strategy development, supply chain management, service chain management,
education, creative design, branding and marketing, systems architecture design
and back-end systems integration.
We have gained considerable expertise through our strategic relationships
with major technology product and service providers, including Hewlett-Packard
and Oracle. We have also continued to increase the value of our brand and our
unique lead generation methodology by developing relationships with senior
executives of a significant number of Global 1000 companies who have attended
our executive education seminars. Through the delivery of these seminars
worldwide, we educate over 3,000 business managers and executives each year on
business strategies related to the Internet. We view this as a third sales
channel which complements our own direct sales efforts and sales resulting from
our client-partner model which we run on an account by account basis through
our services delivery organization.
Industry Background
Growth of the Internet and eBusiness
The Internet has grown rapidly in recent years, driven by several key
factors, including the development of easy-to-use web browsers, the large and
growing installed base of advanced personal computers, the adoption of faster
and more efficient networks, the emergence of compelling web-based content and
commerce applications, and the growing sophistication of the user base.
According to International Data Corporation, a leading technology research
firm, the number of Internet users was 98 million worldwide at the end of 1998
and is expected to grow to 320 million by the end of 2002.
The initial commercial use of the Internet was as a static informational
and advertising medium. From this origin, the Internet has evolved into a
dynamic platform for conducting business. According to a June 1999 report
published by International Data Corporation, the amount of commerce conducted
over the Internet will exceed $1.0 trillion by 2003. Faced with growing
competition, deregulation and globalization, companies are increasingly looking
to utilize Internet technologies to develop a sustainable competitive
advantage. They have begun to expand their use of efficient and low-cost
Internet technologies to replace or enhance traditional operations, such as
customer relationship management, supply and service chain management, employee
training and communication.
Companies are now moving away from implementing standard applications
toward assembled applications based on Internet standard architectures.
Configuring and customizing large applications was possible when business
strategies could be supported by the functionality of static systems.
Competitive pressures have driven companies to adopt business strategies that
require dynamic, flexible business processes and applicable technical
infrastructure. Today, many companies are using Internet standards when
designing their systems architecture and then use system components that can be
assembled into a flexible solution. With an architectural approach, companies
not only get the system flexibility they are looking for, but they are also
able to assemble the precise functionality required to create a competitive
advantage.
31
<PAGE>
Market for Full Service eBusiness Solution Providers
Given the move toward standard architecture, successful adoption of the
Internet for eBusiness poses significant architectural, creative, strategic and
technical design challenges. The successful alignment of business and Internet
strategies requires an understanding of how the Internet can transform
relationships among companies' various constituencies, including their
employees, customers and business partners. However, companies facing major
technology investment decisions often need outside technical expertise to
identify and evaluate viable Internet tools, develop feasible systems
architectures and implement strategies. Companies must also be able to
integrate new Internet applications with their existing systems. Finally, a
successful solution requires that the Internet-based solution, particularly the
user interface, must be engaging and easy to use. Few companies have the range
of skills necessary to recognize the ways in which Internet technologies can
transform their businesses and implement sophisticated eBusiness solutions.
Even if companies can obtain skills in each of these strategy, technology and
creative disciplines, they often have little experience coordinating them to
fully exploit the Internet and related technologies.
The combination of these factors has created a significant and growing
demand for third-party Internet professional service providers. International
Data Corporation has forecasted that the market for Internet professional
services worldwide will grow from $7.8 billion in 1998 to $78.5 billion by
2003.
Market Opportunities
eBusiness solutions providers can be divided into four major categories:
large systems integrators, specialty systems integrators, strategy consulting
firms and Internet professional services providers. While many competitors in
each category have specific strengths, each tends to focus on only a part of
the overall solution. Few integrate business and marketing strategy with
expertise in Internet-specific technology and architectural design services to
help businesses achieve the full potential that the Internet offers.
As the level of familiarity and sophistication with Internet technologies
continues to grow, so does the need for full eBusiness service providers that
can help formulate a focused, strategic and integrated approach to the
implementation of eBusiness solutions that add measurable value to the client.
This rapidly increasing demand for eBusiness solutions, combined with the
inability of many current eBusiness solution providers to deliver all of the
strategic, creative and technical skills required by clients, has created
significant market opportunities which remain largely unaddressed.
Our Solution
We design and implement sophisticated eBusiness solutions to help our
clients make intelligent business decisions, drive incremental sales volume,
reduce costs and accelerate business transactions both internally with
employees and externally with vendors, suppliers and customers. At the C-bridge
Institute, we educate senior-level executives from Global 1000 companies about
the Internet, diagnose new eBusiness strategies and systems architecture
shortcomings and then deliver strategic eBusiness solutions that are designed
to enhance our clients' core business, operations and communications. Our
solution has five essential elements:
Provide integrated Internet strategy, technology and systems architecture
design services. We provide a comprehensive set of integrated services designed
to implement sophisticated eBusiness solutions. These services include
strategic consulting, design of systems architectures and end-user interfaces,
and creation and customization of software. We work with our clients to analyze
their business issues, design an appropriate technology and systems
architecture and implement an effective eBusiness solution. Our services assist
our clients to evaluate their strategies and transform their businesses to take
advantage of the Internet.
Offer high value-added eBusiness solutions which can be quickly developed
and deployed. Our goal is to enable our clients to improve their overall
business practices by providing robust eBusiness solutions that can increase
sales, improve operational efficiencies and create or enhance business
identities. We provide application assembly and development and systems
integration services by employing the latest in Internet technologies. Our
clients benefit not only from time and cost savings, but also from robust and
scalable
32
<PAGE>
solutions that can be implemented quickly and seamlessly. This approach also
reduces miscommunications and delays that can occur when the design,
customization and implementation are handled by multiple service providers.
Offer eBusiness education to senior-level Global 1000 executives around the
world. We have a unique channel opportunity structured around the delivery of
executive education. Through an outsourcing agreement, we have partnered with
CEE to deliver content, lectures, and demonstrations for our executive
education programs. These seminars help executives understand how Internet
technologies can benefit their business. Our relationship with CEE gives us
direct high-level access to the corporate executives who attend. CEE's current
major sponsors, Hewlett-Packard and Oracle, are also our alliance partners. At
the seminars, we work with our alliance partners to help business executives
begin to understand their business problems and identify possible eBusiness
solutions. To date, these seminars have been our most significant source of
lead generation.
Combine strategic industry and business domain expertise to create
iSolutions. To date, we have focused the delivery of our services on four
industry groups: retail and distribution; banking, finance and insurance;
manufacturing; and utilities and telecommunications. We have developed valuable
intellectual capital and expertise in these areas. We complement our industry
focus with expertise in cross-industry functional solution areas. This enables
us to understand our clients' particular business processes and competitive
positions and to create what we call iSolutions that are best suited to their
needs. An iSolution is a combination of a business strategy, a workflow
template and a technical architecture. Since each of these continues to move in
time, an iSolution by definition is an environment rather than a traditional
application. As competition dictates moves in strategy, as new ideas emerge
around best in class workflows and as new products and technologies are
introduced, the iSolution needs to be flexible in order to achieve a
competitive advantage. The industry experts in our iSolutions group develop and
deliver the industry vertical solutions for our clients. These iSolutions can
then be used as benchmarks during both diagnosis and delivery, improving both
the speed of delivery and quality of our solutions.
Leverage our intellectual capital to benefit clients. We utilize technology
to accumulate and disseminate information and to ensure the growth and
development of our intellectual capital. This information is tracked and stored
in our corporate intranet, which acts as a centralized intellectual capital
repository. Our intranet is both a solutions library that facilitates the
dissemination of intellectual capital across our business and an internal
project management system that captures detailed information on the resources
required to achieve specific tasks on a project. Our ability to reuse
intellectual capital allows us to predict project completion requirements more
accurately and provide fixed-cost contracts, further reducing risk for our
clients.
Our Strategy
Our goal is to become the leading provider of eBusiness services to Global
1000 companies. To achieve this objective, we are pursuing the following
strategies:
. Continue to enhance our eBusiness framework and design patterns. We
have developed significant technological capabilities and expertise in
systems architecture and design patterns, which we use to deliver
sophisticated eBusiness solutions. We intend to continue to develop
and invest in our framework and design patterns, which form the
foundation of our client engagements. In particular, we intend to
continuously adapt our framework and design patterns to evolving and
emerging Internet technologies in order to meet the needs of a
worldwide client base.
. Develop and expand client relationships. We establish strong ties with
our clients' senior management by assisting them in addressing their
strategic business issues. We leverage these relationships through the
C-bridge Institute to expand the scope and length of current projects
and to enter into additional projects. Our strategy is to leverage our
industry expertise, technology skills, and scale by expanding the
scope of client relationships into broader engagements, including
additional Internet strategy consulting, design, systems engineering
and application development services.
33
<PAGE>
. Capture and disseminate reusable knowledge and best practices. Our
employees have developed a broad base of knowledge and best practices.
Our strategy is to continue to capture this knowledge and these best
practices for dissemination throughout our business, and to expand
these capabilities where appropriate through acquisitions and external
hiring. We have established a library of reusable software objects,
templates and horizontal business solutions from our client
engagements which continue to grow as projects are completed. The
current set of horizontal business solutions were created as a best
practice within one industry sector but are leverageable across
multiple sectors. We intend to leverage this library to deliver
solutions rapidly and cost-effectively in multiple industries. We
believe this will provide us with a significant competitive advantage,
particularly when providing services under fixed-price contracts.
. Leverage and expand our industry-specific expertise. We have assembled
industry centers of expertise within our practice groups, including
professionals with expertise in the business practices and processes
of several specific industries. We believe that combining industry-
specific knowledge with our best practices and design patterns enables
us to provide effective Internet strategy consulting and services
tailored to the specific needs of our clients. In addition, our
industry expertise reduces the learning curve on new engagements,
improving efficiency of implementation and reducing project delivery
times. Our strategy is to augment our regional industry capability by
recruiting senior professionals from major consulting firms and
companies in relevant industries.
. Expand geographic presence. We have already established a presence in
Australia and England and, in order to obtain broad geographic
coverage, we intend to establish additional offices across the United
States, as well as in Europe and the Pacific Rim. This will allow us
to serve more clients on a local basis, helping to forge strong, long-
term client relationships and to serve the needs of our clients and
their customers and vendors.
Our Methodology and Services
We have developed a fully integrated services methodology, Profit Life
Cycle Management, to assist companies in the ongoing process of expanding and
improving business through technology. This methodology enables businesses to
produce cycles of value from one development phase to another, assisting the
company in becoming a leader in its business and creating a workable business
design that enhances its bottom line. The Profit Life Cycle Management
methodology provides companies with eBusiness solutions and services that
enable the parts of an organization to synchronize around achieving the
greatest benefit for the organization as a whole, to focus on global rather
than local performance, to understand the patterns and frameworks that help
managers succeed and to achieve the goals of the company with the Internet as
the enabler.
The Profit Life Cycle Management methodology is based on a number of
underlying principles:
. Value driven. We focus on providing measurable value to our clients.
For example, for each engagement we define a deliverable in terms of a
demonstrable improvement in a specific strategic or operational
measure such as market share, revenues, cost, customer service and
cycle time.
. Iterative development and change management. We believe that early
feedback from end-users is integral to the design and implementation
of a successful eBusiness solution. Our engagements are staffed with a
team consisting of our consultants and representatives from our
clients' various businesses or technical functions.
. Design patterns and reusable software. We leverage our growing library
of design patterns and reusable software components to increase our
diagnosis and delivery capabilities. These patterns and components can
be quickly assembled into a preliminary model of an application's core
functions and services.
. Proactive risk management. Risk assessment and control practices are
built into our methodology from the planning stage through the
execution and completion of development projects. We assemble and test
the proposed system architecture early to mitigate potential technical
risks in areas such as connectivity, security and performance.
34
<PAGE>
The following chart illustrates the services and core competencies within
the Profit Life Cycle Management methodology:
[CHART APPEARS HERE]
The graphic is a series of rectangular boxes that, collectively, are presented
in a circular fashion along the outside with smaller boxes and circles in the
inside. The boxes are connected by lines that have an arrow on each end. The
first box, located at the top center, contains the text "Program Management."
Proceeding counter-clockwise, the next box is located to the lower left and
contains the text "Business Innovation." The next box is located directly
below and contains the text "Diagnosis." Directly below this box, prior to the
arrow, and as part of the diagnostic area are three smaller boxes with one
rectangular box underneath. The three boxes, left to right, contain the text
"Internet Strategy Analysis," "Business Value Analysis" and "Internet
Readiness Assessment." Before the arrow, the rectangular box underneath the
three smaller boxes contains the text "Internet Vision Session." The next box
is located directly below and contains the text "Health Checks." The next box
is located at the bottom in the center of the chart and contains the text
"Systems Management." Beginning again at the top of the graphic but now
proceeding clockwise, after the rectangular box containing "Program
Management," the next box is located to the lower right and contains the text
"Education & Customer Mentoring." The next box is located directly below and
contains the text "Delivery." Directly below this box, prior to the arrows,
and as part of the delivery area are four smaller boxes with one larger
rectangular box underneath. The four boxes, left to right, contain the text,
"Define," "Design," "Develop" and "Deploy." The rectangular box underneath the
smaller boxes contains the text, "Internet Systems Integration." The next box
is located directly below and contains the text, "Technology Transfer." From
here the arrow goes to the left, middle and bottom of the graphic, returning
to the box containing the text "Systems Management." In the center of this
circular presentation are four stacked boxes containing the text "iSolution,"
"Profit Patterns," "Process Patterns" and "Design Patterns." At each corner of
the stacked boxes is a circle with an arrow pointing to the center of the
stacked boxes. Proceeding counterclockwise, the circle at the top left
contains the text "Strategic Business Consulting." The circle at the bottom
left contains the text "Web Application Development." The circle at the bottom
right contains the text "Back-end Systems Integration." The circle at the top
right contains the text "Creative Design & Branding."
Program Management
Our Program Management services include a set of planned activities and
associated deliverables that are conducted over the duration of our
engagement. The primary focus of Program Management is on the successful
implementation of the business change resulting in the realization of business
value. Throughout the program we work with a team of key representatives from
the client as well as our alliance partners to ensure a smooth implementation
process. A client engagement team determines the benefits, assesses the
project risks, determines communication and training needs and develops a
rollout approach for the iSolution. These activities are accomplished using a
set of customizable tools tailored to the client's specific situation. Working
with the business organization, we synthesize all of this information into an
integrated Program Management plan. This plan is used throughout the diagnosis
and delivery phases and provides a comprehensive approach toward attaining
business benefits.
Business Innovation
We work with our clients to better understand their core businesses and
operations in order to focus on an innovative, rather than an incremental,
approach toward designing eBusiness solutions tailored to their needs. We
believe that a truly successful eBusiness solution can only be achieved
through an interactive process where new opportunities are generated by
evolving existing ideas. For example, the banking industry is moving steadily
to the world of eCommerce. However, simply migrating traditional banking
services such as cash management to the Internet will not be enough to
maintain market share in this new competitive environment. Banks, like most
other industries, will need to innovate their existing business to succeed in
this new electronic marketplace.
Education and Customer Mentoring
Through our C-Bridge Institute, we offer executive education classes and
workshops to executives, managers and staff of our clients and continue
throughout the life cycle of a client relationship. From executive education
addressing business strategy and technology through management education on
business processes, best practices, technology transfer and employee re-
skilling around the Internet, we offer a broad educational
35
<PAGE>
suite. We are rapidly expanding the course syllabus across all of these areas
and will continue to keep pace with business and technological advancement.
Through these educational services, we empower our client base to drive the
organizational, business process and technological changes required to compete
in a highly competitive marketplace.
Diagnosis
Our diagnosis services are structured to improve the clients' understanding
of the power and potential of eBusiness solutions. Clients can choose their
preferred combination of services based on their particular needs.
Internet strategy analysis. Internet strategy analysis is a two-to-four
week engagement in which we work with our clients to incorporate Internet
technologies into their business strategies. Within Internet strategy analysis
we have four paths of analysis: business to business, business to consumer,
device to device and marketing and branding. The result is a set of strategies,
high-level workflows and a series of metrics to direct the strategy and keep
subsequent application development plans consistent with appropriate goals and
objectives.
Business value analysis. Business value analysis is a two-to-four week
engagement where we help clients identify and quantify prominent business
opportunities where the Internet can be leveraged to gain a competitive
advantage and realize business value. We employ a series of financial models
that are used to convert the current corporate financial structures into a more
workflow-oriented financial analysis. We then compare the client's financial
performance against that of other companies in the sector and in other
industries, and link financial performance to changes in business process
workflows. As a baseline for the business process analysis, our library of
dominant workflows and best practices is directly connected to enabling
business objects that can be assembled into an iSolution.
Internet readiness assessment. The Internet readiness assessment helps our
clients evaluate their current Internet capabilities in a three-to-five week
engagement. Recent developments in technology platforms, new techniques such as
distributed object computing, and end-user demands for features such as multi-
media interfaces, require a robust Internet architecture to enable the
solutions of the future. Business processes, the technology environment and
support systems are first reviewed and catalogued through a series of
interactive workshops. We then perform rapid pattern recognition against a
knowledge base of best practice systems designs that help determine whether the
client's information technology architecture meets the demands of next-
generation applications.
Internet visioning session. Throughout the diagnosis phase, we work with
clients to explore and create a vision of how a chosen Internet strategy will
result in measurable business value. By using Internet-standard prototyping
tools and methods, we can quickly assemble an Internet vision application
suitable for executive presentation. The Internet vision application serves as
a shared vision of what a client can achieve using Internet technologies and
increases the client's confidence in moving forward.
Delivery
Our delivery services use a proven methodology, standard design patterns
and reusable software components to assemble our solutions, increase
reliability and product quality, reduce costs and keep project teams focused on
delivering business functionality. We deliver processes that support a rigorous
systems integration standard. In most cases, a strategic Internet solution must
be integrated with existing legacy systems. These systems may include a number
of components which are not based on Internet standards. Therefore, a solid
integration approach around applications, data, and messaging and existing
systems is critical. Application development efforts are based on well-defined
specifications and release schedules are aligned with business priorities.
The define phase. The define phase establishes the business case and lays
out the business requirements and processes that are to be supported by the new
application. During this stage, we utilize object-oriented analysis techniques
and intensive workshop sessions to help gather input and ensure effective
interaction with
36
<PAGE>
project stakeholders. Incremental culture, organization and business process
changes are accomplished through multiple workshop sessions. Collectively, the
define phase deliverable consists of the initial specification and scope of
work to follow.
The design phase. The goal of the design phase is to lay out the technical
blueprint for the new application in order to avoid costly defects during
programming. The main deliverables from this phase are object models, technical
design specifications, a detailed user interface design, working components
that demonstrate the viability of the new systems infrastructure, a systems
test plan and a refined project plan. Our philosophy is to leverage legacy
systems and commercial off-the-shelf software within a robust application
framework that responds easily to changing business and technological
requirements and enables quick delivery of new applications.
The development phase. The development phase consists principally of the
coding, assembly and testing necessary to create a production-caliber
application. We use established software engineering techniques, team-based
development tools, frequent checkpoints and traditional code reviews to ensure
tight collaboration and high quality. Since the scope and design of the
application were validated and approved in previous phases, the team is well
positioned to deliver a fast, on-target release. Short, incremental code,
assembly and test cycles are used to allow project teams to constantly monitor
the quality of the application.
The deployment phase. After development, we assist in the deployment of the
application in areas such as education, documentation, release management and
systems administration. Planning for deployment frequently begins before
application development even starts. The goal is to provide whatever support is
necessary to allow clients to start realizing tangible business benefit from
the new application quickly and efficiently.
Subsequent releases and enhancements. Project plans are often based on
incremental application releases to allow early return on investment and ease
the burden of change management in our clients' environments. The project team
simply loops through multiple delivery cycles until the overall scope of the
application is achieved.
Health Checks
The objective of a health check is to provide an independent view of a
project's actual progress in terms of schedule, staffing and deliverables, and
to identify those constraints, issues or risks which could threaten a project's
success. Recommendations for issue resolution or risk mitigation are also
documented. Additionally, project health checks provide an opportunity to
channel input, or escalate issues, to several of our work groups, such as
senior management, development and account management.
Technology Transfer
Our technology transfer services focus on transferring the requisite
Internet know-how to the client. It typically takes up to one year to educate a
client's internal staff of IT professionals in the latest Internet
technologies, standards, platforms and methods. By combining an actual project
with this service, we typically are able to complete a technology transfer to
the in-house IT organization within six months. As part of this service we
license to the client the applicable design patterns and frameworks.
Systems Management
Once an iSolution has been deployed, in many cases we provide the client
with additional support in managing the new environment as they complete the
technology transfer program. In some instances, the client elects to have us
manage the entire system in order to focus on their core competencies.
37
<PAGE>
Sales
We market our solutions and services through our headquarters in Cambridge,
Massachusetts, with sales professionals also located domestically in Atlanta,
Dallas/Ft. Worth, Detroit, New York, Orange County and San Francisco, and
internationally in London, England and Sydney, Australia. We believe that a
regional sales focus, combined with our local solutions services approach,
allows us to develop a strong market presence and enhanced customer loyalty.
Our sales professionals operate through a coordinated and structured process to
evaluate prospective clients, target qualified prospects and secure new client
engagements.
Our solutions and services are marketed principally to Global 1000
companies, with emphasis on retail and distribution, banking, finance and
insurance, manufacturing, and utilities and telecommunications. In addition, we
focus on two horizontal markets: service chain and supply chain management.
Finally, we have initiated a marketing strategy focusing on mid-tier value-
added resellers of Oracle applications and Hewlett-Packard business solutions.
We create demand for our solutions and services through four sales
channels:
. direct territory development through our domestic and international
sales force;
. through relationships developed at our C-bridge Institute;
. working with mid-tier value-added resellers; and
. through relationships with strategic applications vendors.
Marketing
Our sales efforts are supplemented by marketing and communications
activities which we pursue to further build brand name and recognition in the
marketplace. Our goals include the following:
. to plan and build an integrated program addressing both internal and
external audiences;
. to design and implement media and tactical programs that communicate
most effectively with our target audiences;
. to position us as the standard in providing results-driven eBusiness
solutions; and
. to clearly and consistently communicate our positioning in all
marketing programs.
From a public relations standpoint, we are targeting specific media. For
example, computer and Internet trade media, business and majority media
(newspapers, broadcast and wire services) and industry analyst communities. We
plan to conduct media/analyst tours twice per year in major cities (such as
Boston, New York, San Francisco and Washington, D.C.). Also, we are planning
editors and analysts days where we will host target editors and analysts for
half-day one-on-one sessions and customer demonstrations.
Clients
Our clients include the following companies:
. Retail and Distribution: Aviall, Cardinal Health Care, Fabri-Centers
of America, Johnstone Supply, Liz Claiborne, Polo Ralph Lauren and
Trane;
. Banking, Finance and Insurance: Aegon, Allmerica, Central Carolina
Bank and OnMoney (Ameritrade);
. Manufacturing: Buell (Harley Davidson), Caterpillar, Chevron,
Firmenich, General Motors, Quantum, SteelCase and Toyota; and
. Utilities and Telecommunications: UNIFI and US West.
38
<PAGE>
Client Case Studies
Chevron Case Study
Business Opportunity. Chevron has a network of over 8,000 gas stations and
convenience stores, of which over 7,000 are owned and operated by independent
franchisees. Chevron identified an opportunity to assist these stations and
stores in their transformation from traditional gas stations into larger retail
outlets. The goal of the project was to create an alliance program to leverage
the combined buying power of 8,000 stations and stores backward through the
supply chain and forward through coordinated targeted marketing programs.
iSolution. The Chevron/C-bridge project team identified an Internet-based
solution as a critical component in establishing a successful alliance program.
Critical pieces of the alliance program engagement included:
. design of an automated franchise service support structure that
reduced administration costs and enabled personalized sales and
administrative support for franchisees;
. consolidation of purchasing orders to allow for a streamlined supply-
chain solution and leveraged buying power to achieve greater cost
savings and increased margins for both Chevron and its franchisees;
. deployment of an Internet-enabled, electronic commerce system to
support the efficient flow of information among each retail location,
Chevron and its suppliers;
. enhancement of the Chevron brand to differentiate its stores and
stations from the competition, furthering Chevron's recruiting efforts
to sign new franchisees.
Business Value. The increase in business accomplished through the alliance
program will lead to additional revenues and profits for Chevron and its
franchisees. Through increased market and franchisee awareness, Chevron and its
franchisees are now better positioned to offer the mix of products and services
that maximizes return on the limited amount of shelf space and inventory per
store.
Aviall Case Study
Business Opportunity. Aviall, Inc., the world's largest independent
distributor of new aviation parts, identified the need to quickly enhance its
presence in the wholesale and retail channels for aircraft parts and to provide
better communications with its suppliers and internal sales force. The original
"aviall.com" application was developed several years ago and, until recently,
had served most of the on-line ordering needs of Aviall's commercial
distribution network. However, Aviall recognized the need to re-architect its
on-line capabilities to remain competitive and increase sales.
iSolution. We redesigned an Internet-based parts ordering system to improve
speed and functionality as well as to provide additional electronic commerce
features. The project commenced with a three-week Internet vision and business
value assessment. This helped Aviall create a shared vision of a new
Aviall.com, understand the critical business issues and priorities, define
project expectations and deliverables, document the value impact of creating
the vision, and create the scope of what was to be included in the first
release of the application. Once the key issues were understood and key
decisions were made (such as target audience functionality, prioritized
opportunities and catalog formats) we created a project work plan to define the
applications, including project benefit and risk assessment.
The new iSolution which we created has the following features:
. the ability to create price and quantity quotes in real time;
. the processing of multi-line orders, search for parts and track
shipments electronically;
. the ability to download, print or view material safety data sheets
online; and
. a new feature called "Supplier Services," a value-added resource that
gives users the ability to create customized sales reports, check
stock status, measure geographic sales penetration and improve
forecasting on a real-time basis.
39
<PAGE>
Business Value. Aviall achieved business value with our iSolution through
increasing sales from new sales channels and increasing revenues from existing
channels. In addition, Aviall was able to reduce the product sales cycle time
through automated sales processes and benefit from efficiencies through direct
links between customers and suppliers. Finally, Aviall was able to decrease
costs of servicing sales and provide additional value-added services to
customers and suppliers.
Aquent Partners Case Study
Business Opportunity. Aquent Partners, formerly MacTemps Inc., is the
world's largest placement agency. With 50 offices in 10 countries, Aquent's
identified the need to use the Internet to match qualified professionals with
appropriate job openings in order to remain competitive.
iSolution. We partnered with Aquent to develop an iSolution that addressed
the rapidly changing temporary placement market and to extend Aquent's
traditional placement capabilities to the Internet. In three months, we
developed AquentDirect found at www.aquentdirect.com, a service specifically
targeted at the accounting field. Job seekers post their profiles on
AquentDirect; employers search the profiles online, choose the candidates whose
resumes and credentials interest them, and then contact the candidates
directly. Unlike other self-service offerings, AquentDirect offers the added
value provided by full-service temp agencies. Aquent screens the candidates
through interviews, tests and reference checks and keeps a record of employer
feedback so companies can be sure they are choosing a candidate that best suits
their needs.
Business Value. The business value created for Aquent Partners from this
application includes minimizing dependency on particular application vendors,
leveraging existing infrastructure to establish the first online matching
service and unifying all Aquent web sites.
Central Carolina Bank Case Study
Business Opportunity. CCB Financial Corporation is a bank holding company
whose principal subsidiaries are Central Carolina Bank and Trust Company of
Durham, North Carolina and American Federal Bank, FSB of Greenville, South
Carolina. CCB is one of the Southeast's largest and fastest-growing financial
institutions.
The anticipated melding of insurance, brokerage and banking has created
greater competition for customers in the financial services marketplace. CCB
recognized the need to develop a strategy to retain current customers and gain
new customers by leveraging the potential of consumer banking over the
Internet.
iSolution. We began this project by conducting a five-week assessment of
CCB's strategy, business value and organizational and technical readiness. The
main focus of this process was to refine CCB's existing eBusiness strategy to
specific revenue-driven customer-centric responses to banking patterns in the
industry. These responses were then prioritized based on potential value.
Once the diagnostic process was completed, we designed and deployed an
Internet financial services portal targeted at retaining and gaining customers.
Through targeted data-gathering and one-to-one marketing techniques, CCB is now
able to cross-sell a multitude of products to its customers.
Business Value. Our iSolution has allowed CCB to offer new value-added
products and services, enter new markets, acquire and retain customers and
increase cross-selling of financial products to online customers.
Strategic Alliances
Our strategic alliances focus on large companies with proven success in our
principal line of focus. These organizations typically have large field
operations and are in a position to recommend and/or sub-contract our education
and consulting services. Our current alliances include:
40
<PAGE>
Oracle
We have developed a strategic relationship with Oracle at multiple levels
throughout its organization including the eBusiness Group, U.S. Sales, and
Consulting Services. We and Oracle have entered into an agreement to deliver
joint business solutions based on our Profit Life Cycle Management methodology.
The foundation of the alliance is based on leveraging our unique abilities in
executive education, Internet visioning and rapid application development with
Oracle's consulting expertise and vast resources.
We and Oracle jointly engage in co-marketing and branding activities to
support the business development efforts in this partnership. Included in this
effort is the development of a custom lead tracking/sales force automation
application designed to track leads generated through the executive seminars.
Business development activities initially focused on generating business
through the seminar series but has expanded beyond the seminars and into our
respective field operations. We and Oracle often work together on same
engagement teams but under separate contracts with the client.
Mr. Raymond J. Lane, the president and chief operating officer of Oracle,
joined our board of directors in October 1999.
Hewlett-Packard
We have developed a working relationship with Hewlett-Packard at multiple
levels within our respective organizations, including the personal systems
group, local products organization and the professional services organization.
Our marketing alliances include the retail marketing group, Internet imaging
marketing and other groups. We and Hewlett-Packard regularly engage in co-
marketing and branding activities to support our respective business
development efforts.
Cambridge Executive Enterprises
We have entered into a five-year outsourcing agreement pursuant to which we
and Cambridge Executive Enterprises jointly provide executive education
programs, delivered under the sponsorship of major technology product and
service providers such as Hewlett-Packard, Informix and Oracle. In 1998, there
were 42 such programs. Typically, the programs annually draw more than 3,000
participants throughout the world, including many senior executives and
managers from Global 1000 companies, who seek to learn how to merge their IT
strategies with their continually evolving business objectives.
Recruiting and Career Development
To succeed, we must continue to identify, recruit, hire, professionally
develop and retain outstanding professionals. We believe that our success in
recruiting and retaining such individuals will depend significantly on our
ability to provide continued professional development and competitive benefits,
as well as financial rewards and incentives through compensation and equity
incentives.
We dedicate significant resources to our recruiting efforts and manage it
similarly to a sales function. As of September 30, 1999, we employed five
professionals who focused full-time on recruiting. Our recruiting efforts are
targeted at three levels: college recruiting, technical and management. In
addition to the efforts of our in-house recruiting group, we seek to meet our
hiring needs through referrals and through technical and executive search
firms. While recruiting personnel are responsible for screening candidates,
business, functional or administrative managers make hiring decisions for their
own groups in order to help ensure high-quality hires.
We believe that our continuous focus on career development will help us
retain our highly skilled personnel. Upon joining our company, each new
employee participates in a multi-day training program that covers a broad range
of topics, including technology, consulting and our proprietary methodology.
During their first year with us, recent college graduates receive approximately
three to four weeks of training and experienced hires receive approximately two
weeks of training. We have also created a sponsorship program
41
<PAGE>
where experienced employees provide ongoing career development, mentorship and
training to less-experienced employees. Our existing employees attend
professional development and training programs and keep apprised of
technological advances and developments through on-the-job exposure to
relevant technology.
Competition
While the market for strategic Internet professional services is
relatively new, it is already highly competitive. In many cases we compete
with the in-house technical staff of our prospective clients. In addition, the
market is characterized by an increasing number of entrants that have
introduced or developed products and services similar to those offered by us.
We believe that competition will intensify and increase in the future. Our
target market is rapidly evolving and is subject to continuous technological
change. As a result, our competitors may be better positioned to address these
developments or may react more favorably to these changes, which could have a
material adverse effect on our business, results of operations and financial
condition. We compete on the basis of a number of factors, including the
following:
. integrated strategy, technology and architectural design services;
. architectural design and systems engineering expertise;
. technological innovation;
. quality, pricing and speed of service delivery;
. understanding clients' strategies and needs;
. client references; and
. vertical industry knowledge.
Many of these factors are beyond our control. Existing or future
competitors may develop or offer strategic Internet services that provide
significant technological, creative, performance, price or other advantages
over the services offered by us.
We currently compete for client assignments and experienced personnel
principally with the following:
. Internet service firms: AGENCY.COM, iXL, Modem Media.Poppe Tyson,
Online Marketing Communications, Organic Online, Proxicom, Razorfish,
Scient, USWeb/CKS and Viant.
. Systems integrators: Andersen Consulting, Cambridge Technology
Partners, Cap Gemini, EDS, Sapient and WM-Data.
. Management consulting firms: Bain, Booz-Allen & Hamilton, Boston
Consulting Group and McKinsey.
. Computer hardware and service vendors: Compaq, DEC, Hewlett-Packard
and IBM.
. Advertising agencies: Bates, DDB Needham, Grey Advertising, McCann-
Erickson and Ogilvy & Mather.
Many of these businesses have longer operating histories and significantly
greater financial, technical, marketing and managerial resources than we have.
Many of these businesses also generate significantly higher revenues, are
better known than we are and offer a greater breadth of management consulting
services. There are relatively low barriers to entry into our business. We
have no patented or other proprietary technology that would preclude or
inhibit competitors from entering the Internet professional services market.
Therefore, we must rely on the skill of our personnel and the quality of our
client service. The costs to develop and provide Internet services are low.
Therefore, we expect that we will continually face additional competition from
new entrants into the market in the future, and we are subject to the risk
that our employees may leave us and start competing businesses. Any one of the
foregoing factors could have a material and adverse effect on our business.
Proprietary and Intellectual Property Rights
We have developed detailed tools, processes and methodologies underlying
the software code, scripts, libraries and other technology used internally and
in our client engagements. We regard our copyrights, trade secrets and other
intellectual property as critical to our success. Unauthorized use of our
intellectual property by
42
<PAGE>
third parties may damage our brand and our reputation. We rely on trademark and
copyright law, trade secret protection and confidentiality, non-disclosure,
license and other agreements with our employees, customers, partners and others
to protect our intellectual property rights. Despite our precautions, it may be
possible for third parties to obtain and use our intellectual property without
our authorization. Furthermore, the validity, enforceability and scope of
protection of intellectual property in Internet-related industries is uncertain
and still evolving. The laws of some foreign countries do not protect
intellectual property to the same extent as do the laws of the United States.
We pursue the registration of our trademarks in the United States. We may
not be able to secure adequate protection of our trademarks in the United
States and other countries. We currently have applied for trademark
registration in the United States for the C-BRIDGE mark, and further, a
trademark application in the United States for our logo. If we are unable to
obtain trademark registrations for one or both of these trademarks, we would be
unable to fully enforce our statutory trademark rights against third parties
for these trademarks, and/or we may decide to replace these trademarks with new
trademarks. This could have a material adverse effect on our business,
financial condition and results of operations. Effective trademark protection
may not be available in all the countries in which we conduct business.
Policing unauthorized use of our trademarks is also difficult and expensive. In
addition, it is possible that our competitors have adopted or will adopt
product or service names similar to ours, thereby impeding our ability to build
brand identity and possibly leading to customer confusion.
We cannot be certain that our services and the finished products that we
deliver do not or will not infringe valid patents, copyrights, trademarks or
other intellectual property rights held by third parties. We may be subject to
legal proceedings and claims from time to time relating to the intellectual
property of others in the ordinary course of our business. We may incur
substantial expenses in defending against these third-party infringement
claims, regardless of their merit. Successful infringement claims against us
may result in substantial monetary liability or may materially disrupt the
conduct of our business. We cannot assure you that the steps we have taken to
protect our proprietary rights will be adequate to deter misappropriation of
our intellectual property, and we may not be able to detect unauthorized use
and take appropriate steps to enforce our intellectual property rights.
Employees
At September 30, 1999, we had a total of 183 employees, of which 114 were
assigned to professional services, 15 were assigned to executive education
services, 16 were assigned to sales and marketing and 38 were assigned to
general and administration. None of our employees are represented by a labor
union. We have never experienced any work stoppages and consider our relations
with our employees to be good.
Facilities
We currently lease approximately 28,000 square feet of space at our
headquarters in Cambridge, Massachusetts under a lease that expires on May 1,
2004. We also maintain offices in Detroit, New York and San Francisco. We
believe we will be able to obtain additional space on an as-needed basis at
commercially reasonable rates.
Legal Proceedings
From time to time, we are involved in litigation incidental to the conduct
of our business. We are not a party to any lawsuit or proceeding that, in the
opinion of our management, is likely to have a material adverse effect on our
business.
43
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees and their respective
ages and position(s) as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Age Position(s)
Executive Officers and Directors: --- -----------
<S> <C> <C>
Joseph M. Bellini......... 39 President and Chief Executive Officer and
Director
Richard C. Putz........... 50 Executive Vice President, Worldwide Industries
and Chief Strategy Officer
R. Jeffrey Spurrier....... 43 Executive Vice President, Worldwide Operations
Mark A. Cosway............ 41 Executive Vice President, Sales and Marketing
Richard O. Wester......... 41 Vice President, Finance and Administration,
Chief Financial Officer and Treasurer
Other Directors:
Joseph L. Badaracco, Jr... 51 Director
Paul R. Charron........... 57 Director
Raymond J. Lane........... 52 Director
Ramanan Raghavendran...... 31 Director
Gerard F. King, II........ 42 Vice President, Consulting Services and Director
Key Employees:
Kerry L. Bush............. 41 Managing Director, Network Computing
Anthony W. Elkins......... 42 Managing Director, Central Operations
David G. Panitz........... 31 Managing Director, Eastern Operations
James M. D'Augustine...... 38 Managing Director, Architecture
Clifford B. Thompson...... 38 Managing Director, Compliance
Ronald J. Bodkin.......... 29 Chief Technologist
Andrew J. MacDonald....... 38 Managing Director, Western Operations
Satish S. Bhat............ 33 Managing Director, Industries
</TABLE>
Joseph M. Bellini joined C-bridge in February 1999 as President and Chief
Operating Officer and was named Chief Executive Officer in May 1999. Mr.
Bellini has also served as a director of C-bridge since September 1998. Prior
to joining C-bridge, Mr. Bellini served in various capacities at i2
Technologies, Inc. from June 1995 to February 1999, most recently as Executive
Vice President, Worldwide Automotive and Industrial Business Unit. From April
1993 to June 1995, Mr. Bellini served as Senior Practice Director at Oracle
Corporation. Mr. Bellini received a B.S. in both Mechanical Engineering and
Applied Mathematics and Statistics from the University of Massachusetts at
Amherst and is an alumnus of Harvard Business School.
Richard C. Putz joined C-bridge in July 1999 as Executive Vice President,
Worldwide Industries and Chief Strategy Officer and Executive Vice President of
Industries and Diagnostics. Prior to joining C-bridge, Mr. Putz served as
Senior Director, and then Regional Vice President, of the Industrial Practice
at Oracle Corporation from August 1998 to July 1999. From October 1995 to July
1998, Mr. Putz was the President and Chief Executive Officer of Security
Federal Bank. From July 1994 to October 1995, Mr. Putz was a Senior Practice
Director for Oracle Corporation. Mr. Putz received a B.A. from St. Meinrad
College and is a Masters candidate at the St. Meinrad School of Theology at the
University of Notre Dame.
R. Jeffrey Spurrier joined C-bridge in October 1998 as Executive Vice
President, Worldwide Operations. Prior to joining C-bridge, Mr. Spurrier served
as Senior Director, Oracle Services at Oracle Corporation where he was employed
since July 1993. Mr. Spurrier received a B.S. in Mathematics and Physics from
University of Florida, a M.S. in Electrical Engineering from Rice University
and a M.B.A. from Stanford University.
44
<PAGE>
Mark A. Cosway joined C-bridge in April 1999 as Executive Vice President,
Sales and Marketing. Prior to joining C-bridge, Mr. Cosway was Director, Global
Accounts for i2 Technologies, Inc. from July 1994 to April 1999. From January
1989 to April 1994, Mr. Cosway served as Regional Sales Manager at Enterprise
Planning Systems. Mr. Cosway received an Honors Bachelor of Commerce in
Marketing and Information Systems from Carleton University, Ottawa, Canada.
Richard O. Wester joined C-bridge in July 1998 as Vice President, Finance
and Administration, Chief Financial Officer and Treasurer. Prior to joining C-
bridge, Mr. Wester consulted as a chief financial officer to several start-up
entities from October 1997 to August 1998. From September 1995 to October 1997,
Mr. Wester served in various capacities at Integrated Computer Engines, Inc.,
most recently as Vice President, Finance and Administration, Chief Financial
Officer and Treasurer. Mr. Wester also was a co-founder of ICE and served as a
director of ICE from September 1994 until June 1998. From September 1994 to
September 1995, Mr. Wester served as the Director of Finance and
Administration, Chief Financial Officer and Treasurer at International
Integration Incorporated Inc., known as i-Cube. Mr. Wester received a BSBA in
Accounting from Salem State College. Mr. Wester is also a Certified Public
Accountant.
Joseph L. Badaracco, Jr. joined C-bridge as a director on October 1, 1999.
Professor Badaracco is currently the John Shad Professor of Business Ethics at
Harvard Business School, where he has taught since February 1981. He is a
graduate of St. Louis University, Oxford University, where he was a Rhodes
Scholar, and Harvard Business School.
Paul R. Charron joined C-bridge as a director on October 1, 1999. Mr.
Charron has been with Liz Claiborne Inc. since May 1994 and is currently
Chairman of the Board and Chief Executive Officer. Mr. Charron received a B.A.
from Notre Dame University and has a MBA from Harvard Business School.
Raymond J. Lane joined C-bridge as a director on October 1, 1999. Mr. Lane
has been President and Chief Operating Officer of Oracle Corporation since
January 1997. Since June 1992, Mr. Lane has served in various capacities at
Oracle Corporation, including executive vice president and president of
worldwide operations. Before joining Oracle, Mr. Lane was a senior vice
president of Booz-Allen & Hamilton, where he led their worldwide consulting
practice targeted to information technology investments from July 1986 to May
1992. Mr. Lane also serves on the board of directors of Oracle Corporation and
Marimba Inc. and is a member of the board of trustees of Carnegie Mellon
University. Mr. Lane received a B.S. in Mathematics from West Virginia
University.
Ramanan Raghavendran joined C-bridge as a Director in October, 1999. Mr.
Raghavendran has been a general partner of InSight Capital Partners and its
affiliated entities since January 1997. From August 1992 to December 1996, Mr.
Raghavendran was a senior associate with General Atlantic Partners, a private
equity investment firm. Mr. Raghavendran also serves on the board of directors
of Exchange Applications Inc. and several privately held companies. Mr.
Raghavendran received a B.S. from the University of Pennsylvania.
Gerard F. King, II joined C-bridge in July 1997 as Vice President,
Consulting Services and has served as a director since May 1998. Prior to
joining C-bridge, Mr. King was a Director of Professional Services at Sybase,
Inc. from April 1994 to June 1997. Mr. King received a B.A. in History and
German from Tufts University and a M.S. in Computer Information Systems from
Bentley College.
Kerry L. Bush joined C-bridge in May 1999 as Managing Director, Network
Computing. Prior to joining C-bridge, Mr. Bush was employed by Oracle
Corporation for a period of over 15 years where he held positions in sales,
support, education and consulting. Mr. Bush most recently served as Senior
Practice Director for the Oracle Performance Architecture Group. Mr. Bush
received a B.S. in Computer and Communications Sciences from the University of
Michigan, Ann Arbor.
Anthony W. Elkins joined C-bridge in March 1999 as Managing Director,
Central Operations. Prior to joining C-bridge, Mr. Elkins served as Senior
Strategy Manager with Andersen Consulting's Information and Technology Strategy
practice. From September 1988 to April 1996, Mr. Elkins served as Senior
Account Manager at Electronic Data Systems. Mr. Elkins received a B.S. in
Mathematics from the University of Kentucky, a M.S. in Operations Research and
a M.B.A. from the University of Dayton.
45
<PAGE>
David G. Panitz joined C-bridge in February 1999 as Managing Director,
Eastern Operations. Prior to joining C-bridge, Mr. Panitz worked for Polo Ralph
Lauren Corporation from May 1994 to February 1999, where he served in various
capacities, including most recently as Director of Retail Analysis and
Planning. Mr. Panitz received a B.S. from Cornell University and a M.B.A. from
New York University.
James M. D'Augustine joined C-bridge in October 1997 as a principal
consultant. In January 1998, he was promoted to Managing Director,
Architecture. Prior to joining C-bridge, Mr. D'Augustine was a system architect
at Cambridge Technology Partners from July 1993 to October 1997. Mr.
D'Augustine received a B.S. in Computer Science from Boston University.
Clifford B. Thompson joined C-bridge in May 1999 as Managing Director,
Compliance. Prior to joining C-bridge, Mr. Thompson served as a Senior
Technology Negotiator at BankBoston from October 1998 to May 1999. From May
1996 to July 1998, Mr. Thompson served as Director of Licensing at Avicenna
Systems, Corp. From August 1993 to May 1996, Mr. Thompson served as Manager of
Information Content Supplies at Individual, Inc. Mr. Thompson received a B.A.
in Psychology from the University of Massachusetts at Amherst and a J.D. from
the University of Houston Law School.
Ronald J. Bodkin joined C-bridge in January 1997 and has served as Chief
Technologist since that time. Prior to joining C-bridge, Mr. Bodkin was a
researcher at the Massachusetts Institute of Technology Laboratory for Computer
Science from September 1995 to August 1996. From October 1994 to September
1995, Mr. Bodkin served as Vice President, Technology at Exsellarated Software.
Mr. Bodkin received a B.S. in Mathematics and Computer Science from McGill
University and a M.S. in Computer Science from Massachusetts Institute of
Technology.
Andrew J. MacDonald joined C-bridge in May 1999 as Managing Director,
Western Operations. Prior to joining C-bridge, Mr. MacDonald served in various
capacities at Oracle Corporation from September 1993 to May 1999, including
most recently as Program Director, Applications Global Service Line. Mr.
MacDonald graduated with a degree in Mathematics from the University of
Waterloo and earned a M.B.A. from Queen's University.
Satish S. Bhat joined C-bridge in April 1999 as Managing Director,
Industries. Prior to joining C-bridge, Mr. Bhat served as Director of Business
Solutions in the Automotive Industry Business Unit at i2 Technologies from
March 1997 to April 1999. From August 1996 to January 1997, Mr. Bhat worked as
a management consultant at Bain & Company. From September 1994 to July 1996,
Mr. Bhat pursued his Masters degree. From May 1991 to August 1994, Mr. Bhat
worked as a senior consultant at SABRE Design Technologies. Mr. Bhat received a
B.S. in Mechanical Engineering from Anna University in Madras, India, a M.S. in
Industrial Engineering from Louisiana State University, and a M.B.A. in Finance
and Marketing from the University of Chicago.
Composition of the Board of Directors
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.
Committees of the Board of Directors
The board of directors has a compensation committee composed of Messrs.
and , which makes recommendations concerning salaries and incentive
compensation for our employees and administers and grants stock options under
our stock option plans. The board of directors also has an audit committee
composed of Messrs. and , which reviews the results and scope of the
audit and other services provided by our independent public auditors.
46
<PAGE>
Director Compensation
All of the directors are reimbursed for expenses incurred to attend board
of directors and committee meetings.
Executive Compensation
The following table sets forth the total compensation paid or accrued for
the fiscal year ended December 31, 1998 for each person who was serving as an
executive officer of C-bridge on December 31, 1998 except as otherwise
indicated below:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
-------------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Sundar Subramaniam(1)........................ $ -- $ -- --
President and Chief Executive Officer
R. Jeffrey Spurrier(2)....................... 31,250 28,125 419,727
Executive Vice President, Worldwide
Operations
Marco M. Farsheed(3)......................... 58,333 25,727 300,000
Executive Vice President, Sales and
Marketing
Gerard F. King, II(4)........................ 150,000 25,000 577,850
Executive Vice President, Consulting
Services
Richard O. Wester(5)......................... 44,410 -- 300,000
Chief Financial Officer and Treasurer
</TABLE>
- --------
(1) Mr. Subramaniam served without compensation in 1998. He resigned as
President in February 1999 and Chief Executive Officer in May 1999.
(2) Mr. Spurrier joined C-bridge in October 1998. His current salary is
$150,000 per year.
(3) Mr. Farsheed joined C-bridge in June 1998. His current salary is $100,000
per year.
(4) Mr. King joined C-bridge in July 1997. His current salary is $150,000 per
year.
(5) Mr. Wester joined C-bridge in July 1998. His current salary is $110,000 per
year.
Joseph M. Bellini, who joined us in February 1999 as our president and
chief operating officer, has a current salary of $250,000 per year. Mr. Bellini
was named chief executive officer in May 1999. Mark A. Cosway, who joined us in
April 1999 as our executive vice president of sales and marketing, has a
current salary of $125,000 per year.
47
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1998 to each of our most highly compensated executive officers
whose salary and bonus for such fiscal year exceeded $100,000. We have never
granted any stock appreciation rights. The potential realizable value is
calculated based on the term of the option at its time of grant. It is
calculated assuming that the fair market value of common stock on the date of
grant appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price. These numbers are calculated
based on the requirements of the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth. Actual gains, if any, on
stock option exercises are dependent on the future performance of the common
stock and overall stock market conditions. The amounts reflected in the table
may not necessarily be achieved. The percentage of total options granted to
employees in the last fiscal year is based on options to purchase an aggregate
of 3,108,128 shares of common stock granted under our option plans. There was
no public market for our common stock as of December 31, 1998. Accordingly, the
fair market value on December 31, 1998 is based on an assumed initial public
offering price of $ per share.
<TABLE>
<CAPTION>
Individual Grants (1)
-----------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Number of Percent of Stock Price Appreciation
Securities Total Options for
Underlying Granted to Exercise Option Term
Options Employees in Price Per Expiration ---------------------------
Name Granted 1998 Share Date 5% 10%
---- ---------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sundar Subramaniam...... -- -- -- -- -- --
R. Jeffrey Spurrier..... 279,818 9.0% $0.30 10/31/08
139,909(2) 4.5 0.30 10/31/08
Marco M. Farsheed....... 300,000(2) 9.7 0.30 05/20/08
Gerard F. King, II...... 100,000 3.2 0.30 02/06/08
27,850 0.9 0.30 03/25/08
200,000(2) 6.4 0.30 09/30/08
Richard O. Wester....... 300,000 9.7 0.30 09/30/08
</TABLE>
- --------
(1) Each option represents the right to purchase one share of common stock. The
options shown in this column were all granted pursuant to our 1997 Stock
Incentive Plan. The options shown in this table, except as otherwise
indicated below, become exercisable at a rate of 25% annually over four
years from the date of grant.
(2) Option contains accelerated vesting based upon our obtaining certain
revenue goals.
48
<PAGE>
Aggregate Stock Option Exercises in Fiscal 1998 and
Fiscal Year-End Option Values
The following table sets forth certain information concerning the number
and value of unexercised options held by each of our executive officers on
December 31, 1998. None of our executive officers exercised stock options in
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998 (1)
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Sundar Subramaniam.. -- -- -- --
R. Jeffrey
Spurrier.......... 34,977 384,750
Marco M. Farsheed... 43,750 256,250
Gerald F. King, II.. 164,595 413,255
Richard O. Wester... -- 300,000
</TABLE>
- --------
(1) Assumes a per share fair market value based on an assumed initial public
offering price of $ .
Stock Plans
1997 Stock Incentive Plan
Our 1997 Stock Incentive Plan was adopted by our board of directors and
approved by our stockholders in April 1997. In March 1998, the board of
directors increased the number of authorized shares under the plan to 4,000,000
shares of common stock. As of September 30, 1999, an aggregate of 2,528,562
shares of common stock at a weighted average exercise price of $0.29 per share
were outstanding under the 1997 plan and an aggregate of 164,265 shares of
common stock were reserved for issuance for future option grants.
The 1997 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-statutory stock
options, restricted stock awards and other stock-based awards.
All officers, employees, directors, consultants and advisors of C-bridge
and our subsidiaries are eligible to receive awards under the 1997 plan. Under
present law, however, incentive stock options may only be granted to employees.
No participant may receive an award for more than 500,000 shares in any
calendar year.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of our company. The 1997 plan permits the board of
directors to determine how optionees may pay the exercise price of their
options, including by cash, check or in connection with a "cashless exercise"
through a broker, by surrender of shares of common stock, by delivery to us of
a promissory note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1997 plan. The board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the plan to one or more committees of the board
of directors and, subject to certain limitations, to one or more of our
executive officers. The board of directors has authorized the compensation
committee to administer the 1997 plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the 1997
plan, the board of directors, the compensation
49
<PAGE>
committee or any other committee or executive officer to whom the board of
directors delegates authority, as the case may be, selects the recipients of
awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror and to accelerate
the vesting schedule of awards.
No award may be granted under the 1997 plan after April 3, 2007, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
1997 plan, except that no award granted after an amendment of the 1997 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by the
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
1999 Stock Incentive Plan
Our 1999 Stock Incentive Plan was adopted by our board of directors in
January 1999. Subject to the approval of our stockholders, the 1999 plan
authorizes the issuance of an aggregate of 6,000,000 shares of common stock.
The number of shares authorized for issuance shall automatically increase by
500,000 shares effective on the first day of every calendar year for the next
ten years. As of September, 1999, an aggregate of 4,216,500 shares of common
stock at a weighted average exercise price of $1.75 per share were outstanding
under the 1999 Plan, and an aggregate of 1,783,250 shares of common stock were
reserved for issuance for future option grants.
The 1999 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code, non-statutory stock
options, restricted stock awards and other stock-based awards.
All of our officers, employees, directors, consultants and advisors and our
subsidiaries are eligible to receive awards under the 1999 plan. Under present
law, however, incentive stock options may only be granted to employees.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code may not be granted at an exercise price less than the fair market value of
the common stock on the date of grant or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of our company. The 1999 plan permits the board of
directors to determine how optionees may pay the exercise price of their
options, including by cash, check or in connection with a "cashless exercise"
through a broker, by surrender of shares of common stock, by delivery to us of
a promissory note, or by any combination of the permitted forms of payment.
Our board of directors administers the 1999 plan. The board of directors
has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the plan and to interpret its provisions.
It may delegate authority under the plan to one or more committees of the board
of directors and, subject to certain limitations, to one or more of our
executive officers. The board of directors has authorized the
50
<PAGE>
compensation committee to administer the 1999 plan, including the granting of
options to executive officers. Subject to any applicable limitations contained
in the 1999 plan, the board of directors, the compensation committee or any
other committee or executive officer to whom the board of directors delegates
authority, as the case may be, selects the recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other stock-
based awards to be assumed or substituted for by the acquiror and to accelerate
the vesting schedule of awards.
No award may be granted under the 1999 plan after January 29, 2009, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
1999 plan, except that no award granted after an amendment of the 1999 plan and
designated as subject to Section 162(m) of the Internal Revenue Code by the
board of directors shall become exercisable, realizable or vested, to the
extent the amendment was required to grant the award, unless and until the
amendment is approved by our stockholders.
401(k) Plan
We have a 401(k) plan covering all of our employees who meet certain
defined requirements. Under the terms of the 401(k) plan, the employees may
elect to make tax-deferred contributions, and we may match 25% of the first 6%
of employee contributions as determined by the board of directors and may make
other discretionary contributions to the 401(k) plan. During 1998 and the nine
months ended September 30, 1999, we contributed approximately $46,400 and
$56,900, respectively, to the 401(k) plan. We made no contributions during 1996
or 1997.
51
<PAGE>
CERTAIN TRANSACTIONS
Sale of Series A Convertible Preferred Stock.
In October 1999, we sold 1,645,555 shares of series A convertible preferred
stock to five accredited investors for $6.00 per share, for an aggregate
purchase price of approximately $9.9 million. InSight Capital Partners III,
L.P. purchased 954,129 shares, InSight Capital Partners (Cayman) III, L.P.
purchased 236,355 shares, InSight Capital Partners III-Co-Investors, L.P.
purchased 142,849 shares, Oracle Corporation purchased 305,555 shares and H&D
Investments 97 purchased 6,667 shares. Mr. Raymond J. Lane, a member of our
board of directors, is President and Chief Operating Officer of Oracle
Corporation. H&D Investments 97 is an investment fund of our counsel, Hale and
Dorr LLP. Upon completion of this offering, each share of series A convertible
preferred stock will automatically convert into one share of common stock.
Concurrent with our offering of series A convertible preferred stock, the
Willingdon Trust, one of our significant stockholders, sold 719,445 shares of
our common stock to four of the series A investors for $6.00 per share, for an
aggregate purchase price of approximately $4.3 million. InSight Capital
Partners III, L.P. purchased 477,065 shares, InSight Capital Partners (Cayman)
III, L.P. purchased 118,177 shares, InSight Capital Partners III-Co-Investors,
L.P. purchased 71,425 shares and Oracle Corporation purchased 52,778 shares.
Also concurrent with our offering of series A convertible preferred stock, one
of our stockholders sold 100,000 shares of our common stock to Oracle
Corporation for $6.00 per share, for an aggregate purchase price of $600,000.
See "Principal Stockholders."
Sale of Common Stock to Mr. Raymond J. Lane.
In June 1999, we sold 333,333 shares of our common stock to Mr. Raymond J.
Lane, the President and Chief Operating Officer of Oracle Corporation, for an
aggregate purchase price of $2.0 million, or $6.00 per share. On October 1,
1999, Mr. Lane became a member of our board of directors. See "Management."
We have developed a strategic relationship with Oracle as further described in
"Business--Strategic Alliances."
Lease Agreement with Property Management Partners.
On May 1, 1999, we entered into a five-year operating lease agreement for
28,000 square feet in Cambridge, Massachusetts, which encompasses our executive
offices, from Property Management Partners, a corporation controlled by a
former employee of Cambridge Technology Group. In addition to a monthly rent of
$47,000, subject to set annual increases, and a monthly property management fee
of $23,000, we are obligated to make a one-time capital improvements payment of
approximately $1.4 million on January 3, 2000. We believe that the terms of
this lease in the aggregate are at least as favorable as those we would have
obtained from a non-related party in an arms-length transaction.
Agreements with CEE, Inc. and Cambridge Executive Enterprises.
On April 30, 1999, we entered into a five-year contract with CEE, Inc.,
pursuant to which CEE outsourced the management and performance of executive
education seminars to us in return for a monthly fee of approximately $479,000
per month. An affiliate of CEE, Cambridge Executive Enterprises, Inc., had
previously provided these services. Simultaneously with the execution of this
outsourcing agreement with CEE, we hired substantially all of the employees of
Cambridge Executive Enterprises and acquired substantially all of its tangible
assets in exchange for a promissory note in the amount of $234,000, which note
remained outstanding at September 30, 1999. In connection with the outsourcing
agreement, we have agreed to issue options to purchase 190,000 shares of our
common stock to designees of CEE and have committed to issue options to
purchase an additional 50,000 shares of our common stock to CEE's designees for
each year that the outsourcing agreement remains in place.
Non-Competition Agreement with Professor Donovan.
On September 27, 1999, Cambridge Executive Enterprises and CEE entered into
a non-competition agreement with Professor John J. Donovan, which provides that
Professor Donovan shall not compete with Cambridge Executive Enterprises in
developing and performing executive education seminars before September 27,
2000. We are named as a third-party beneficiary in the agreement, and the
provisions of the agreement may not be waived or amended without our written
consent.
52
<PAGE>
Historical Relationship with Cambridge Technology Group.
We, CEE and Cambridge Executive Enterprises have an historical relationship
with Cambridge Technology Group. For more than ten years prior to September
1998, Cambridge Technology Group conducted an executive education seminar
business. Professor John J. Donovan, the former sole stockholder, director and
executive officer of Cambridge Technology Group, is currently an employee of
CEE. Affiliates of Professor Donovan are beneficiaries of a trust and a holding
company which have invested in our company and are significant stockholders as
a result. See "Principal Stockholders."
Advances from Affiliates.
During 1997 and 1998, we were financed primarily by advances from Cambridge
Technology Group, the Willingdon Trust, the Winsor Trust and a third trust, the
beneficiaries of which include an affiliate of Professor Donovan. The
Willingdon Trust and the Winsor Trust are two of our significant stockholders.
Amounts advanced by Cambridge Technology Group, which consisted primarily of
working capital advances, general and administrative allocations and operating
expenses, were approximately $1.0 million in 1997 and $1.1 million in 1998.
Amounts advanced by each of the Willingdon Trust and the Winsor Trust were
approximately $325,000 in 1997. Amounts advanced by the third trust were
approximately $450,000 in 1997. During March and May of 1998, we entered into
agreements with these affiliated parties to forgive $2.3 million of the amounts
due. We recorded the forgiveness as a capital contribution, and the remaining
indebtedness of approximately $988,000 was repaid in 1998.
Line of Credit Guarantee.
During 1998, we entered into a revolving line of credit with a bank secured
by substantially all of our assets and guaranteed in part by Mr. Subramaniam,
our former chief executive officer and a beneficiary of the Willingdon Trust,
and a trust, the beneficiaries of which include an affiliate of Professor
Donovan. Under the line of credit, $1.0 million is collateralized by our assets
and $2.5 million is subject to this guarantee. On April 7, 1999, we entered
into a loan modification of our line of credit in order to draw upon a
committed equipment line of credit of up to $200,000. The modification of the
line of credit is subject to the same guarantee. Upon completion of this
offering, we expect the guarantee to be released.
1998 Bridge Financing.
In May 1998, in connection with a bridge financing, a limited liability
company, in which Mr. Subramaniam is an investor, loaned us approximately
$148,000 in return for a promissory note and warrants to purchase 200,000
shares of common stock at an exercise price of $0.30 per share. The note was
due in 90 days and bore interest at the prime rate, which was 7.75% at December
31, 1998, plus 1%. In August 1998, in connection with the extension of the
note, we issued the limited liability company warrants to purchase 66,666
shares of common stock at an exercise price of $0.30 per share. Each share of
common stock purchased upon exercise of the warrants may be exchanged for
approximately .25 of a share of our series A convertible preferred stock. In
September 1998, we repaid $87,000 of the amount due to the limited liability
company, and the balance of $61,000 and the accrued interest was converted into
202,000 shares of common stock at a price of $0.30 per share.
Prior Lease Agreements with Cambridge Technology Group.
During 1997 and 1998, we leased certain office space and equipment from
Cambridge Technology Group under month-to-month operating lease agreements.
Pursuant to these agreements, we incurred rental expenses of $93,000 and
$251,000 for 1997 and 1998, respectively. We believe that the terms of these
lease agreements were in the aggregate at least as favorable as those we would
have obtained from a non-related party in an arms-length transaction.
Agreement with Invenio Technologies Corporation.
During 1998, we performed professional consulting services for an unrelated
company in which Mr. Subramaniam holds a minority equity interest. Transactions
with Invenio were treated as arms-length transactions. The total amount of the
services was $64,000, of which $48,000 remained unpaid as of September 30,
1999.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
Principal Stockholders
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of October 10, 1999 and as
adjusted to reflect the sale of the shares of our common stock in this offering
for:
. each of our executive officers named in the Summary Compensation
Table;
. each of our directors;
. each person known by us to beneficially own more than 5% of our common
stock; and
. all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated
by the footnotes below, none of these persons or entities has a relationship
with us or, to our knowledge, any of the underwriters or their respective
affiliates. Unless otherwise indicated, each person or entity named in the
table below has sole voting and investment power (or shares such power with his
or her spouse) with respect to all shares of common stock shown as beneficially
owned by them, subject to applicable community property laws. Percentage of
beneficial ownership is based on 12,991,021 shares of common stock outstanding
as of October 10, 1999, which assumes the conversion of the outstanding shares
of series A convertible preferred stock as of October 10, 1999 into shares of
common stock. In computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person, shares of common
stock subject to options held by that person that are currently exercisable or
exercisable within 60 days of October 10, 1999 are deemed outstanding. These
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated, the
address of each beneficial owner listed below is c/o C-bridge Internet
Solutions, Inc., 219 Vassar Street, Cambridge, Massachusetts 02139.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially Owned
----------------------
Shares Beneficially Prior to After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------------- --------- ---------
<S> <C> <C> <C>
Joseph M. Bellini(1).............. 782,500 5.7%
R. Jeffrey Spurrier(2)............ 209,863 1.6
Richard O. Wester(3).............. 75,000 *
Sundar Subramaniam(4)............. 4,101,833 31.6
Marco M. Farsheed(5).............. 300,000 2.3
Joseph L. Badaracco, Jr. (6)...... -- *
Paul R. Charron(7)................ -- *
Gerald F. King, II(8)............. 267,854 2.0
Raymond J. Lane(9)................ 333,333 2.6
Ramanan Raghavendran(10).......... 2,000,000 15.4
Entities affiliated with InSight
Capital Partners(11)............ 2,000,000 15.4
Hamilton Trust Company Limited, as
Trustee of the Willingdon
Trust(12)....................... 4,101,833 31.6
Butterfield Trust (Bermuda)
Limited, as Trustee of the
Winsor Trust(13)................ 2,290,750 17.6
Cambridge Technology Enterprise
Limited(14)..................... 2,290,750 17.6
All directors and executive
officers as a group
(10 persons) persons(15)........ 3,918,550 27.4
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of our common stock.
(footnotes follow on next page)
54
<PAGE>
- --------
(1) Consists of 782,500 shares issuable upon the exercise of options
exercisable within 60 days of October 10, 1999.
(2) Includes 69,954 shares issuable upon the exercise of options exercisable
within 60 days of October 10, 1999.
(3) Consists of 75,000 shares issuable upon the exercise of options
exercisable within 60 days of October 10, 1999.
(4) Consists of 4,101,833 shares owned by the Willingdon Trust, of which Mr.
Subramaniam, his sister and their respective issue are the sole
beneficiaries. Mr. Subramaniam disclaims beneficial ownership of the
shares held by the Willingdon Trust except as to the extent of his
pecuniary interest. The address of the Willingdon Trust is Hamilton Trust
Company Limited, as Trustee of the Willingdon Trust, Vallis Building,
P.O. Box HM247, Hamilton HM AX, Bermuda.
(5) Includes 225,000 shares issuable upon the exercise of options exercisable
within 60 days of October 10, 1999.
(6) The address of Professor Badaracco is c/o Harvard Business School,
Soldier's Field Road, Morgan 475, Boston, Massachusetts 02163.
(7) The address of Mr. Charron is c/o Liz Claiborne, Inc., 1441 Broadway, New
York, New York 10018.
(8) Includes 141,187 shares issuable upon the exercise of options exercisable
within 60 days of October 10, 1999.
(9) The address of Mr. Lane is c/o Oracle Corporation, 500 Oracle Parkway,
Redwood Shores, California 94065.
(10) The address of Mr. Raghavendran is c/o InSight Capital Partners, 527
Madison Avenue, 10th Floor, New York, New York 10022. Mr. Raghavendran is
a partner of InSight Capital Partners, and Mr. Raghavendran disclaims
beneficial ownership of the shares held by InSight Capital Partners
except as to the extent of his pecuniary interest.
(11) Consists of 954,129 shares of series A convertible preferred stock and
477,065 shares of common stock held by InSight Capital Partners III,
L.P., 236,355 shares of series A convertible preferred stock and 118,177
shares of common stock held by InSight Capital Partners (Cayman) III,
L.P., and 142,849 shares of series A convertible preferred stock and
71,425 shares of common stock held by InSight Capital Partners III-Co-
Investors, L.P. The address of InSight Capital Partners III, L.P. and
InSight Capital Partners III-Co-Investors, L.P. is 527 Madison Avenue,
10th Floor, New York, New York 10022. The address of InSight Capital
Partners (Cayman) III, L.P. is c/o W.S. Walker & Company, Walker House,
P.O. Box 265GT, Mary Street, George Town, Grand Cayman, Cayman Islands.
(12) Consists of 4,101,833 shares held by the Willingdon Trust, the
beneficiaries of which are Sundar Subramaniam, his sister and their
respective issue. The address of the Willingdon Trust is Hamilton Trust
Company Limited, as Trustee of the Willingdon Trust, Vallis Building,
P.O. Box HM247, Hamilton HM AX, Bermuda.
(13) Consists of 2,290,750 shares held by the Winsor Trust, the beneficiaries
of which include affiliates of Professor John J. Donovan. The address of
the Winsor Trust is Butterfield Trust (Bermuda) Limited, 65 Front Street,
Hamilton HM AX, Bermuda.
(14) Consists of 2,290,750 shares held by Cambridge Technology Enterprises
Limited, the stockholders of which include affiliates of Professor John
J. Donovan. The address of Cambridge Technology Enterprises Limited is
c/o ASK Services Ltd., Cedar House, 41 Cedar Avenue, Hamilton HM EX,
Bermuda.
(15) Includes 1,318,641 shares issuable upon the exercise of options
exercisable within 60 days of October 10, 1999.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of
30,000,000 shares of common stock, $0.01 par value per share, and 5,000,000
shares of preferred stock, $0.01 par value per share. As of September 30, 1999,
there were outstanding 11,657,687 shares of common stock held by 83
stockholders of record. In addition, there were outstanding options to purchase
an aggregate of 6,745,062 shares of common stock.
Common Stock
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of common stock are,
and the shares offered by us in this offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of our common stock are subject to the rights of the holders of shares
of any series of preferred stock which we may designate and issue in the
future. Some holders of common stock have the right to require us to register
their shares of common stock under the Securities Act in specified
circumstances.
Preferred Stock
Under the terms of the charter, our board of directors will be authorized
to issue such shares of preferred stock in one or more series without
stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock.
Warrants
At September 30, 1999 we had warrants outstanding to purchase an aggregate
of 784,504 shares of our common stock at a weighted average exercise price of
$0.38 per share. Certain holders of warrants are entitled to registration
rights with respect to the shares of common stock issuable upon exercise of the
warrants. See "Shares Eligible for Future Sale--Registration Rights."
Delaware Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law statute. Section 203 prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed
manner. A business combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock.
56
<PAGE>
Under the by-laws, any vacancy on our board of directors, including a
vacancy resulting from an enlargement of our board of directors, may only be
filled by vote of a majority of the directors then in office, making it more
difficult for a third party to acquire, or discourage a third party from
acquiring, control of our company.
Our by-laws also provide that after this offering, stockholders can only
take action at an annual meeting or special meeting, and not by written action
in lieu of a meeting. Our by-laws further provide that only stockholders
holding a majority of outstanding shares, our chairman of the board, president
or our board of directors may call a special meeting of stockholders.
Our stockholders must comply with advance notice and information disclosure
requirements in order for any matter to be considered "properly brought" before
a meeting. Stockholders must deliver written notice to us between 60 and 90
days prior to the meeting. If we give less than 70 days' notice or prior public
disclosure of the meeting date, stockholders must deliver written notice to us
within ten days following the date upon which the notice of the meeting was
mailed or such public disclosure was made, whichever occurs first. If the
matter relates to the election of directors, the notice must set forth specific
information regarding each nominee and the nominating stockholder. For any
other matter, the notice must set forth a brief description of the proposed
matter and certain information regarding the proponent stockholder. These
provisions could delay until the next stockholders' meeting proposed actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions could also discourage a third party from making a
tender offer for our common stock, because even if it acquired a majority of
the outstanding voting securities, the third party would be able to take action
as a stockholder only at a duly called stockholders' meeting, and not by
written consent.
The Delaware General Corporation Law statute provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our by-laws require the affirmative vote of
holders of at least 75% of the votes which all the stockholders would be
entitled to cast in any annual election of directors or class of directors to
amend or repeal any of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted
under the Delaware General Corporation Law statute relating to the limitation
of liability of directors. These provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the certificate of incorporation contains
provisions to indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law statute. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as our directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equiserve.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our securities.
After completion of this offering there will be shares of common stock
outstanding based upon the number of shares outstanding as of September 30,
1999. Of these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act
of 1933, except that any shares purchased by our "affiliates," as that term is
defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
Sales of Restricted Shares
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining shares of common stock that will be
outstanding after this offering will be considered "restricted securities"
under Rule 144 of the Securities Act. Generally, restricted securities that
have been owned for a period of at least two years may be sold immediately
after the completion of this offering, and restricted securities that have been
owned for at least one year may be sold 90 days after the completion of this
offering. Certain of the restricted securities are subject to lock-up
agreements with the underwriters. Persons subject to lock-up agreements have
agreed not to sell shares of our common stock without the prior permission of
BancBoston Robertson Stephens Inc. for a period of 180 days after the
completion of this offering. BancBoston Robertson Stephens Inc. has indicated
that it does not intend to release anyone from the lock-up agreement. The table
below sets forth information regarding potential sales of restricted
securities.
. shares may be sold immediately after completion of this offering;
and
. additional shares may be sold upon the expiration of the lock-up
agreements.
Options
Shares of common stock may also be issued and sold upon the exercise of
options. After this offering, we intend to register an aggregate of shares
of common stock, which may be issued under our 1997 Stock Incentive Plan and
1999 Stock Incentive Plan. Shares issued upon the exercise of stock options
after the effective date of the registration statements on Form S-8 will be
eligible for resale in the public market without restriction, subject to Rule
144 limitations applicable to affiliates and the lock-up agreements noted
above, if applicable. As a result of the exercise of vested options 90 days
after the completion of this offering, additional shares may be sold. Upon
the expiration of the lock-up agreements, an additional shares may be sold
as a result of the exercise of options.
Registration Rights
Upon completion of this offering, certain holders of 8,683,333 shares of
our common stock and warrants to acquire an aggregate of 784,504 shares of our
common stock have the right to demand that we include the shares of common
stock they hold or acquire upon the exercise of the warrants in any
registration statements we file with the Securities and Exchange Commission,
other than registration statements filed with respect to employee benefit plans
or in connection with an acquisition.
Effect of Sales of Shares
Prior to this offering, there has been no public market for our common
stock, and we cannot advise you as to the effect, if any, that sales in the
public market of shares of our common stock, or the availability of shares for
sale, will have on the market price of our common stock prevailing from time to
time. Nevertheless, sales of significant numbers of shares of our common stock
in the public market could adversely affect the market price of our common
stock and could impair our ability to raise capital.
58
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., SG Cowen Securities Corporation and
SoundView Technology Group, Inc., have severally agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. ............................
SG Cowen Securities Corporation................................
SoundView Technology Group, Inc. ..............................
Total........................................................
===
</TABLE>
We have been advised that the underwriters propose to offer the shares of
our common stock to the public at the public offering price located on the
cover page of this prospectus and to dealers at that price less a concession of
not in excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock to cover over-allotments,
if any, at the same price per share as we will receive for the shares that
the underwriters have agreed to purchase. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered by this prospectus. If
purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. We will be obligated,
under this option, to sell shares to the extent the option is exercised. The
underwriters may exercise the option only to cover over-allotments made in
connection with the sale of the shares of our common stock offered by this
prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
Without With
Over-allotment Over-allotment
Per Share Option Option
--------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price...... $ $ $
Underwriting discounts and
commissions......................
Proceeds, before expenses, to us...
</TABLE>
The expenses of the offering, other than underwriting discounts and
commissions, payable by us are estimated at $ . BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on , 1999.
59
<PAGE>
Directed Share Program. The underwriters have reserved up to percent of
the common stock to be issued by us and offered for sale in this offering, at
the initial public offering price, to directors, officers, employees, business
associates and persons otherwise connected to C-bridge. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which
are not purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered in this offering.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Agreements Not to Sell Shares. Three of our principal stockholders, which
hold, in the aggregate, 8,630,555 shares of common stock, have agreed, subject
to limited exceptions, not to offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to any shares
of common stock or any options or warrants to purchase any shares of common
stock, or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or later acquired directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of BancBoston Robertson Stephens Inc., for a
period of one year from the date of this prospectus with respect to 100% of
their shares of common stock, for a period of two years from the date of this
prospectus with respect to 50% of their shares of common stock, and for a
period of three years from the date of this prospectus with respect to 25% of
their shares of common stock. In addition, the holders of a total of shares
of common stock, including our executive officers and directors and other
stockholders, have agreed, during the period ending 180 days after the date of
this prospectus, subject to limited exceptions, not to offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock or any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or later
acquired directly by such holders or with respect to which they have the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release all or any portion of
securities subject to these agreements not to sell shares. There are no
existing agreements between the representatives of the underwriters and any of
our stockholders providing consent to the sale of shares prior to the
expiration of the respective periods.
Future Sales by Us. In addition, we have agreed that during the 180 days
after the date of this prospectus, we will not, without the prior written
consent of BancBoston Robertson Stephens Inc., subject to certain exceptions,
(a) consent to the disposition of any shares held by stockholders subject to
agreements not to sell shares prior to the expiration of the respective periods
or (b) issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance of
common stock upon the exercise of outstanding options, and the issuance of
options under existing stock option and incentive plans, provided such options
do not vest prior to the expiration of the 180-day period. See "Shares Eligible
for Future Sale."
Listing. We have applied to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "CBIS."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered by this prospectus will be determined through
negotiations among us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
60
<PAGE>
Stabilization. The representatives have advised us that, under Regulation M
under the Securities and Exchange Act of 1934, some participants in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by the
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. An investment fund for
the benefit of partners at Hale and Dorr holds in the aggregate 6,667 shares of
series A convertible preferred stock, which will automatically convert into
6,667 shares of common stock upon the completion of this offering. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The audited consolidated financial statements and schedules included in
this prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the Securities and Exchange Commission under the Securities
Act with respect to our common stock to be sold in this offering. This
prospectus, which is a part of the registration statement, does not contain all
of the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any contract, agreement
or other document of C-bridge, such references are not necessarily complete and
you should refer to the exhibits attached to the registration statement for
copies of the actual contract, agreement or other document. You may review a
copy of the registration statement, including exhibits, at the Securities and
Exchange Commission's public reference room at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048
or at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Please call 1-800-SEC-0330 for further information about the operation
of the public reference rooms. The registration statement and our other
Securities and Exchange Commission filings can also be reviewed by accessing
the Securities and Exchange Commission's Internet site at http://www.sec.gov,
which contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission.
61
<PAGE>
After we have filed this registration statement, we will file annual,
quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
62
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1996, 1997, 1998 and
September 30, 1999...................................................... F-3
Consolidated Statements of Operations for the Period from Inception
(October 31, 1996) to December 31, 1996, for the Years Ended December
31, 1997 and 1998 and for the Nine Months Ended September 30, 1998 and
1999.................................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Period from
Inception (October 31, 1996) through September 30, 1999................. F-5
Consolidated Statements of Cash Flows for the Period from Inception
(October 31, 1996) to December 31, 1996, for the Years Ended December
31, 1997 and 1998 and for the Nine Months Ended September 30, 1998 and
1999.................................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C-bridge Internet Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of C-bridge
Internet Solutions, Inc. (a Delaware corporation) and subsidiary as of December
31, 1997 and 1998 and September 30, 1999, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the period
from inception (October 31, 1996) to December 31, 1996, for the years ended
December 31, 1997 and 1998 and for the nine months ended September 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of C-bridge Internet Solutions, Inc. and subsidiary as of December 31, 1997 and
1998 and September 30, 1999, and the results of its operations and its cash
flows for the period from inception (October 31, 1996) to December 31, 1996,
for the years ended December 31, 1997 and 1998 and for the nine months ended
September 30, 1999, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
October 28, 1999
F-2
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 30,699 $ 190,409 $ 3,892
Accounts receivable, net of allowance
of $16,726, $30,502 and $63,844 at
December 31, 1997 and 1998 and
September 30, 1999, respectively... 871,832 732,765 2,842,402
Unbilled receivables................. 217,509 451,586 1,674,587
Other current assets................. 168,235 13,733 70,831
----------- ----------- -----------
Total current assets................... 1,288,275 1,388,493 4,591,712
----------- ----------- -----------
Property and equipment, at cost:
Computer equipment................... 578,491 714,463 1,262,489
Furniture and fixtures............... 5,644 14,044 200,034
Computer software.................... -- 40,779 126,378
Leasehold improvements............... -- -- 40,182
----------- ----------- -----------
584,135 769,286 1,629,083
Less--Accumulated depreciation....... 75,871 226,018 507,586
----------- ----------- -----------
508,264 543,268 1,121,497
----------- ----------- -----------
Deferred financing costs............... -- -- 145,000
----------- ----------- -----------
Total assets........................... $ 1,796,539 $ 1,931,761 $ 5,858,209
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Lines of credit...................... $ -- $ 2,615,539 $ 1,448,889
Current portion of capital lease
obligations........................ -- 117,716 191,485
Accounts payable..................... 467,270 365,473 546,807
Accrued liabilities.................. 306,039 979,337 2,382,520
Deferred revenue..................... 192,959 377,107 1,600,031
Current portion of due to
affiliates......................... 450,000 120,610 233,397
----------- ----------- -----------
Total current liabilities.............. 1,416,268 4,575,782 6,403,129
----------- ----------- -----------
Long-term liabilities:
Capital lease obligations, less
current portion.................... -- 176,575 125,816
Due to affiliates, less current
portion............................ 1,755,390 -- --
----------- ----------- -----------
Total liabilities...................... 3,171,658 4,752,357 6,528,945
----------- ----------- -----------
Commitments and contingencies (Note 5)
Stockholders' deficit:
Preferred stock, $0.01 par value--
Authorized--5,000,000 shares
Issued and outstanding--None........ -- -- --
Common stock, $0.01 par value--
Authorized--30,000,000 shares
Issued--10,000,000, 10,719,969 and
12,167,687 shares at December 31,
1997 and 1998 and September 30,
1999, respectively.................. 100,000 107,200 121,677
Additional paid-in capital........... 32,054 2,685,333 14,274,967
Notes receivable for issuance of
common stock....................... -- (84,000) (84,000)
Deferred compensation................ -- -- (6,523,543)
Accumulated deficit.................. (1,507,173) (5,376,129) (8,306,837)
Treasury stock, at cost--510,000
shares............................. -- (153,000) (153,000)
----------- ----------- -----------
Total stockholders' deficit............ (1,375,119) (2,820,596) (670,736)
----------- ----------- -----------
$ 1,796,539 $ 1,931,761 $ 5,858,209
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception For the Nine Months
(October 31, For the Years Ended Ended
1996) to December 31, September 30,
December 31, ------------------------ ------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Professional
services............ $ -- $ 3,169,183 $ 5,047,474 $ 3,208,416 $11,342,538
Educational
services............ -- -- -- -- 2,495,627
---------- ----------- ----------- ----------- -----------
Total net
revenues......... -- 3,169,183 5,047,474 3,208,416 13,838,165
---------- ----------- ----------- ----------- -----------
Costs and expenses:
Direct costs of
professional
services............ 49,641 2,234,598 4,974,586 3,528,074 6,456,562
Direct costs of
educational
services............ -- -- -- -- 1,142,283
Selling and
marketing........... 3,414 327,553 1,530,140 1,224,854 1,884,550
General and
administrative...... 140,439 1,797,185 2,108,663 1,654,625 4,720,717
Compensation expense
related to stock
options and
warrants............ -- 27,984 74,068 57,014 2,752,079
---------- ----------- ----------- ----------- -----------
Total operating
expenses......... 193,494 4,387,320 8,687,457 6,464,567 16,956,191
---------- ----------- ----------- ----------- -----------
Loss from
operations....... (193,494) (1,218,137) (3,639,983) (3,256,151) (3,118,026)
Interest expense........ -- (5,440) (244,370) (171,635) (165,367)
Interest income......... -- 8,221 2,433 2,433 --
Other income (expense).. -- 677 12,964 4,027 352,685
---------- ----------- ----------- ----------- -----------
Net loss................ $ (193,494) $(1,214,679) $(3,868,956) $(3,421,326) $(2,930,708)
========== =========== =========== =========== ===========
Basic and diluted net
loss per share (Note
2(g))................. $ (.02) $ (0.12) $ (0.39) $ (0.35) $ (0.27)
========== =========== =========== =========== ===========
Basic and diluted
weighted average
shares outstanding.... 10,000,000 10,000,000 9,991,529 9,911,660 10,713,089
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Notes
Common Stock Receivable Treasury Stock
------------------- Additional for Issuance ------------------- Total
Number of $.01 Par Paid-in of Common Deferred Accumulated Number Stockholders'
Shares Value Capital Stock Compensation Deficit of Shares Amount Deficit
---------- -------- ----------- ------------ ------------ ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance
of common
stock........... 10,000,000 $100,000 $ -- $ -- $ -- $ (99,000) -- $ -- $ 1,000
Net loss........ -- -- -- -- -- (193,494) -- -- (193,494)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1996........ 10,000,000 100,000 -- -- -- (292,494) -- -- (192,494)
Issuance of
warrants for
financing...... -- -- 4,070 -- -- -- -- -- 4,070
Issuance of
stock options
to
nonemployees... -- -- 27,984 -- -- -- -- -- 27,984
Net loss........ -- -- -- -- -- (1,214,679) -- -- (1,214,679)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1997........ 10,000,000 100,000 32,054 -- -- (1,507,173) -- -- (1,375,119)
Issuance of
common stock
for notes
receivable..... 280,000 2,800 81,200 (84,000) -- -- -- -- --
Compensation
expense
associated with
issuance of
common stock
for notes
receivable..... -- -- 43,098 -- -- -- -- -- 43,098
Issuance of
common stock
for services
rendered....... 45,000 450 13,050 -- -- -- -- -- 13,500
Exercise of
stock options.. 193,038 1,931 6,814 -- -- -- -- -- 8,745
Purchase of
treasury
stock.......... -- -- -- -- -- -- 510,000 (153,000) (153,000)
Issuance of
common stock on
conversion of
bridge
financing...... 201,931 2,019 58,560 -- -- -- -- -- 60,579
Issuance of
warrants for
financing...... -- -- 99,018 -- -- -- -- -- 99,018
Issuance of a
warrant in
connection with
joint venture.. -- -- 22,703 -- -- -- -- -- 22,703
Issuance of
stock options
to
nonemployees... -- -- 17,470 -- -- -- -- -- 17,470
Forgiveness of
debt to
affiliates..... -- -- 2,311,366 -- -- -- -- -- 2,311,366
Net loss........ -- -- -- -- -- (3,868,956) -- -- (3,868,956)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance, December
31, 1998........ 10,719,969 107,200 2,685,333 (84,000) -- (5,376,129) 510,000 (153,000) (2,820,596)
Sale of common
stock ......... 333,333 3,333 1,996,667 -- -- -- -- -- 2,000,000
Exercise of
stock options
............... 1,114,385 11,144 317,345 -- -- -- -- -- 328,489
Compensation
expense
associated with
warrants....... -- -- 660,000 -- -- -- -- -- 660,000
Deferred
compensation
related to the
issuance
of stock
options to
employees and
nonemployees... -- -- 8,615,622 -- (8,615,622) -- -- -- --
Amortization of
deferred
compensation... -- -- -- -- 2,092,079 -- -- -- 2,092,079
Net loss ....... -- -- -- -- -- (2,930,708) -- -- (2,930,708)
---------- -------- ----------- -------- ----------- ----------- ------- --------- -----------
Balance,
September 30,
1999 ........... 12,167,687 $121,677 $14,274,967 $(84,000) $(6,523,543) $(8,306,837) 510,000 $(153,000) $ (670,736)
========== ======== =========== ======== =========== =========== ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception
(October 31, For the Years Ended For the Nine Months Ended
1996) to December 31, September 30,
December 31, ------------------------ --------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- --------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss............. $(193,494) $(1,214,679) $(3,868,956) $ (3,421,326) $ (2,930,708)
Adjustments to
reconcile net loss
to net cash used in
operating
activities--
Depreciation and
amortization...... -- 75,871 249,738 65,832 281,568
Noncash stock based
compensation...... -- 27,984 74,068 57,014 2,752,079
Noncash interest
expense related to
warrants.......... -- 4,070 121,721 121,721 --
Repayment of debt by
third party....... -- -- -- (348,000)
Changes in current
assets and
liabilities--
Accounts
receivable....... -- (871,832) 139,067 (247,784) (2,109,637)
Unbilled
receivables...... -- (217,509) (234,077) (264,995) (1,223,001)
Other current
assets........... -- (168,235) 154,502 (26,915) (57,098)
Accounts payable... -- 467,270 (101,797) 125,498 181,334
Accrued
liabilities...... -- 306,039 598,649 579,948 1,403,183
Deferred revenue... -- 192,959 184,148 249,262 1,222,924
--------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities..... (193,494) (1,398,062) (2,682,937) (2,761,745) (827,356)
--------- ----------- ----------- ------------ ------------
Cash flows from
investing
activities:
Purchases of property
and equipment...... -- (584,135) (191,400) (160,383) (526,951)
--------- ----------- ----------- ------------ ------------
Cash flows from
financing
activities:
Net proceeds
(repayments) on
line of credit
loans.............. -- -- 2,615,539 2,398,539 (927,650)
Proceeds from
issuance of bridge
loans.............. -- -- 248,600 248,600 --
Payments on bridge
loans.............. -- -- (193,750) (162,500) --
Loans from
affiliates......... 192,494 2,012,896 1,214,586 1,160,507 --
Repayment of loans
from affiliates.... -- -- (988,000) (988,000) (11,610)
Proceeds from sale
lease back
transaction........ -- -- 337,036 337,036 --
Payments on capital
lease obligation... -- -- (55,709) (33,124) (76,439)
Loan to employee..... -- -- (153,000) -- --
Proceeds from
issuance of common
stock.............. 1,000 -- -- -- 2,000,000
Proceeds from
exercise of stock
options............ -- -- 8,745 2,876 328,489
Deferred financing
costs.............. -- -- -- -- (145,000)
--------- ----------- ----------- ------------ ------------
Net cash provided
by financing
activities..... 193,494 2,012,896 3,034,047 2,963,934 1,167,790
--------- ----------- ----------- ------------ ------------
Net increase
(decrease) in cash.. -- 30,699 159,710 41,806 (186,517)
Cash, beginning of
period.............. -- -- 30,699 30,699 190,409
--------- ----------- ----------- ------------ ------------
Cash, end of period... $ -- $ 30,699 $ 190,409 $ 72,505 $ 3,892
========= =========== =========== ============ ============
Supplemental
disclosure of
noncash financing
activities:
Issuance of common
stock for notes
receivable......... $ -- $ -- $ 84,000 $ 84,000 $ --
========= =========== =========== ============ ============
Assets acquired under
capital lease...... $ -- $ -- $ -- $ -- $ 99,449
========= =========== =========== ============ ============
Assets acquired in
connection with
outsourcing
agreement.......... $ -- $ -- $ -- $ -- $ 233,397
========= =========== =========== ============ ============
Purchase of treasury
stock by forgiving
loan to employee... $ -- $ -- $ 153,000 $ 153,000 $ --
========= =========== =========== ============
Conversion of bridge
financing and
related interest to
common stock....... $ -- $ -- $ 60,579 $ 60,579 $ --
========= =========== =========== ============ ============
Forgiveness of debt
due to affiliates.. $ -- $ -- $ 2,311,366 $ 2,311,366 $ --
========= =========== =========== ============ ============
Supplemental
disclosure of cash
flow information:
Cash paid during the
period for
interest........... $ -- $ -- $ 93,095 $ 58,846 $ 145,169
========= =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(including data applicable to unaudited period)
(1) Operations
C-bridge Internet Solutions, Inc. and Subsidiary (the Company) is a full
service provider of eBusiness solutions that help companies create strategic
business solutions through the use of Internet technologies. In May 1999, the
Company began offering eBusiness educational services. The Company was
incorporated in Delaware on October 31, 1996.
The Company is subject to risks common to rapidly growing technology-based
companies, including a limited operating history, dependence on key personnel,
the need to raise capital, rapid technological change, competition from larger
service providers, and the need for successful development and marketing of
services.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies, as discussed below and
elsewhere in the notes to the consolidated financial statements.
(a) Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Principles of Consolidation
In August 1998, the Company formed a wholly owned subsidiary, C-bridge
Packaged Solutions, Inc. (the Subsidiary). These consolidated financial
statements include the accounts of the Company and the subsidiary. All
significant intercompany transactions have been eliminated in consolidation.
(c) Revenue Recognition
The Company generates revenue from eBusiness consulting and education
services. Revenues from consulting contracts are recognized on a time and
material or percentage-of-completion basis depending upon the contract with the
customer. Revenues related to time and material consulting contracts are
recognized when the services are performed. Revenues related to fixed price
consulting contracts are recognized based on the percent of the cost incurred
compared to the total estimated cost to complete the project. The cumulative
impact of any revisions in estimates are reflected in the period in which they
become known. If a consulting contract is estimated to result in a loss, the
loss is recorded immediately. Net revenues exclude reimbursable expenses
charged to customers.
Revenues from educational services are recognized based upon the management
and performance of educational services. The Company recognizes revenue based
upon the performance of services under an outsourcing agreement with a third
party. See Note 10 for further discussion of the outsourcing agreement.
Unbilled receivables represents services that have been performed but have
not yet been billed. Unbilled receivables also includes reimbursable expenses.
Deferred revenues represent amounts billed or paid in advance of revenues
recognized.
F-7
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(d) Depreciation and Amortization
The Company provides for depreciation and amortization using the straight-
line method, by charges to operations in amounts estimated to allocate the cost
of property and equipment over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
- -------------------- -------------
<S> <C>
Computer equipment............................................... 3 years
Furniture and fixtures........................................... 3 years
Computer software................................................ 3 years
Leasehold improvements........................................... Life of lease
</TABLE>
The Company has assets under capital leases of $350,000 and $421,626 as of
December 31, 1998 and September 30, 1999, respectively. There were no assets
under capital leases as of December 31, 1997. Accumulated depreciation related
to these assets is $48,611 and $136,111 as of December 31, 1998 and September
30, 1999, respectively.
(e) Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist of
cash and accounts receivable. The Company maintains the majority of its cash
balances with financial institutions. Concentrations of credit risk with
respect to accounts receivable is limited to certain customers to whom the
Company makes substantial sales. To reduce risk, the Company routinely assesses
the financial strength of its customers and, as a consequence, believes that
its accounts receivable credit risk exposure is limited. The Company operates
in two industry segments and derives substantially all of its revenues from
U.S. customers.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenues and accounts receivable for the
periods presented:
<TABLE>
<CAPTION>
Years Ended
December Nine Months
31, Ended
------------- September 30,
1997 1998 1999
----- ----- -------------
<S> <C> <C> <C>
Revenue--
Customer A..................................... 28% 10% *
Customer B..................................... 12% * *
Customer C..................................... 11% * *
Customer D..................................... * 25% 24%
Customer E..................................... * 16% *
Customer F..................................... * * 18%
Customer G..................................... * * 12%
Customer I..................................... * * 18%
</TABLE>
F-8
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
<TABLE>
<CAPTION>
December
31,
---------- September 30,
1997 1998 1999
---- ---- -------------
<S> <C> <C> <C>
Accounts Receivable--
Customer A........................................... 32% * *
Customer D........................................... * * 18%
Customer E........................................... * 29% *
Customer F........................................... * 16% 19%
Customer H........................................... * 33% *
Customer I........................................... 19% * *
Customer J........................................... 10% * *
</TABLE>
- --------
* Less than 10%
(f) Interim Financial Statements
The accompanying consolidated statements of operations and cash flows for
the nine months ended September 30, 1998 are unaudited, but, in the opinion of
management, include all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of results for this interim
period.
(g) Net Loss Per Share
Basic net loss per common share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
loss per common share is the same as basic net loss per common share, since the
effects of the Company's potentially dilutive securities are antidilutive. In
accordance with Staff Accounting Bulletin No. 98, the Company has determined
that there was no nominal issuance of common stock or potential common stock in
the period prior to the Company's planned IPO. Antidilutive securities, which
consist of options and warrants to purchase common stock that are not included
in diluted net loss per share, were 1,653,010, 8,308,138, 7,831,192 and
7,529,566 as of December 31, 1997 and 1998 and September 30, 1998 and 1999,
respectively. There were no antidilutive securities as of December 31, 1996.
(h) Stock-Based Compensation for Employees
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 defines a fair-
value-based method of accounting for employee stock options and other stock-
based compensation. Compensation expense related to employee stock based
compensation arising from this method of accounting can be reflected in the
financial statements or, alternatively, the pro forma net loss and loss per
share effect of the fair-value-based accounting can be disclosed in the
financial footnotes. The Company has adopted the disclosure-only alternative
(see Note 7(e)).
(i) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income, which is effective for the Company's
fiscal year ended December 31, 1998. Under SFAS No. 130, companies are required
to report comprehensive income as a measure of overall performance.
Comprehensive income includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. For the
periods ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1998 and 1999, the Company's comprehensive loss is the same as
its reported net loss.
F-9
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(j) Fair Value of Financial Instruments
Financial instruments consist principally of cash, accounts receivable,
accounts payable and debt. The estimated fair value of these instruments
approximates their carrying value.
(k) New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to
have a material impact on the Company's consolidated financial statements.
(3) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accrued payroll and other related employee
benefits.................................... $145,968 $204,416 $1,281,121
Other accrued liabilities..................... 160,071 774,921 1,101,399
-------- -------- ----------
$306,039 $979,337 $2,382,520
======== ======== ==========
</TABLE>
(4) Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with the provisions of SFAS No. 109, Accounting for Income Taxes,
whereby a deferred tax asset or liability is measured by enacted tax rates that
will be in effect when any differences between the financial statement and tax
bases of assets and liabilities reverse.
The approximate tax effect of each type of temporary difference and
carryforward as of December 31, 1997 and 1998 and September 30, 1999,
respectively, is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards.......... $ 486,019 $ 1,036,697 $ 1,059,372
Depreciation.............................. (16,363) (6,119) 46,389
Other..................................... 62,805 59,080 56,617
--------- ----------- -----------
532,461 1,089,658 1,162,378
Less--Valuation allowance................. (532,461) (1,089,658) (1,162,378)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
The Company has not given recognition to any of its potential tax benefits,
consisting primarily of its net operating loss carryforward, in the
accompanying consolidated financial statements as it is more likely than not
that these benefits will not be realizable in future years' tax returns.
F-10
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
At December 31, 1997 and 1998, and September 30, 1999, the Company had
available a net operating loss carryforward of approximately $1,207,000,
$2,574,000 and $2,631,000, respectively, which expires through 2019. This
carryforward is subject to review and possible adjustment by the Internal
Revenue Service. The Internal Revenue Code (IRC) contains provisions that may
limit the Company's use of the carryforward in the event there are significant
changes in the ownership, as defined in Section 382 of the IRC.
(5) Commitments and Contingencies
(a) Capital Leases
In July 1998, the Company entered into a sale/leaseback transaction,
whereby the Company sold existing fixed assets (primarily computer equipment)
with a net book value of approximately $250,000 to a leasing company for
$350,000. The Company then leased the fixed assets from the leasing company
under a three-year capital lease arrangement. The gain of approximately
$100,000 was deferred and is being amortized to income over the term of the
lease.
As of September 30, 1999, payments due pursuant to capital lease
obligations are approximately as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Year Ending December 31,
- ------------------------
1999 (October 1, 1999-December 31, 1999 only)....................... $ 42,562
2000................................................................ 170,246
2001................................................................ 151,108
--------
363,916
Less--Amount representing interest.................................... 46,615
--------
Present value of net minimum lease payments........................ 317,301
Less--Current portion................................................. 191,485
--------
Long-term portion.................................................. $125,816
========
</TABLE>
(b) Operating Leases
From October 1996 to April 1999, the Company leased certain office space
and equipment from a related party, Cambridge Technology Group, under month-to-
month operating lease agreements. Included in the accompanying consolidated
statements of operations for the years ended December 31, 1997 and 1998 and for
the nine months ended September 30, 1998 and 1999 is rent expense of
approximately $93,000, $251,000, $187,000 and $156,000, respectively, related
to this lease. There was no rent expense for the period from inception (October
31, 1996) to December 31, 1996.
On May 1, 1999, the Company entered into a five-year operating lease
agreement for its principal office space from Property Management Partners,
Inc. (PMP), a corporation controlled by a former employee of Cambridge
Technology Group. Aside from the monthly base rent, a one-time sum of
$1,375,000 is to be paid to the lessor on January 3, 2000. This amount is to be
used for certain capital improvements or material repairs as needed. The
Company is amortizing this one-time charge to operations over the term.
Concurrent with the operating lease, the Company entered into a five-year
facilities management agreement with PMP. Monthly payments of $23,333 are to be
paid for the management, operations and maintenance of the leased facilities.
The Company believes these transactions are at arms-length.
F-11
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
The approximate future minimum annual rent and management fees due under
the operating lease agreement as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Total
- ------------------------ ----------
<S> <C>
1999 (October 1, 1999-December 31, 1999 only)..................... $ 248,000
2000.............................................................. 898,000
2001.............................................................. 878,000
2002.............................................................. 888,000
2003.............................................................. 895,000
Thereafter........................................................ 300,000
----------
$4,107,000
==========
</TABLE>
(c) Litigation
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all claims
and, in its opinion, all litigation currently pending or threatening will not
have a material adverse effect on the Company's consolidated financial position
or consolidated results of operations.
(6) Debt Obligations
(a) Due to Affiliates
During 1997 and 1998, the Company was financed by advances from parties
affiliated with the Company. These affiliates consist of Cambridge Technology
Group and trusts which are significant stockholders of the Company. Amounts due
to these affiliates, which consisted primarily of working capital advances,
general and administrative allocations, and operating expenses, were
approximately $2,205,000 in 1997 and $1,094,000 in 1998. During March and May
of 1998, the Company entered into agreements with the affiliated parties to
formally forgive $2,311,366 of the amounts due. The Company recorded the
forgiveness as a capital contribution, as reflected in the accompanying
consolidated financial statements. The remaining $988,000 was repaid in 1998.
The amount due to affiliate as of September 30, 1999 relates to the
outsourcing agreement described in Note 10.
(b) Line of Credit
During 1998, the Company entered into a $1,500,000 revolving line of credit
with a bank secured by substantially all business assets and guaranteed by
major stockholders of the Company. Interest was at the bank's prime rate (8.25%
at September 30, 1999) plus 1%. In July 1998, the Company extended the existing
line of credit from $1,500,000 to $2,000,000, also guaranteed by the same major
stockholders of the Company. In September 1998, the Company secured a line of
credit with a different bank, paying down and terminating the original bank
debt.
Under the new line of credit, the Company may draw up to $3,500,000 based
on certain terms and conditions. Of the total amount available under the line
of credit, $1,000,000 is collateralized by assets of the Company and $2,500,000
is guaranteed by a major stockholder of the Company and a trust for the benefit
of a major stockholder of the Company. A warrant to purchase 65,000 shares of
common stock was issued to the bank in connection with the new line of credit
(see Note 7(f)). Borrowings under the line of credit bear interest
F-12
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
at prime (8.25% at September 30, 1999) plus 1%. At December 31, 1998 and
September 30, 1999, loans of $2,200,000 and $1,260,000, respectively, were
outstanding under the line and $300,000 and $1,240,000, respectively, was
available under the line based on the terms and conditions of the borrowing
base. The line expires in December 1999. The Company and the guarantors are
subject to certain restrictive covenants in connection with the line of credit.
The Company and the guarantors were in compliance with these covenants at
December 31, 1998 and September 30, 1999.
On April 7, 1999, the Company entered into a loan modification of its
$3,500,000 line of credit in order that the Company would be able to draw upon
a committed equipment line of credit (Equipment Line) up to $200,000. The
Equipment Line is to be used to purchase or refinance certain operating
equipment, as defined. The Equipment Line bears interest at the bank's prime
rate (8.25% at September 30, 1999) plus 1.5% and is secured by the same
guarantees as the original line of credit. Under the Equipment Line, amounts
borrowed between January and June 1999 are to be paid back over a 36-month
period beginning July 5, 1999 and amounts borrowed between July and December
1999 are to be paid back over a 36-month period beginning January 5, 2000.
Borrowings under the Equipment Line need to be in compliance with certain
financial covenants. At September 30, 1999, $188,889 was outstanding under the
Equipment Line.
In September 1998, the Subsidiary obtained a $2,000,000 line of credit with
a bank collateralized by a letter of credit issued by a third-party joint
venture partner (see Note 8). A warrant, recorded at fair value, was issued to
this third party in connection with the letter of credit (see Note 7(f)).
Borrowings under this line of credit bear interest at prime (8.25% at September
30, 1999). At December 31, 1998, and September 30, 1999, $415,539 and $0,
respectively, was outstanding under this line. As discussed in Note 8, the
joint venture was dissolved, the Subsidiary's line of credit was paid down and
the line of credit and warrant were terminated.
(c) Bridge Loans Payable
In May 1998, the Company entered into short-term financing agreements with
three investors totaling approximately $248,000. Interest on the notes was at
prime (7.75% at December 31, 1998) plus 1%. The terms were for 90 days and
included issuance of warrants, which were recorded at fair value (see Note
7(f)). One party, representing approximately $148,000 of this amount, is a
related party. On August 3, 1998, the due date of the bridge loans was extended
from July 29, 1998 to September 21, 1998. Additional warrants were issued in
connection with the extension (see Note 7 (f)). In late September 1998,
approximately $194,000 of the total amount was paid in full and the remaining
amount due, $54,000 along with related accrued interest, was converted into
approximately 202,000 shares of common stock at $.30 per share.
(7) Stockholders' Deficit
(a) Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock with a $.01
par value. No shares have been issued as of December 31, 1998 or September 30,
1999, and no terms for voting, conversion, dividends, liquidation preference or
redemption have been set by the Board of Directors.
(b) Reserved Common Stock
The Company has reserved 8,308,138 and 7,529,566 shares of common stock to
be issued upon exercise of stock options and warrants as of December 31, 1998
and September 30, 1999, respectively.
(c) Stock Split
On April 3, 1997, the Company's Board of Directors approved a ten thousand-
for-one stock split of its common stock. All share and per share amounts of
common stock for all periods presented reflect the stock split.
F-13
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(d) Notes Receivable for Issuance of Common Stock
In May 1998, in connection with the employment of an employee, the Company
issued 280,000 shares of common stock to a party related to the employee in
exchange for a note receivable in the amount of $84,000. The Company accounted
for this transaction as a variable stock award and recorded a compensation
charge of $43,098 in the accompanying consolidated statement of operations for
the year ended December 31, 1998. On January 1, 1999, the Company received full
recourse rights for this note receivable thereby fixing the measurement date.
No additional compensation was required to be recorded. This note is due on May
20, 2002 and bears interest at 5.7%. In addition to full recourse rights, the
loan is collateralized by the 280,000 shares of common stock.
(e) Stock Option Plans
1997 Stock Incentive Plan
In 1997, the Company implemented a Stock Incentive Plan (the 1997 Plan),
pursuant to which 4,000,000 shares of common stock have been reserved for stock
options, stock grants and other stock-based awards. Issuances under the 1997
Plan generally expire ten years from issue date. Under the 1997 Plan, the
Company may grant both incentive stock options and nonstatutory options, as
well as award or sell shares of common stock to employees, directors or
consultants of the Company. All option grants, prices and vesting periods are
determined by the Board of Directors. All options issued prior to March 1998
generally vest monthly. All options issued after March 1998 generally vest
semiannually. However, certain option grants contain provisions to accelerate
vesting upon defined events. Full vesting of all options occurs four years
after date of issuance. As of September 30, 1999, there are 164,265 shares
available for future grants under the 1997 plan.
1999 Stock Incentive Plan
In February 1999, the Board of Directors approved the 1999 Stock Incentive
Plan (the 1999 Plan), pursuant to which 6,000,000 shares of common stock have
been reserved for stock options, stock grants and other stock-based awards. The
number of shares of common stock made available and reserved shall
automatically increase by 500,000 shares effective on the first day of every
calendar year for the next 10 years. Issuances under the 1999 Plan generally
expire ten years from issue date. Under the 1999 Plan, the Company may grant
both incentive stock options and nonstatutory options, as well as award or sell
shares of common stock to employees, directors or consultants of the Company.
All option grants, prices and vesting are determined by the Board of Directors.
All options generally vest semiannually from date of grant. However, certain
option grants contain provisions to accelerate vesting upon defined events.
Full vesting of all options occurs four years after date of issuance. As of
September 30, 1999, there are 1,783,250 shares available for future grants
under the 1999 Plan.
F-14
<PAGE>
C--BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
Stock option activity under both the 1997 and 1999 plans is summarized as
follows:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Number Price Exercise Price
of Shares per Share per Share
---------- ----------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1996.......... -- $ -- $ --
Granted............................... 1,611,000 0.01--0.30 0.20
Canceled.............................. (2,990) 0.25--0.30 0.29
----------
Outstanding, December 31, 1997.......... 1,608,010 0.01--0.30 0.20
Granted............................... 3,212,128 0.30 0.30
Exercised............................. (193,038) 0.01--0.30 0.05
Canceled.............................. (1,101,739) 0.01--0.30 0.27
----------
Outstanding, December 31, 1998.......... 3,525,361 0.01--0.30 0.28
Granted............................... 4,558,850 0.30--6.00 1.64
Exercised............................. (1,114,385) 0.01--1.00 0.28
Canceled.............................. (224,764) 0.01--0.30 0.26
---------- ----------- -----
Outstanding, September 30, 1999......... 6,745,062 $0.01--6.00 $1.20
========== =========== =====
Exercisable, September 30, 1999......... 1,330,407 $0.01--1.00 $0.54
========== =========== =====
Exercisable, December 31, 1998.......... 671,842 $0.01--0.30 $0.25
========== =========== =====
Exercisable, December 31, 1997.......... 262,771 $0.01--0.30 $0.06
========== =========== =====
</TABLE>
The following table summarizes information relating to currently
outstanding and exercisable options as of September 30, 1999.
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------------------- -----------
Weighted
Average
Remaining
Exercise Number of Contractual Number of
Prices Shares Life (Years) Shares
-------- --------- ------------ -----------
<S> <C> <C> <C>
$.01 87,462 7.54 37,630
.25 424,297 7.91 173,087
.30 3,841,803 9.14 646,915
1.00 1,501,250 9.64 472,775
6.00 890,250 9.92 --
--------- ---------
6,745,062 1,330,407
========= =========
</TABLE>
During 1997 and 1998 and the first nine months of 1999, the Company issued
options to purchase 239,000, 104,000 and 345,767 shares, respectively, of
common stock to nonemployees in exchange for services. The Company recorded
these transactions at fair value, which was $27,984, $17,470 and $704,859 for
the years ended December 31, 1997 and 1998 and the nine months ended September
30, 1999, respectively. Certain options to purchase common stock to
nonemployees have been issued with various vesting periods ranging from
immediate vesting to a four-year vesting period. The compensation expense
related to these stock options is recorded over the related vesting period.
F-15
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
During the nine months ended September 30, 1999, the Company issued options
to purchase approximately 1,577,000 shares of common stock to employees at an
exercise price deemed to be below market value. In accordance with Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, the
Company has recorded the difference between the exercise price and fair value
as deferred compensation and is amortizing such deferred compensation to
operations over the vesting periods of the options.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted using the Black-Scholes option pricing model prescribed
by SFAS No. 123. The assumptions used and the weighted average information for
the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------- ----------------------
1997 1998 1998 1999
----------- ----------- ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Risk-free interest rates....... 5.83--6.57% 4.39--5.59% 5.41% 5.77%
Expected dividend yield........ -- -- -- --
Expected life.................. 5 years 5 years 5 years 5 years
Expected volatility............ 60% 60% 60% 60%
Weighted average fair value per
share of options granted..... $.05 $.07 $.14 $2.72
Weighted-average remaining
contractual life of options
outstanding.................. 9.65 years 9.39 years 7.36 years 9.26 years
</TABLE>
Had compensation expense from the Company's stock option plan been
determined consistent with SFAS No. 123, net loss and net loss per share would
have been approximately as follows:
<TABLE>
<CAPTION>
Years Ended December Nine Months
31, Ended September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net loss--
As reported.............. $(1,214,679) $(3,868,956) $(3,421,326) $(2,930,708)
Pro forma................ (1,227,071) (3,990,032) (3,505,213) (3,441,222)
Basic and diluted net loss
per share--
As reported.............. $ (0.12) $ (0.39) $ (0.35) $ (0.27)
Pro forma................ (0.12) (0.40) (0.35) (0.32)
</TABLE>
(f) Warrants
In September 1997, the Company issued a warrant to purchase common stock to
a bank in connection with borrowings of a related party, Cambridge Technology
Group, that were used to fund the Company's operations.
In connection with a bridge financing in May 1998 (see Note 6(c)), the
Company issued warrants to purchase 333,334 shares of common stock at an
exercise price of $.30 per share. Each share of common stock purchased by the
exercise of the warrants may be exchanged for a proportional amount of the
Company's preferred stock, if any is issued, based upon the number of common
stock shares multiplied by $.30 per share divided by $1.19 for each share of
preferred stock.
F-16
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
In May 1998, the Company issued a warrant to a customer to purchase 110,000
shares of common stock at an exercise price of $1.00 based upon achievement of
certain revenue related milestones by May 2000; accordingly, the accounting
measurement date was unknown. In September 1999, the Company amended the
warrant agreement to fully vest the warrant. In conjunction with the amendment,
the Company recorded the value of this warrant as a charge to operations in the
nine months ended September 30, 1999.
In June 1998, the Company issued a warrant to purchase 25,000 shares of
common stock in connection with a line of credit entered into with a bank.
In connection with entering into a capital lease in July 1998 (see Note
5(a)), the Company issued a warrant to the lessor to purchase 93,333 shares of
common stock at an exercise price of $.30 per share. The warrant expires on the
earlier of three years from an initial public offering, as defined, or five
years.
In August 1998, in connection with the guarantee of a line of credit for
the joint venture discussed in Note 8, a warrant was issued to the third-party
partner in the joint venture to purchase 4,000,000 shares of the Subsidiary's
common stock at an exercise price of $0.01 per share. The Company recorded the
issuance of this warrant at fair value, which totaled $22,703, as interest
expense. As discussed in Note 8, the joint venture was terminated and the
warrant was canceled.
In August 1998, the May 1998 bridge financing was extended and additional
warrants to purchase 111,110 shares of common stock at an exercise price of
$.30 per share were issued to the investors. Each share of common stock
purchased by the exercise of the warrants may be exchanged for a proportional
amount of the Company's preferred stock, if any is issued, based upon a similar
determination as the original warrants.
In September 1998, the Company issued a warrant to a bank in connection
with a line of credit.
The following table summarizes warrants outstanding as of September 30,
1999.
<TABLE>
<CAPTION>
Value
Ascribed to Period
Grant Date Shares Exercise Price Expiration Warrant Recorded
- -------------- ------- --------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
September 1997 46,727 $1.00 per share September 2004 $ 4,070 1997
May 1998 333,334 $.30 per share May 2003 56,684 1998
May 1998 110,000 $1.00 May 2000 660,000 1999
June 1998 25,000 $1.00 per share June 2005 2,519 1998
July 1998 93,333 $.30 per share July 2003 15,850 1998
August 1998 111,110 $.30 per share August 2003 18,806 1998
September 1998 65,000 $1.00 per share September 2003 5,159 1998
------- --------
784,504 $763,088
======= ========
</TABLE>
At September 30, 1999, all outstanding warrants are exercisable. An equal
number of shares of common stock have been reserved for the exercise of all
outstanding warrants. The Company recorded the issuance of these warrants at
fair value. The value ascribed to warrants issued in connection with debt
financing has been charged to interest expense. The value ascribed to warrants
issued in connection with services has been charged to operations.
(g) Treasury Stock
In April 1998, the Company reacquired 510,000 shares of its common stock in
satisfaction of a loan previously made to a former officer in the amount of
$153,000 in connection with his severance agreement. Severance in the amount of
approximately $56,000 was also owed to the former officer, as per the severance
agreement, and was paid in full during 1998.
F-17
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(8) Subsidiary and Joint Venture
In connection with the formation of the Subsidiary, the Company and the
Subsidiary entered into a joint venture with a third-party provider of packaged
solution software. The joint venture engaged the Subsidiary as the vehicle to
develop and implement Web-based solutions and services. Under the agreement of
the joint venture, the Subsidiary issued a warrant (see Note 7(f)) to the
third-party provider to purchase up to 40% of the Subsidiary on a fully diluted
basis in exchange for a letter of credit guarantee on the Subsidiary's line of
credit.
In May 1999, the Company, the Subsidiary and third party that formed the
joint venture terminated the arrangement and dissolved the joint venture. In
connection with the dissolution of the joint venture, the third party and the
Company paid down approximately $239,000 and $310,000, respectively, of the
outstanding line of credit and terminated the line of credit arrangement. The
warrants issued to the third party were also canceled. Additionally,
approximately $70,000 owed by the Subsidiary to the third party was forgiven.
The Company has recorded the debt forgiveness by the third party as other
income in the accompanying consolidated statement of operations during the nine
months ended September 30, 1999.
(9) Employee Benefit Plan
The Company has a 401(k) plan (the 401(k) Plan) covering all employees of
the Company who meet certain defined requirements. Under the terms of the
401(k) Plan, the employees may elect to make tax-deferred contributions and the
Company may match 25% of the first 6% of employee contributions as determined
by the Board of Directors and may make other discretionary contributions to the
401(k) Plan. During 1998 and the nine months ended September 30, 1999, the
Company contributed approximately $46,400 and $56,900, respectively to the
401(k) Plan. The Company made no contributions during 1996 or 1997.
(10) Related Party Transactions
On April 30, 1999, the Company entered into a five-year contract with a
third party, CEE, Inc. (CEE), whereby CEE outsourced the management and
performance of executive education seminars to the Company in exchange for a
monthly fee of approximately $479,000 per month. In accordance with the
outsourcing agreement, the Company agreed to issue options to purchase 190,000
shares of the Company's common stock to designees of CEE and is committed to
issue options to purchase an additional 50,000 shares of the Company's common
stock to CEE's designees each year that the outsourcing agreement is in place.
A sister company of CEE named Cambridge Executive Enterprises, Inc.
(Enterprises) previously provided these services. Simultaneous with signing the
outsourcing arrangement, the Company hired substantially all of Enterprises'
employees, assumed Enterprises' real estate lease and acquired all of
Enterprises' tangible assets (primarily furniture, computers and leasehold
improvements), in exchange for a note payable to Enterprises for approximately
$234,000. The amount due to Enterprises is included in the accompanying
consolidated balance sheet as amount due to affiliate at September 30, 1999.
The Company, CEE and Enterprises have a historical business relationship
through Cambridge Technology Group (CTG). For more than 10 years prior to
September 1998, CTG conducted an executive seminar business. The sole
stockholder, director and officer of CTG is an employee of CEE, and members of
his family are beneficiaries of certain trusts and a holding company which are
significant stockholders of the Company.
Certain lease, debt and equity transactions involving related parties have
been discussed in Notes 5, 6 and 7.
During 1998, the Company performed professional services for a company in
which a major stockholder of the Company is also an investor. The total amount
of the services was $64,000, of which $64,000 and
F-18
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
$48,000 is included in accounts receivable in the accompanying consolidated
balance sheets as of December 31, 1998 and September 30, 1999. Transactions
with this related company have been treated at arm's-length, as if conducted
with an unrelated party. Revenue on these transactions has been recognized in
accordance with the Company's revenue recognition policy.
During 1998 and the nine months ended September 30, 1999, the Company
subcontracted certain consulting work to a related party in which a key
employee/stockholder of the Company is an investor. The total amount of these
services is approximately $22,000 and $50,000 for the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively.
(11) Segment and Geographic Information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions how to allocate resources and assess performance. The
Company's chief decision-maker, as defined under SFAS No. 131, is the Chief
Executive Officer.
The Company views its operations and manages its business as two segments,
strategic and technology consulting services and educational services. The
Company's reportable segments are strategic business units that provided
distinct services to the end customer. They are managed separately because each
business requires different marketing and management strategies. The Company's
approach is based on the way that management organizes the segments within the
Company for making operating decisions and assessing performance.
The accounting policies of the segment are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Accordingly, the
Company's measure of performance for each reportable segment is based on total
net revenues and direct costs of services, which are reported separately in the
accompanying consolidated statements of operations. Accordingly, no additional
disclosure is required. The Company does not identify assets and liabilities by
segment. Accordingly, identifiable assets, capital expenditures and
depreciation and amortization are not reported by segment.
(12) Series A Preferred Stock Financing
In October 1999, the Company sold 1,645,555 shares of Series A redeemable
convertible preferred stock (Series A Preferred Stock) at a purchase price of
$6.00 per share resulting in net proceeds to the Company of approximately $9.8
million. Concurrent with the sale of the Series A Preferred Stock, two
significant stockholders of the Company sold an aggregate of 819,445 shares of
common stock to certain of the Series A Preferred Stock investors at a purchase
price per share of $6.00 resulting in gross proceeds to the stockholders of
approximately $4.9 million. In conjunction with the sale of the Series A
Preferred Stock, the Company amended its Articles of Incorporation to change
the par value of the Company's common stock to $.01 per share. The Company's
par value of common stock has been retroactively adjusted for this amendment.
The rights, preferences and privileges of the Series A Preferred Stock are
listed below.
F-19
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
Dividends
The holders of the Series A Preferred Stock are entitled to receive
noncumulative dividends of 8% per annum, payable only when, as and if declared
by the Board of Directors. The Company shall not declare or pay any dividends
on shares of common stock until the holders of the Series A Preferred Stock
then outstanding first receive an amount equal to 8% per annum of the original
purchase price.
Conversion
Each share of Series A Preferred Stock is convertible, at the option of the
holder, at any time, into one share of common stock, adjusted for certain
dilutive events, as defined. In addition, all shares of Series A Preferred
Stock shall be automatically converted into shares of common stock upon the
closing of an underwritten public offering in which the price per share to the
public is not less than $10.00 and the aggregate gross proceeds to the Company
are not less than $15,000,000.
Voting Rights
The Series A Preferred stockholders are entitled to vote on all matters
with the common stockholders as one class of stock. The Series A Preferred
stockholders are entitled to the number of votes equal to the number of shares
of common stock into which each share of the Series A Preferred Stock is then
convertible.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the corporation including a sale or merger of the Company, as
defined, the holders of the Series A Preferred Stock then outstanding will be
entitled to be paid an amount equal to $6.00 per share, adjusted for certain
dilutive events, as defined, plus any dividends declared but unpaid on such
shares prior to any payment to common stockholders.
Redemption Rights
The Company will be required to redeem, subject to certain conditions, on
October 7, 2004, October 7, 2005 and October 7, 2006, each a (Mandatory
Redemption Date), the percentage of Series A Preferred Stock, as listed in the
following table at a price equal to $6.00 per share plus any dividends declared
but unpaid from the original issue date to the mandatory redemption date per
share.
<TABLE>
<CAPTION>
Portion of Shares of
Mandatory Preferred Stock to be
Redemption Date Redeemed
--------------- -------------------------
<S> <C>
October 7, 2004 33%
October 7, 2005 50%
October 7, 2006 All outstanding shares of
Series A Preferred Stock
</TABLE>
F-20
<PAGE>
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the estimated underwriting discounts
and commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $13,900
NASD filing fee.................................................. 5,500
Nasdaq National Market listing fee...............................
Blue Sky fees and expenses....................................... 10,000
Transfer Agent and Registrar fees................................ 10,000
Accounting fees and expenses..................................... 200,000
Legal fees and expenses.......................................... 400,000
Printing and mailing expenses.................................... 125,000
Miscellaneous....................................................
-------
Total.......................................................... $
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant 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
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant 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
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director
or officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such
II-1
<PAGE>
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the
defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have 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, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since October 1996. Further
included is the consideration, if any, received by the Registrant for such
shares and options and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed.
1. In October 1996, the Registrant issued 10,000,000 shares of common
stock to four founders for an aggregate purchase price of $1,000.
2. In September 1997, the Registrant issued a warrant to purchase 46,727
shares of common stock at an exercise price of $1.00 per share to a
bank.
3. In May 1998, the Registrant issued 280,000 shares of common stock to
one investor in exchange for a note receivable in the amount of
$84,000.
4. In May 1998, the Registrant issued warrants to purchase 333,334 shares
of common stock at an exercise price of $.30 per share in connection
with short-term financing.
5. In May 1998, the Registrant issued a warrant to a customer to purchase
110,000 shares of common stock at an exercise price of $1.00 based upon
achievement of certain revenues-related milestones.
6. In June 1998, the Registrant issued a warrant to purchase 25,000 shares
of common stock at an exercise price of $1.00 per share in connection
with a line of credit entered into with a bank.
II-2
<PAGE>
7. In July 1998, in connection with entering into a capital lease in July
1998, the Registrant issued a warrant to the lessor to purchase 93,333
shares of common stock at an exercise price of $.30 per share.
8. In August 1998, in connection with the extension of a bridge financing,
the Registrant issued warrants to purchase 111,110 shares of common
stock at an exercise price of $.30 per share to three investors.
9. In September 1998, the Registrant issued a warrant to purchase 65,000
shares of common stock at an exercise price of $1.00 per share to a
bank in connection with a line of credit.
10. In September 1998, the Registrant issued 201,931 shares of common stock
to one accredited investor upon the conversion of short-term financing
for an aggregate purchase price of $61,000.
11. During 1998, the Registrant issued 45,000 shares of common stock in the
form of stock bonuses to employees.
12. In June 1999, the Registrant issued 333,333 shares of common stock to
one accredited investor for an aggregate purchase price of $2,000,000.
13. In October 1999, the Registrant issued 1,645,555 shares of series A
convertible preferred stock to five accredited investors for $6.00 per
share, for an aggregate purchase price of approximately $9.9 million.
14. The Registrant from time to time has granted stock options to
employees, directors and consultants in reliance upon exemption from
registration pursuant to either (i) issuances to accredited investors
in private placements pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), or (ii) issuances to
employees, directors and consultants for services pursuant to Rule 701
promulgated under the Securities Act. The following table sets forth
certain information regarding such grants:
<TABLE>
<CAPTION>
Number of Exercise
Shares Prices
--------- -----------
<S> <C> <C>
January 1, 1997 to December 31, 1997................. 1,611,000 $0.01-$0.30
January 1, 1998 to December 31, 1998................. 3,212,128 $0.30
January 1, 1999 to September 30, 1999................ 4,558,850 $0.30-$6.00
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Sections 3(b) and 4(2) of the Securities Act, or any
regulations promulgated thereunder, relating to sales by an issuer not
involving any public offering, or (ii) in the case of certain options to
purchase shares of common stock and shares of common stock issued upon the
exercise of such options, such offers and sales were made in reliance upon an
exemption from registration under Rule 701 of the Securities Act. No
underwriters were involved in the foregoing sales of securities.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2* Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the closing of
this offering.
3.3 By-Laws of the Registrant, as amended.
3.4* Amended and Restated By-Laws of the Registrant, to be effective
immediately after the closing of this offering.
4.1* Specimen common stock certificate.
5* Opinion of Hale and Dorr LLP.
10.1+ Outsourcing Agreement, dated October 8, 1999, by and among CEE
Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.2+ Non-Competition Agreement, dated September 27, 1999, by and among
CEE Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.3 1997 Stock Incentive Plan, as amended.
10.4 1999 Stock Incentive Plan.
10.5 Employment Offer Letter, dated January 5, 1999, to Joseph M.
Bellini from the Registrant.
10.6 Commercial Building Lease, dated May 1, 1999, by and between
Property Management Partners, Inc. and the Registrant.
10.7 Stock Purchase Agreement, dated as of June 9, 1999, by and between
Raymond J. Lane and the Registrant.
10.8 Series A Convertible Preferred Stock Purchase Agreement, dated as
of October 7, 1999, by and among InSight Capital Partners III,
L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital
Partners III--Co-Investors, L.P., H&D Investments 97, Oracle
Corporation and the Registrant.
10.9 Stockholders Voting Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation, Cambridge Technology
Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as
Trustee of the Winsor Trust, Hamilton Trust Company Limited, as
Trustee of the Willingdon Trust, Joseph M. Bellini, Richard O.
Wester and the Registrant.
10.10 Investor Rights Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation and the Registrant.
10.11 Right of First Offer and Co-Sale Agreement, dated as of October 7,
1999, by and among Hamilton Trust Company Limited, as Trustee of
the Willingdon Trust, Cambridge Technology Enterprises, Limited,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust, InSight Capital Partners III, L.P., InSight Capital
Partners (Cayman) III, L.P., InSight Capital Partners III--Co-
Investors, L.P., H&D Investments 97, Oracle Corporation and the
Registrant.
10.12 Registration Rights Letter, dated October 7, 1999, to Hamilton
Trust Company Limited, as Trustee of the Willingdon Trust,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust and Cambridge Technology Enterprises, Limited from the
Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5).
24+ Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts Allowance for Doubtful
Accounts
<TABLE>
<CAPTION>
Additions
Balance at (Charged to
Beginning of Costs and Balance at
Year Ended Period Expenses) Deductions End of Period
- ---------- ------------ ----------- ---------- -------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1997............. -- $18,500 1,774 $16,726
December 31, 1998............. $16,726 20,000 6,224 $30,502
September 30, 1999............ $30,502 33,342 -- $63,844
</TABLE>
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Consolidated
Financial Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Cambridge,
Massachusetts, on this 29th day of October, 1999.
C-BRIDGE INTERNET SOLUTIONS, INC.
/s/ Joseph M. Bellini
By: _________________________________
Joseph M. Bellini,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities held on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph M. Bellini President, Chief Executive October 29, 1999
______________________________________ Officer and Director
Joseph M. Bellini (Principal Executive
Officer)
/s/ Richard O. Wester Vice President, Finance, October 29, 1999
______________________________________ Chief Financial Officer
Richard O. Wester and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Joseph L. Badaracco, Jr.* Director October 29, 1999
______________________________________
Joseph L. Badaracco, Jr.
/s/ Paul R. Charron* Director October 29, 1999
______________________________________
Paul R. Charron
/s/ Gerard F. King, II* Director October 29, 1999
______________________________________
Gerard F. King, II
/s/ Raymond J. Lane* Director October 29, 1999
______________________________________
Raymond J. Lane
/s/ Ramanan Raghavendran* Director October 29, 1999
______________________________________
Ramanan Raghavendran
</TABLE>
/s/ Joseph E. Mullaney III
*By: _______________________
Joseph E. Mullaney III
As Attorney-In-Fact
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To C-bridge Internet Solutions, Inc:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of C-bridge Internet Solutions, Inc.
included in this registration statement and have issued our report thereon
dated October 28, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Item 16(b)
is the responsibility of the Company's management and is presented for the
purposes of complying with the Securities and Exchange Commission's rules and
is not a part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein, in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
_____________________________________
Boston, Massachusetts
October 28, 1999
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2* Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately prior to the closing of
this offering.
3.3 By-Laws of the Registrant, as amended.
3.4* Amended and Restated By-Laws of the Registrant, to be effective
immediately after the closing of this offering.
4.1* Specimen common stock certificate.
5* Opinion of Hale and Dorr LLP.
10.1+ Outsourcing Agreement, dated October 8, 1999, by and among CEE
Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.2+ Non-Competition Agreement, dated September 27, 1999, by and among
CEE Incorporated, Cambridge Executive Enterprises, Inc. and the
Registrant.
10.3 1997 Stock Incentive Plan, as amended.
10.4 1999 Stock Incentive Plan.
10.5 Employment Offer Letter, dated January 5, 1999, to Joseph M.
Bellini from the Registrant.
10.6 Commercial Building Lease, dated May 1, 1999, by and between
Property Management Partners, Inc. and the Registrant.
10.7 Stock Purchase Agreement, dated as of June 9, 1999, by and between
Raymond J. Lane and the Registrant.
10.8 Series A Convertible Preferred Stock Purchase Agreement, dated as
of October 7, 1999, by and among InSight Capital Partners III,
L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital
Partners III--Co-Investors, L.P., H&D Investments 97, Oracle
Corporation and the Registrant.
10.9 Stockholders Voting Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation, Cambridge Technology
Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as
Trustee of the Winsor Trust, Hamilton Trust Company Limited, as
Trustee of the Willingdon Trust, Joseph M. Bellini, Richard O.
Wester and the Registrant.
10.10 Investor Rights Agreement, dated as of October 7, 1999, by and
among InSight Capital Partners III, L.P., InSight Capital Partners
(Cayman) III, L.P., InSight Capital Partners III--Co-Investors,
L.P., H&D Investments 97, Oracle Corporation and the Registrant.
10.11 Right of First Offer and Co-Sale Agreement, dated as of October 7,
1999, by and among Hamilton Trust Company Limited, as Trustee of
the Willingdon Trust, Cambridge Technology Enterprises, Limited,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust, InSight Capital Partners III, L.P., InSight Capital
Partners (Cayman) III, L.P., InSight Capital Partners III--Co-
Investors, L.P., H&D Investments 97, Oracle Corporation and the
Registrant.
10.12 Registration Rights Letter, dated October 7, 1999, to Hamilton
Trust Company Limited, as Trustee of the Willingdon Trust,
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
Trust and Cambridge Technology Enterprises, Limited from the
Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5).
24+ Power of Attorney (included on page II-6).
27 Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
C-BRIDGE INTERNET SOLUTIONS, INC.
C-BRIDGE INTERNET SOLUTIONS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
By written consent of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Section 245 of the General Corporation
Law of the State of Delaware, setting forth an Amended and Restated Certificate
of Incorporation of the Corporation and declaring the Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved the proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228 and 245 of the General
Corporation Law of the State of Delaware. The resolution setting forth the
Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, which
was originally filed under the name of Cambridge Internet Solutions,
Inc. with the Secretary of State of Delaware on October 31, 1996, and
amended on April 2, 1997, be and hereby is amended and restated in its
entirety so that the same shall read as follows:
FIRST: The name of the Corporation is:
C-Bridge Internet Solutions, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 15,000,000 shares of Common Stock, $.000001 par value
per share.
<PAGE>
Upon the filing of this Amended and Restated Certificate of Incorporation,
there shall be a 10,000 for one (1) stock split pursuant to which each
outstanding share of Common Stock shall be converted into 10,000 shares of
Common Stock.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each 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, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by or on
behalf of an Indemnitee in connection with such action, suit or proceeding and
any appeal therefrom.
As a condition precedent to his right to be indemnified, the Indemnitee
must notify the Corporation in writing as soon as practicable of any action,
suit, proceeding or investigation involving
2
<PAGE>
him for which indemnity will or could be sought. With respect to any action,
suit, proceeding or investigation of which the Corporation is so notified, the
Corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation of which the Corporation receives
notice under this Article, the Corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom: provided, however, that the payment of
-------- -------
such expenses incurred by an Indemnitee in advance of the final disposition of
such matter shall be made only upon receipt of an undertaking by or on behalf of
the Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article, which undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment; and further provided that no such advancement of expenses shall
------- --------
be made if it is determined that the Indemnitee did not act 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 Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by such Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. In addition, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds of insurance, and in
the event the Corporation makes any indemnification payments to an Indemnitee
and such Indemnitee is subsequently reimbursed from the proceeds of insurance,
such Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made in each instance by (a)
a majority vote of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
The indemnification rights provided in this Article (i) shall not be deemed
exclusive of any other rights to which an Indemnitee may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and (ii) shall inure to the benefit of the heirs, executors and administrators
of the Indemnities. The Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or
3
<PAGE>
other persons serving the Corporation and such rights may be equivalent to, or
greater or less than, those set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its President on this 5th day of
April, 1997.
C-BRIDGE INTERNET SOLUTIONS, INC.
/s/ Adam Honig
_____________________________________
Adam Honig, President
4
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
C-BRIDGE INTERNET SOLUTIONS, INC.
C-BRIDGE INTERNET SOLUTIONS, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By written consent of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Sections 141 and 242 of the General
Corporation Law of the State of Delaware, setting forth an Amendment to the
Restated Certificate of Incorporation of the Corporation and declaring the
Amendment to the Restated Certificate of Incorporation advisable. The
Stockholders of the Corporation duly approved the proposed Amendment to the
Restated Certificate of Incorporation by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
The resolution setting forth the Amendment to the Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Restated Certificate of Incorporation of C-Bridge
Internet Solutions, Inc. hereby is amended by deleting the current
Fourth Article of the Restated Certificate of Incorporation in its
entirety and substituting the following:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 35,000,000 shares which shall be
divided into (a) 5,000,000 shares, designated as Preferred Stock, having a par
value of $.01 per share (the "Preferred Stock"), and (b) 30,000,000 shares,
designated as Common Stock, having a par value of $.000001 per share.
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Restated Certificate of Incorporation and the limitations prescribed by
law or in the descriptions of any class or series of Preferred Stock, the Board
of Directors is expressly authorized (i) by adopting resolutions and filing
appropriate certificates of designation to fix the number of shares constituting
any class or series, and to provide for the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including priorities and
ranking among other classes or series of capital stock of the corporation,
dividend rights (and whether dividends are cumulative), dividend rates, terms of
optional and/or mandatory redemption (including sinking fund provisions), a
redemption price or prices, conversion rights and liquidation preferences of the
shares constituting any
1
<PAGE>
class or series of the Preferred Stock, and (ii) by adopting resolutions to
issue shares of such Preferred Stock, in each case, without any further action
or vote by the stockholders.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to the Restated Certificate of Incorporation to be signed by its
Secretary on this 17th day of April 1998.
C-BRIDGE INTERNET SOLUTIONS, INC.
/s/ Alan Roth
___________________________________
Alan Roth, Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
C-Bridge Internet Solutions, Inc.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
-------------------------------------
C-Bridge Internet Solutions, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation on October 1,
1999, resolutions were duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation, as amended, and declaring said
amendment to be advisable. The stockholders of the Corporation duly approved
said proposed amendment by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendment. The resolutions setting forth the amendment are as
follows:
RESOLVED: That Article FIRST of the Certificate of Incorporation of the
--------
Corporation be and hereby is deleted in its entirety and the following Article
FIRST is inserted in lieu thereof:
-1-
<PAGE>
FIRST: The name of the Corporation is C-bridge Internet Solutions,
Inc.
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
--------
Corporation be and hereby is deleted in its entirety and the following Article
FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 30,000,000 shares of Common
Stock, $0.01 par value per share ("Common Stock") and (ii) 5,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
-2-
<PAGE>
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law or by the terms of any
series of Preferred Stock. Different series of Preferred Stock shall not be
construed to constitute different classes of shares for the purposes of voting
by classes unless expressly provided.
C. SERIES A CONVERTIBLE PREFERRED STOCK.
------------------------------------
One million eight hundred fifty thousand (1,850,000) shares of the
authorized and unissued Preferred Stock of the Corporation are hereby designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations.
1. Dividends.
---------
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of 8% per share per annum (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), payable only when, as and if
declared by the Board of Directors of the Corporation. The right to receive
dividends on Series A Preferred Stock shall be non-cumulative, and no right to
dividends shall accrue by reason of the fact that no dividend has been declared
on the Series A Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any cash dividends on
shares of Common Stock until the holders of the Series A Preferred Stock then
outstanding shall have first received a dividend at the rate specified in
paragraph (a) of this Section 1.
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
--------------------------------------------------------
Consolidations and Asset Sales.
------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, before any
payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on
-3-
<PAGE>
liquidation junior to the Series A Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to the greater of (i) $6.00 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends declared but unpaid thereon, or (ii) such amount per share as
would have been payable had each such share been converted into Common Stock
pursuant to Section 4 immediately prior to such liquidation, dissolution or
winding up. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series A Preferred Stock and any class or series of stock ranking
on liquidation on a parity with the Series A Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Series A Preferred Stock and any other class or series of
stock of the Corporation ranking on liquidation on a parity with the Series A
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(c) Any merger or consolidation in which (i) the Corporation is a
constituent party or (ii) a subsidiary of the Corporation is a constituent party
and the Corporation issues shares of its capital stock pursuant to such merger
or consolidation (except any such merger or consolidation involving the
Corporation or a subsidiary in which the holders of capital stock of the
Corporation immediately prior to such merger or consolidation continue to hold
immediately following such merger or consolidation at least 80% by voting power
of the capital stock of (A) the surviving or resulting corporation or (B) if the
surviving or resulting corporation is a wholly owned subsidiary of another
corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation), or sale of all or
substantially all the assets of the Corporation, shall be deemed to be a
liquidation of the Corporation for purposes of this Section 2, and the agreement
or plan of merger or consolidation with respect to such merger, consolidation or
sale shall provide that the consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or consideration payable
to the Corporation, together with all other available assets of the Corporation
(in the case of an asset sale), shall be distributed to the holders of capital
stock of the Corporation in accordance with Subsections 2(a) and
-4-
<PAGE>
2(b) above. The amount deemed distributed to the holders of Series A Preferred
Stock upon any such merger, consolidation or sale shall be the cash or the value
of the property, rights or securities distributed to such holders by the
Corporation or the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
3. Voting.
------
(a) On any matter presented to the stockholders of the Corporation for
their action or consideration at any meeting of stockholders of the Corporation
(or by written action of stockholders in lieu of meeting), each holder of
outstanding shares of Series A Preferred Stock shall be entitled to the number
of votes equal to the number of whole shares of Common Stock into which the
shares of Series A Preferred Stock held by such holder are convertible as of the
record date for determining stockholders entitled to vote on such matter.
Except as provided by law, by the provisions of Subsection 3(b) or 3(c) below or
by the provisions establishing any other series of Preferred Stock, holders of
Series A Preferred Stock and of any other outstanding series of Preferred Stock
shall vote together with the holders of Common Stock as a single class.
(b) The holders of record of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to one director, and the
holders of record of the shares of Common Stock and of any other class or series
of voting stock (including the Series A Preferred Stock), exclusively and as a
separate class, shall be entitled to elect the balance of the total number of
directors of the Corporation. At any meeting held for the purpose of electing
directors, the presence in person or by proxy of the holders of a majority of
the shares of Series A Preferred Stock then outstanding shall constitute a
quorum of the Series A Preferred Stock for the purpose of electing directors by
holders of the Series A Preferred Stock. A vacancy in any directorship filled
by the holders of Series A Preferred Stock shall be filled only by vote or
written consent in lieu of a meeting of the holders of the Series A Preferred
Stock or by any remaining director or directors elected by the holders of Series
A Preferred Stock pursuant to this Subsection 3(b). The rights of the holders
of the Series A Preferred Stock under this Subsection 3(b) shall terminate upon
the closing of the Corporation's initial public offering of shares of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended, resulting in at least $15,000,000 of gross proceeds to the
Corporation at a minimum price to the public of $10.00 per share (subject to
appropriate adjustment for stock splits, stock dividends, recapitalizations and
other similar events).
-5-
<PAGE>
(c) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series A Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series A Preferred Stock, and the authorization of any
shares of capital stock on a parity with Series A Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely the Series A Preferred Stock. The number of authorized shares of
Series A Preferred Stock may be increased or decreased (but not below the number
of shares then outstanding) by the directors of the Corporation pursuant to
Section 151 of the General Corporation Law of Delaware or by the affirmative
vote of the holders of a majority of the then outstanding shares of the Common
Stock, Series A Preferred Stock and all other classes or series of stock of the
Corporation entitled to vote thereon, voting as a single class, irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of Delaware.
4. Optional Conversion. The holders of the Series A Preferred Stock
-------------------
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $6.00 by the Series A Conversion Price (as defined below)
in effect at the time of conversion. The "Series A Conversion Price" shall
initially be $6.00. Such initial Series A Conversion Price, and the rate at
which shares of Series A Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock pursuant to Section 6 hereof, the Conversion Rights of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid on such redemption date, in which case the Conversion Rights for such
shares shall continue until such price is paid in full. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for
-6-
<PAGE>
the payment of any amounts distributable on liquidation to the holders of Series
A Preferred Stock.
(b) Fractional Shares. Upon conversion, the Corporation (unless
-----------------
otherwise requested by the holder of Convertible Stock subject to conversion)
will issue fractional shares of its Common Stock, as applicable, and shall not
distribute cash in lieu of such fractional shares. The number of full shares of
Common Stock issuable upon conversion of any Convertible Stock shall be computed
on the basis of the aggregate number of shares of Convertible Stock to be
converted. If fractional shares of Common Stock which would otherwise be
issuable upon conversion of any such shares of Stock are not issued, the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the product of (i) the price of one share of Common Stock
as determined in good faith by the Board and (ii) such fractional interest. The
holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interests.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares of the Series A Preferred Stock
represented by such certificate or certificates. Such notice shall state such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"), and the shares of Common Stock issuable upon conversion of
the shares represented by such certificate shall be deemed to be outstanding of
record as of such date. The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized
-7-
<PAGE>
but unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Series A Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issuance or delivery of shares of Common Stock
upon conversion of shares of Series A Preferred Stock pursuant to this Section
4. The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of Series A
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person or entity requesting such issuance has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustments to Series A Conversion Price for Diluting Issues:
------------------------------------------------------------
(i) Special Definitions. For purposes of this Section 4, the
-------------------
following definitions shall apply:
-8-
<PAGE>
(A) "Option" shall mean rights, options or warrants to subscribe for,
------
purchase or otherwise acquire Common Stock or Convertible Securities.
(B) "Series A Original Issue Date" shall mean the date on
----------------------------
which a share of Series A Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of indebtedness,
----------------------
shares or other securities directly or indirectly convertible into or
exchangeable for Common Stock, but excluding Options.
(D) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Series A Original Issue Date, other than:
(I) shares of Common Stock issued or issuable upon conversion
or exchange of any Convertible Securities or exercise of any Options
outstanding on the Series A Original Issue Date;
(II) shares of Common Stock issued or issuable as a
dividend or distribution on Series A Preferred Stock;
(III) shares of Common Stock issued or issuable by
reason of a dividend, stock split, split-up or other distribution on shares
of Common Stock that is covered by Subsection 4(e) or 4(f) below; or
(IV) up to 9,727,081 shares of Common Stock (or Options
with respect thereto) (subject in either case to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), issued or issuable to employees or
directors of, or consultants to, the Corporation pursuant to a plan or
arrangement approved by the Board of Directors of the Corporation and by a
majority of the members of the Board of Directors who are not employees of
the Corporation or any of its subsidiaries
-9-
<PAGE>
(provided that any Options for such shares that expire or terminate
unexercised shall not be counted toward such maximum number).
(ii) No Adjustment of Series A Conversion Price. No adjustment
------------------------------------------
in the Series A Conversion Price shall be made as the result of the issuance of
Additional Shares of Common Stock if: (a) the consideration per share
(determined pursuant to Subsection 4(d)(v)) for such Additional Share of Common
Stock issued or deemed to be issued by the Corporation is equal to or greater
than the applicable Series A Conversion Price in effect immediately prior to the
issuance or deemed issuance of such Additional Shares, or (b) prior to such
issuance or deemed issuance, the Corporation receives written notice from the
holders of at least 50% of the then outstanding shares of Series A Preferred
Stock agreeing that no such adjustment shall be made as the result of the
issuance or deemed issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
--------------------------------------------------------
Common Stock. If the Corporation at any time or from time to time after the
- ------------
Series A Original Issue Date shall issue any Options (excluding Options covered
by Subsection 4(d)(i)(D)(IV) above) or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series A Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
-10-
<PAGE>
consideration payable to the Corporation, then upon the exercise, conversion or
exchange thereof, the Series A Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any such unexercised Option
or unconverted Convertible Security, the Series A Conversion Price shall not be
readjusted, but the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option or Convertible Security shall not be
deemed issued for the purposes of any subsequent adjustment of the Series A
Conversion Price;
(D) In the event of any change in the number of shares of Common Stock
issuable upon the exercise, conversion or exchange of any such Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price then in effect
shall forthwith be readjusted to such Series A Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised, converted or exchanged prior to such change
been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above shall have the
effect of increasing the Series A Conversion Price to an amount which exceeds
the lower of (i) the Series A Conversion Price on the original adjustment date,
or (ii) the Series A Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date,
amends the terms of any such Options or Convertible Securities (whether such
Options or Convertible Securities were outstanding on the Series A Original
Issue Date or were issued after the Series A Original Issue Date), then such
Options or Convertible Securities, as so amended, shall be deemed to have been
issued after the Series A Original Issue Date and the provisions of this
Subsection 4(d)(iii) shall apply.
(iv) Adjustment of Series A Conversion Price Upon Issuance of
--------------------------------------------------------
Additional Shares of Common Stock.
---------------------------------
-11-
<PAGE>
In the event the Corporation shall at any time after the Series A Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii)), without
consideration or for a consideration per share less than the applicable Series A
Conversion Price in effect immediately prior to such issue, then and in such
event, such Series A Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Series A Conversion Price by a fraction, (A) the numerator of which shall
be (1) the number of shares of Common Stock outstanding immediately prior to
such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the total number
of Additional Shares of Common Stock so issued would purchase at such Series A
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; provided that, (i) for the
-------- ----
purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable upon
conversion or exchange of Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) the number of shares
of Common Stock deemed issuable upon conversion or exchange of such outstanding
Convertible Securities shall not give effect to any adjustments to the
conversion or exchange price or conversion or exchange rate of such Convertible
Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.
(v) Determination of Consideration. For purposes of this Subsection
------------------------------
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for
-12-
<PAGE>
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as determined
in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Subsection 4(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall
----------------------
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then, upon the
final such issuance, the Series A Conversion Price shall be readjusted to give
effect to all such issuances as if they occurred on the date of the final such
issuance (and without giving effect to any adjustments as a result of such prior
issuances within such period).
(e) Adjustment for Stock Splits and Combinations. If the Corporation
--------------------------------------------
shall at any time or from time to time after the Series A Original Issue Date
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Series A Original Issue Date combine the outstanding shares of
Common Stock, the Series A Conversion Price then in effect immediately before
the combination shall be proportionately increased. Any
-13-
<PAGE>
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
--------------------------------------------------
the Corporation at any time, or from time to time after the Series A Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event the
Series A Conversion Price then in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the Series A Conversion
Price shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions; and provided further, however, that
no such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event or (ii) a dividend or
other distribution of shares of Series A Preferred Stock which are convertible,
as of the date of such event, into such number of shares of Common Stock as is
equal to the number of additional shares of Common Stock being issued with
respect to each share of Common Stock in such dividend or distribution.
(g) Adjustments for Other Dividends and Distributions. In the event
-------------------------------------------------
the Corporation at any time or from time to time after the Series A Original
Issue Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation (other than shares of Common Stock) or
in cash or other property (other
-14-
<PAGE>
than cash out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles), then and in each such event provision
shall be made so that the holders of the Series A Preferred Stock shall receive
upon conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the kind and amount of securities of the Corporation, cash
or other property which they would have been entitled to receive had the Series
A Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called for
during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; provided, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
(h) Adjustment for Merger or Reorganization, etc. Subject to the
--------------------------------------------
provisions of Subsection 2(c), if there shall occur any reorganization,
recapitalization, consolidation or merger involving the Corporation in which the
Common Stock (but not the Series A Preferred Stock) is converted into or
exchanged for securities, cash or other property (other than a transaction
covered by paragraphs (e), (f) or (g) of this Section 4), then, following any
such reorganization, recapitalization, consolidation or merger, each share of
Series A Preferred Stock shall be convertible into the kind and amount of
securities, cash or other property which a holder of the number of shares of
Common Stock of the Corporation issuable upon conversion of one share of Series
A Preferred Stock immediately prior to such reorganization, recapitalization,
consolidation or merger would have been entitled to receive pursuant to such
transaction; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Series A Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series A Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all
-15-
<PAGE>
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Series A Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a certificate setting forth (i) the Series A Conversion Price
then in effect, and (ii) the number of shares of Common Stock and the amount, if
any, of other securities, cash or property which then would be received upon the
conversion of Series A Preferred Stock.
(k) Notice of Record Date. In the event:
---------------------
(i) the Corporation shall take a record of the holders of its
Common Stock (or other stock or securities at the time issuable upon
conversion of the Series A Preferred Stock) for the purpose of entitling or
enabling them to receive any dividend or other distribution, or to receive
any right to subscribe for or purchase any shares of stock of any class or
any other securities, or to receive any other right; or
(ii) of any capital reorganization of the Corporation, any
reclassification of the Common Stock of the Corporation, any consolidation
or merger of the Corporation with or into another corporation (other than a
consolidation or merger in which the Corporation is the surviving entity
and its Common Stock is not converted into or exchanged for any other
securities or property), or any transfer of all or substantially all of the
assets of the Corporation; or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation,
then, and in each such case, the Corporation will mail or cause to be mailed to
the holders of the Series A Preferred Stock a notice specifying, as the case may
be, (i) the record date for such dividend, distribution or right, and the amount
and character of
-16-
<PAGE>
such dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or such other stock or
securities at the time issuable upon the conversion of the Series A Preferred
Stock) shall be entitled to exchange their shares of Common Stock (or such other
stock or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least 10 days prior to
the record date or effective date for the event specified in such notice.
5. Mandatory Conversion.
--------------------
(a) Upon the closing of the sale of shares of Common Stock, at a price
to the public of at least $10.00 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $15 million of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series A Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective conversion rate and (ii) the number of authorized shares of Preferred
Stock shall be automatically reduced by the number of shares of Preferred Stock
that had been designated as Series A Preferred Stock, and all provisions
included under the caption "Series A Convertible Preferred Stock", and all
references to the Series A Preferred Stock, shall be deleted and shall be of no
further force or effect.
(b) All holders of record of shares of Series A Preferred Stock shall
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of the Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all outstanding shares of
Series A Preferred Stock shall be deemed to have been converted into shares of
Common Stock, which shall be deemed to be outstanding of record, and all rights
with respect to the Series A Preferred Stock so converted, including the rights,
if any, to receive notices and vote (other than as a holder of Common Stock)
will terminate, except only the rights of the holders thereof,
-17-
<PAGE>
upon surrender of their certificate or certificates therefor, to receive
certificates for the number of shares of Common Stock into which such Series A
Preferred Stock has been converted, and payment of any declared but unpaid
dividends thereon. If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his or its attorney duly authorized in writing.
As soon as practicable after the Mandatory Conversion Date and the surrender of
the certificate or certificates for Series A Preferred Stock, the Corporation
shall cause to be issued and delivered to such holder, or on his or its written
order, a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions hereof and
cash as provided in Subsection 4(b) in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. Such converted Series A Preferred Stock
may not be reissued, and the Corporation may thereafter take such appropriate
action (without the need for stockholder action) as may be necessary to reduce
the authorized number of shares of Series A Preferred Stock accordingly.
6. Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on the fifth anniversary of the closing and on each of the first and second
anniversaries thereof (each such date being referred to hereinafter as a
"Mandatory Redemption Date"), upon receipt not less than 60 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least 66.67% of the shares of Series A Preferred
Stock then outstanding (an "Initial Redemption Request"), redeem from each
holder of shares of Series A Preferred Stock that requests redemption pursuant
to the Initial Redemption Request or pursuant to a subsequent election made in
accordance with Section 6(b) below (a "Requesting Holder"), at a price equal to
$6.00 per share, plus any dividends declared but unpaid thereon, subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares (the
"Mandatory Redemption Price"), the number of shares of Series A Preferred Stock
requested to be redeemed by each Requesting Holder, but not more than the
following respective portions of the number of shares of Series A Preferred
Stock held by such Requesting Holder on the applicable Mandatory Redemption
Date.
-18-
<PAGE>
<TABLE>
<CAPTION>
Maximum
Mandatory Portion of Shares of Series A
Redemption Date Preferred Stock To Be Redeemed
----------------- -------------------------------
<S> <C>
October 7, 2004 33%
October 7, 2005 50%
October 7, 2006 All outstanding shares of
Series A Preferred Stock
</TABLE>
(b) The Corporation shall provide notice of its receipt of an Initial
Redemption Request, specifying the time, manner and place of redemption and the
Mandatory Redemption Price (a "Redemption Notice"), by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not less than 45 days prior to the applicable Mandatory Redemption Date.
Each holder of Series A Preferred Stock (other than a holder who has made the
Initial Redemption Request) may elect to become a Requesting Holder on such
Mandatory Redemption Date by so indicating in a written notice mailed to the
Company, by first class or registered mail, postage prepaid, at least 30 days
prior to the applicable Mandatory Redemption Date. Except as provided in
Section 6(c) below, each Requesting Holder shall surrender to the Corporation on
the applicable Mandatory Redemption Date the certificate(s) representing the
shares to be redeemed on such date, in the manner and at the place designated in
the Redemption Notice. Thereupon, the Mandatory Redemption Price shall be paid
to the order of each such Requesting Holder and each certificate surrendered for
redemption shall be cancelled.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock on any Mandatory Redemption Date are insufficient to
redeem the number of shares of Series A Preferred Stock required under this
Section 6 to be redeemed on such date from Requesting Holders, those funds which
are legally available will be used to redeem the maximum possible number of such
shares of Series A Preferred Stock ratably on the basis of the number of shares
of Series A Preferred Stock which would be redeemed on such date if the funds of
the Corporation legally available therefor had been sufficient to redeem all
shares of Series A Preferred Stock required to be redeemed on such date. At any
time thereafter when additional funds of the Corporation become legally
available for the redemption of Series A Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the balance of
the shares which the Corporation was theretofore obligated to redeem, ratably on
the basis set forth in the preceding sentence.
-19-
<PAGE>
(d) Unless there shall have been a failure to pay the Mandatory
Redemption Price, on the Mandatory Redemption Date all rights of the holder of
each share redeemed on such date as a stockholder of the Corporation by reason
of the ownership of such share will cease, except the right to receive the
Mandatory Redemption Price of such share, without interest, upon presentation
and surrender of the certificate representing such share, and such share will
not from and after such Mandatory Redemption Date be deemed to be outstanding.
(e) Any Series A Preferred Stock redeemed pursuant to this Section 6
will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
7. Waiver. Any of the rights of the holders of Series A Preferred Stock
------
set forth herein may be waived by the affirmative vote of the holders of more
than 50% of the shares of Series A Preferred Stock then outstanding.
-20-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 7th day of October, 1999.
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
-------------------------------------
Joseph M. Bellini
President and Chief Executive Officer
-21-
<PAGE>
EXHIBIT 3.3
C-BRIDGE INTERNET SOLUTIONS, INC.
*****
AMENDED BY-LAWS
ARTICLE I. MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
--------------
on the second Tuesday in February of each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the board of
directors or the chief executive office, at which meeting the stockholders shall
elect by a plurality vote a board of directors and shall transact such other
business as may properly be brought before the meeting. If no annual meeting is
held in accordance with the foregoing provisions, the board of directors shall
cause the meeting to be held as soon thereafter as convenient, which meeting
shall be designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or-the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meeting. Except as otherwise provided by law,
-----------------
written notice of each meeting of stockholders, annual or special, stating the
place, date 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 not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger of
-----------
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares, registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city or
town where the meeting is to be held, which place shall be specified in the
notice of the meeting,
<PAGE>
or, if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the stock issued and
------
Outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these by-laws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter.
Section 7. Adjournments. Any meeting of stockholders may be adjourned
------------
from time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Action at Meeting. When a quorum is present at any meeting the
-----------------
vote of the holders of a majority of the stock present in person or represented
by proxy and entitled to vote on the matter (or where a separate vote by a class
or classes is required, the vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting) shall decide
any matter (other than the election of directors) brought before such meeting,
unless the matter is one upon which by express provision of law, the certificate
of incorporation or these by-laws, a different vote is required, in which case
such express provision shall govern and control the decision of such matter.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
Section 9. Voting and Proxies. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for such shareholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
-2-
<PAGE>
Section 10. Action Without Meeting. Any action required to be taken at
----------------------
any annual or special meeting of stockholders, or any action that may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be (1) signed and dated 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 entitled to vote thereon were present and voted and (2) delivered to
the corporation within sixty days of the earliest dated consent by delivery to
its registered office in the State of Delaware (in which case delivery shall be
by hand or by certified or registered mail, return receipt requested), its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II. DIRECTORS
Section 1 Number, Election, Tenure and Qualification. The number of
------------------------------------------
directors that shall constitute the whole board shall be not less than one.
Within such limit, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting or at any
special meeting or stockholders. The directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until
such director's successor is elected and qualified, unless sooner displaced.
Directors need not be stockholders.
Section 2. Enlargement. The number of the board of directors may be
-----------
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships resulting
---------
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. In the
event of a vacancy in the board of directors, the remaining directors, except as
otherwise provided by law or these by-laws, may exercise the powers of the full
board until the vacancy is filled.
Section 4. Registration and Removal. Any director may resign at anytime
------------------------
upon written notice to the corporation at its principal place of business or to
the chief executive officer or secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
-3-
<PAGE>
Section 5. General Power. The business and affairs of the corporation
-------------
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the board of directors appoints a
---------------------
chairman of the board, the chairman shall, when present, preside at all meetings
of the stockholders and the board of directors. The chairman shall perform
such duties and possess such powers as are customarily vested in the office of
the chairman of the board or as may be vested in the chairman by the board of
directors.
Section 7. Place of Meetings. The board of directors may hold meetings,
-----------------
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the board of directors
----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the board of directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be called
----------------
by the chief executive officer, secretary, or on the written request of two or
more directors, or by one director in the event that there is only one director
in office. Two days' notice to each director, either personally or by telegram,
cable, telecopy, commercial delivery service, telex or similar means sent to
such director's business or home address, or three days' notice by written
notice deposited in the mail, shall be given to each director by the secretary
or by the officer or one of the directors calling the meeting. A notice or
waiver of notice of a meeting of the board of directors need not specify the
purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of
---------------------------------------
the board a majority of directors then in office, but in no event less than one-
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
-4-
<PAGE>
Section 11. Action by Consent. Unless otherwise restricted by the
-----------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
-------------------
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution passed
----------
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board 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. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution designating such committee or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names 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 make such reports to the board of
directors as the board of directors may request. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these by-laws for the conduct of its business by the board of
directors.
Section 14. Compensation. Unless otherwise restricted by the certificate
------------
of incorporation or these by-laws, the board of directors shall have the
authority to fix from time to time the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the board
of directors and the performance of their responsibilities as directors and may
be paid a fixed sum for attendance at each meeting of the board of directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the corporation or its parent or subsidiary
-5-
<PAGE>
corporations in any other capacity and receiving compensation therefor. The
board of directors may also allow compensation for members of special or
standing committees for service on such committees.
ARTICLE III. OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
-----------
by the board of directors and shall be a president, a secretary and a treasurer
and such other officers with such titles, terms of office and duties as the
board of directors may from time to time determine, including a chairman of the
board, one or more vice presidents, and one or more assistant secretaries and
assistant treasurers. If authorized by resolution of the board of directors,
the chief executive officer may be empowered to appoint from time to time
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these by-
laws otherwise provide.
Section 2. Election. The board of directors at its first meeting after
--------
each annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. Each officer of the corporation shall hold office
------
until such officer's successor is chosen and qualifies, unless a different term
is specified in the vote choosing or appointing such officer, or until such
officer's earlier death, resignation or removal. Any officer elected or
appointed by the board of directors or by the chief executive officer may be
removed at any time by the affirmative vote of a majority of the board of
directors or a committee duly authorized to do so, except that any officer
appointment by the chief executive officer may also be removed at any time by
the chief executive officer. Any vacancy occurring in any office of the
corporation may be filled by the board of directors, at its discretion. Any
officer may resign by delivering a written resignation to the corporation at its
principal place of business or to the chief executive officer or the secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
Section 4. President. The president shall be the chief operating officer
---------
of the corporation. The president shall also be the chief executive officer
unless the board of directors otherwise provides. The president shall, unless
the board of directors provides otherwise in a specific instance or generally,
preside at all meetings of the stockholders and the board of directors, have
general and active management of the business of the corporation and see that
all orders and resolutions of the board of directors are carried into effect.
The president shall execute bonds, mortgages, and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to some
other officer or agent of the corporation.
-6-
<PAGE>
Section 5. Vice Presidents. In the absence of the president or in the
---------------
event of the president's inability or refusal to act, the vice president, or if
there be more than one vice president, the vice presidents in the order
designated by the board of directors or the chief executive officer (or in the
absence of any designation, then in the order determined by their tenure in
office) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice presidents shall perform such other duties and have such
other powers as the board of directors or the chief executive officer may from
time to time prescribe.
Section 6. Secretary. The secretary shall have such powers and perform
---------
such duties as are incident to the office of secretary. The secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The secretary shall
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other duties
as may be from time to time prescribed by the board of directors or chief
executive officer, under whose supervision the secretary shall be. The
secretary shall have custody of the corporate seal of the corporation and the
secretary, or an assistant secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The
board of directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing of such officer's signature.
Section 7. Assistant Secretaries. The assistant secretary, or if there be
---------------------
more than one, the assistant secretaries in the order determined by the board
of directors, the chief executive officer or the secretary (or if there be no
such determination, then in the order determined by their tenure in office),
shall, in the absence of the secretary or in the event of the secretary's
inability or refusal to act perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the secretary may from time
to time prescribe. In the absence of the secretary or any assistant secretary
at any meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such duties and shall
---------
have such powers as may be assigned by the board of directors or the chief
executive officer. In addition, the treasurer shall perform such duties and
have such powers as are incident to the office of treasurer. The treasurer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors. The treasurer shall disburse the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render
-7-
<PAGE>
to the chief executive officer and the board of directors, when the chief
executive officer or board of directors so requires, an account of all the
treasurer's transactions as treasurer and of the financial condition of the
corporation.
Section 9. Assistant Treasurers. The assistant treasurer, or if there
--------------------
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the treasurer may from time
to time prescribe.
Section 10. Bond. If required by the board of directors, any officer
----
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of such officer's office and for the restoration to the corporation
of all books, papers, vouchers, money and other property of whatever kind in
such officer's possession or under such officer's control and belonging to the
corporation.
ARTICLE IV. NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
--------
certificate of incorporation or these by-laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Unless written notice by mail is required
by law, written notice may also be given by telegram, cable, telecopy,
commercial delivery service, telex or similar means, addressed to such director
or stockholder at such person's address as it appears on the records of the
corporation, in which case such notice shall be deemed to be given when
delivered into the control of the persons charged with effecting such
transmission, the transmission charge to be paid by the corporation or the
person sending such notice and not by the addressee. Oral notice or other in-
hand delivery (in person or by telephone) shall be deemed given at the time it
is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be given
----------------
under the provisions of law of the certificate of incorporation or of these by-
laws, a waiver thereof in writing, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
-8-
<PAGE>
ARTICLE V. INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation. 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, and administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact that
such person 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 such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe such 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 good
faith and in a manner that such person 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 such conduct
was unlawful.
Section 2. Actions by or in the Right of the Corporation. 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
such person 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 such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except 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 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 that the Court of Chancery of the State of Delaware
or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person described
---------------------
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in such
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
-9-
<PAGE>
Section 4. Specific Authorization. Any indemnification under Section 1 or
----------------------
2 of this Article V (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in such Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in such Sections. Such determination shall be made (1) 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 (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in written opinion, or (3) by the
stockholders of the corporation.
Section 5. Advance Payment. 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 any person described in such Section to repay
such amount if it shall ultimately be determined that such person is not
entitled to indemnification by the corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification and advancement of
---------------
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which any person provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 7. Insurance. The board of directors may authorize, by a vote of
---------
the majority of the full board, the corporation 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
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability under the provisions of
this Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V 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.
Section 9. Severability. If any word, clause or provision of this Article
------------
V or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to provide
-----------------
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or
-10-
<PAGE>
supplemented from time to time this Article V shall be amended automatically
and construed so as to permit indemnification and advancement of expenses to the
fullest extent from time to time permitted by law.
ARTICLE VI. CAPITAL STOCK
Section 1. Certificates of Stock. 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 or vice chairman of the board of directors,
or the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. Any or
all of the signatures on the 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 such person were such officer,
transfer agent or registrar at the date of issue. Certificates may be issued
for partly paid shares and in such case upon the face or back of the certificate
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 2. 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 such person's legal representative, to
give reasonable evidence of such loss, theft or destruction, to advertise the
same in such manner as it shall require and/or to give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate.
Section 3. Transfer 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, and proper evidence of compliance with other conditions to rightful
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 books.
Section 4. 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, the board of directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which shall not be more than sixty days
nor less than ten days before the date of such meeting. 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;
-11-
<PAGE>
provided, however, that the board of directors may fix a new record date for the
adjourned meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the date before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
board of directors, and which shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date is fixed, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the board of directors is required by statute,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation as provided
in Section 10 of Article I. If no record date is fixed and prior action by the
board of directors is required, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the date on which the board of directors adopts the
resolution taking such prior action. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the board of directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted, and which shall not be more than sixty days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the date
on which the board of directors adopts the resolution relating to such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares 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.
ARTICLE VII. CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the corporation and one or more of its directors of
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof that
authorizes the contract or transaction or solely because such person's or their
votes are counted for such purpose, if:
-12-
<PAGE>
(a) The material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract is fair as to the corporation as of the time it is
authorized, approved or ratified, by the board of directors, a committee
thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
------
determining the presence of a quorum at a meeting of the board of directors or
of a committee that authorizes the contract or transaction.
ARTICLE VII. GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
---------
corporation, if any, may be declared by the board of directors at any regular or
special meeting or by written consent pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stack, subject to the provisions
of the certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any funds or the
--------
corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. Checks . All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed
-----------
by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution, adopt a
----
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
-13-
<PAGE>
ARTICLE IX. AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
-14-
<PAGE>
Exhibit 10.3
C-BRIDGE INTERNET SOLUTIONS, INC.
1997 STOCK INCENTIVE PLAN AS AMENDED
1. Purpose
-------
The purpose of this 1997 Stock Incentive Plan (the "Plan") of C-Bridge
Internet Solutions, Inc., a Delaware corporation (the "Company"), is to advance
the interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of C-Bridge Internet Solutions,
Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be
------------------------------------
administered by the Board of Directors of the Company (the "Board"). The
Board shall have authority to grant Awards and to adopt, amend and repeal
such administrative rules, guidelines and practices relating to the Plan as
it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the
manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. All
decisions by the Board shall be made in the Board's sole discretion and
shall be final and binding on all persons having or claiming any interest
in the Plan or in any Award. No director or person acting pursuant to the
authority delegated by the Board shall be liable for any action or
determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
--------------------------------
applicable law, the Board may delegate to one or more executive officers of
the Company the power to make Awards and exercise such other powers under
the Plan as the Board may
1
<PAGE>
determine, provided that the Board shall fix the maximum number of shares
subject to Awards and the maximum number of shares for any one Participant
to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
-------------------------
law, the Board may delegate any or all of its powers under the Plan to one
or more committees or subcommittees of the Board (a "Committee"). If and
when the common stock, $.000001 par value per share, of the Company (the
"Common Stock") is registered under the Securities Exchange Act of 1934
(the "Exchange Act"), the Board shall appoint one such Committee of not
less than two members, each member of which shall be an "outside director"
within the meaning of Section 162(m) of the Code and a "non-employee
director" as defined in Rule 16b-3 promulgated under the Exchange Act." All
references in the Plan to the "Board" shall mean the Board or a Committee
of the Board or the executive officer referred to in Section 3(b) to the
extent that the Board's powers or authority under the Plan have been
delegated to such Committee or executive officer.
4. Stock Available for Awards
--------------------------
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may be
----------------
made under the Plan for up to 4,000,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any
Common Stock not being issued, the unused Common Stock covered by such
Award shall again be available for the grant of Awards under the Plan,
subject, however, in the case of Incentive Stock Options (as hereinafter
defined), to any limitation required under the Code. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares
or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
---------------------
Awards granted after the Common Stock is registered under the Exchange Act,
the maximum number of shares with respect to which an Award may be granted
to any Participant under the Plan shall be 500,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar
change in capitalization or event, or any distribution to holders of Common
Stock other than a normal cash dividend, (i) the number and class of
securities available under this Plan, (ii) the number and class of security
and exercise price per share subject to each outstanding Option, (iii) the
2
<PAGE>
repurchase price per security subject to each outstanding Restricted Stock
Award, and (iv) the terms of each other outstanding stock-based Award shall
be appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also
applies to any event, Section 8(e)(1) shall be applicable to such event,
and this Section 4(c) shall not be applicable.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each, an
-------
"Option") and determine the number of shares of Common Stock to be covered
by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory
Stock Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company
and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an
Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the time
------------
each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
-------------------
subject to such terms and conditions as the Board may specify in the
applicable option agreement. No option will be granted for a term in
excess of 10 years.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number
of shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
3
<PAGE>
(2) except as the Board may otherwise provide in an Option Agreement,
delivery of an irrevocable and unconditional undertaking by a creditworthy
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or delivery by the Participant to the Company of a copy of irrevocable
and unconditional instructions to a creditworthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and explicitly provided in an
Option Agreement (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on terms determined by the Board, or (iii) by
payment of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire shares
------
of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price
(or to require forfeiture of such shares if issued at no cost) from the
recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award
(each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and conditions
--------------------
of any such Restricted Stock Award, including the conditions for repurchase
(or forfeiture) and the issue price, if any. Any stock certificates issued
in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by
the Participant, together with a stock power endorsed in blank, with the
Company (or its designee). At the expiration of the applicable restriction
periods, the Company (or such designee) shall deliver the certificates no
longer subject to such restrictions to the Participant or if the
Participant has died, to the beneficiary designated, in a manner determined
by the Board, by a Participant to receive amounts due or exercise rights of
the Participant in the event of the Participant's death (the "Designated
Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares
4
<PAGE>
based upon certain conditions, the grant of securities convertible into Common
Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise determine or
-------------------------
provide in an Award, Awards shall not be sold, assigned, transferred,
pledged or otherwise encumbered by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the
extent relevant in the context, shall include references to authorized
transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a written
-------------
instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type of
----------------
Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award of
---------------------
the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's
legal representative, conservator, guardian or Designated Beneficiary may
exercise rights under the Award.
(e) Acquisition Events
------------------
(1) Consequences of Acquisition Events. Upon the occurrence of an
-----------------------------------
Acquisition Event (as defined below), or the execution by the Company of
any agreement with respect to an Acquisition Event, the Board shall take
any one or more of the following actions with respect to then outstanding
Awards: (i) provide that outstanding Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof), provided that any such Options
substituted for Incentive Stock Options shall satisfy, in the determination
of the Board, the requirements of Section 424(a) of the Code; (ii) upon
written notice to the Participants, provide that all then unexercised
Options will become exercisable in full as of a specified time (the
"Acceleration Time") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to
the extent exercised by the Participants between the Acceleration Time and
the consummation of such Acquisition Event; (iii) in the event of an
Acquisition Event under the terms of which holders of Common Stock will
receive upon consummation thereof a cash payment for each
5
<PAGE>
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate
upon consummation of such Acquisition Event and each Participant shall
receive, in exchange therefor, a cash payment equal to the amount (if any)
by which (A) the Acquisition Price multiplied by the number of shares of
Common Stock subject to such outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such Options;
(iv) provide that all Restricted Stock Awards then outstanding shall become
free of all restrictions prior to the consummation of the Acquisition
Event; and (v) provide that any other stock-based Awards outstanding (A)
shall become exercisable, realizable or vested in full, or shall be free of
all conditions or restrictions, as applicable to each such Award, prior to
the consummation of the Acquisition Event, or (B), if applicable, shall be
assumed, or equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (either by remaining outstanding or
by being converted into voting securities of the surviving or acquiring entity)
less than 50% of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after such
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
------------------------------------------
Awards under the Plan in substitution for stock and stock-based awards held
by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the
employing corporation. The substitute Awards shall be granted on such terms
and conditions as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make provision
-----------
satisfactory to the Board for payment of, any taxes required by law to be
withheld in connection with Awards to such Participant no later than the
date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares
of Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment
of any kind otherwise due to a Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant's consent to such
action shall be required unless the Board determines that the action,
taking into account any related action, would not materially and adversely
affect the Participant.
6
<PAGE>
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of
the Company, (ii) in the opinion of the Company's counsel, all other legal
matters in connection with the issuance and delivery of such shares have
been satisfied, including any applicable securities laws and any
applicable stock exchange or stock market rules and regulations, and (iii)
the Participant has executed and delivered to the Company such
representations or agreements as the Company may consider appropriate to
satisfy the requirements of any applicable laws, rules or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-
based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in
part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim or
--------------------------------------
right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the
right at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
-------------------------------
date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall
become exercisable, vested or realizable, as applicable to such Award,
unless and until the Plan has been approved by the Company's stockholders.
No Awards shall be granted under the Plan after the completion of ten years
from the earlier of (i) the date on which the Plan was adopted by the Board
or (ii) the date the Plan was approved by the Company's stockholders, but
Awards previously granted may extend beyond that date.
7
<PAGE>
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the
date of such amendment shall become exercisable, realizable or vested, as
applicable to such Award (to the extent that such amendment to the Plan was
required to grant such Award to a particular Participant), unless and until
such amendment shall have been approved by the Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made hereunder
-------------
shall be governed by and interpreted in accordance with the laws of the
State of Delaware, without regard to any applicable conflicts of law.
8
<PAGE>
Exhibit 10.4
C-BRIDGE INTERNET SOLUTIONS, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose
-------
The purpose of this 1999 Stock Incentive Plan (the "Plan") of C-Bridge
Internet Solutions, Inc., a Delaware corporation (the "Company"), is to advance
the interests of the Company's stockholders by enhancing the Company's ability
to attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any present or future subsidiary corporations of C-Bridge Internet Solutions,
Inc. as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other stock-
based awards (each, an "Award") under the Plan. Any person who has been granted
an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
--------------------------
(a) Administration by Board of Directors. The Plan will be
------------------------------------
administered by the Board of Directors of the Company (the "Board"). The
Board shall have authority to grant Awards and to adopt, amend and repeal
such administrative rules, guidelines and practices relating to the Plan as
it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the
manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. All
decisions by the Board shall be made in the Board's sole discretion and
shall be final and binding on all persons having or claiming any interest
in the Plan or in any Award. No director or person acting pursuant to the
authority delegated by the Board shall be liable for any action or
determination relating to or under the Plan made in good faith.
(b) Appointment of Committees. To the extent permitted by applicable
-------------------------
law, the Board may at any time delegate any or all of its powers under the
Plan to one or more committees or subcommittees of the Board (a
"Committee"). If and when it
1
<PAGE>
becomes advantageous to do so under applicable law, the Board shall appoint
one such Committee of not less than two members, each member of which shall
be an "outside director" within the meaning of Section 162(m) of the Code
and a "non-employee director" as defined in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the Exchange Act").All
references in the Plan to the "Board" shall mean the Board or a Committee
of the Board to the extent that the Board's powers or authority under the
Plan have been delegated to such Committee.
4. Stock Available for Awards
--------------------------
(a) Number of Shares.
----------------
(1) Subject to adjustment under Section 4 (a)(2) and 4(b), Awards may
be made
under the Plan for up to 6,000,000 shares of the common stock, $.000001 par
value per share, of the Company (the "Common Stock"). If any Award expires or
is terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(2) The number of shares of Common Stock made available to the Plan
pursuant Section 4(a)(1) hereof shall automatically increase by 500,000 of
such shares effective on the first day of every calendar year throughout
the term of this Plan unless the Board votes to rescind such increase
within 10 days of its effectiveness.
(b) Adjustment to Common Stock. In the event of any stock split, stock
--------------------------
dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar
change in capitalization or event, or any distribution to holders of
Common Stock other than a normal cash dividend, (i) the number and
class of securities available under this Plan, (ii) the number and
class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to
each outstanding Restricted Stock Award, and (iv) the terms of each
other outstanding stock-based Award shall be appropriately adjusted by
the Company (or substituted Awards may be made, if applicable) to the
extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate.
5. Stock Options
-------------
2
<PAGE>
(a) General. The Board may grant options to purchase Common Stock (each, an
-------
"Option") and determine the number of shares of Common Stock to be covered
by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive
Stock Option (as hereinafter defined) shall be designated a "Nonstatutory
Stock Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
-----------------------
"incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall only be granted to employees of the Company
and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or any part
thereof) which is intended to be an Incentive Stock Option is not an
Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the time
--------------
each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times and
-------------------
subject to such terms and conditions as the Board may specify in the
applicable option agreement. No option will be granted for a term in
excess of 10 years.
(e) Exercise of Option. Options may be exercised only by delivery to the
------------------
Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 5(f) for the number
of shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
----------------------
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option Agreement,
delivery of an irrevocable and unconditional undertaking by a creditworthy
broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the
exercise price;
(3) to the extent permitted by the Board and explicitly provided in an
Option Agreement (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in
good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by
3
<PAGE>
delivery of a promissory note of the Participant to the Company on terms
determined by the Board, or (iii) by payment of such other lawful
consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to
------
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated
or formula price (or to require forfeiture of such shares if issued at no
cost) from the recipient in the event that conditions specified by the
Board in the applicable Award are not satisfied prior to the end of the
applicable restriction period or periods established by the Board for such
Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
--------------------
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock
certificates issued in respect of a Restricted Stock Award shall be
registered in the name of the Participant and, unless otherwise determined
by the Board, deposited by the Participant, together with a stock power
endorsed in blank, with the Company (or its designee). At the expiration of
the applicable restriction periods, the Company (or such designee) shall
deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated,
in a manner determined by the Board, by a Participant to receive amounts
due or exercise rights of the Participant in the event of the Participant's
death (the "Designated Beneficiary"). In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
---------------------------------------
(a) Transferability of Awards. Except as the Board may otherwise
-------------------------
determine or provide in an Award, Awards of Incentive Stock Options shall
not be sold, assigned, transferred, pledged or otherwise encumbered by the
person to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the
life of the Participant, shall be exercisable
4
<PAGE>
only by the Participant. With the consent of the Board, awards of non-
statutory stock options may be transferred to the extent permitted by Rule
701 promulgated under the Securities Act of 1933, as amended. References to
a Participant, to the extent relevant in the context, shall include
references to authorized transferees.
(b) Documentation. Each Award under the Plan shall be evidenced by a written
-------------
instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type of
----------------
Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an Award of
---------------------
the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's
legal representative, conservator, guardian or Designated Beneficiary may
exercise rights under the Award.
(e) Acquisition Events
------------------
(1) Consequences of Acquisition Events. At the time of the grant of
-----------------------------------
any Options, the Board may provide that any one or more of the following
actions shall take place with respect to any portion of such Options
outstanding at the time of an Acquisition Event (as defined below): (i)
provide that outstanding Options shall be assumed, or equivalent Options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such Options substituted for
Incentive Stock Options shall satisfy, in the determination of the Board,
the requirements of Section 424(a) of the Code; (ii) upon written notice to
the Participants, provide that all then unexercised Options will become
exercisable in full as of a specified time (the "Acceleration Time") prior
to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by
the Participants between the Acceleration Time and the consummation of such
Acquisition Event; (iii) in the event of an Acquisition Event under the
terms of which holders of Common Stock will receive upon consummation
thereof a cash payment for each share of Common Stock surrendered pursuant
to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition
Event and each Participant shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such
outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options; (iv) provide that all Restricted
Stock Awards then outstanding shall become free of all
5
<PAGE>
restrictions prior to the consummation of the Acquisition Event; and (v)
provide that any other stock-based Awards outstanding (A) shall become
exercisable, realizable or vested in full, or shall be free of all
conditions or restrictions, as applicable to each such Award, prior to the
consummation of the Acquisition Event, or (B), if applicable, shall be
assumed, or equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof).
(2) Definition. An "Acquisition Event" shall mean: (a) any merger or
-----------
consolidation which results in the voting securities of the Company
outstanding immediately prior thereto representing immediately thereafter
(either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the
combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of
the Company; or (c) the complete liquidation of the Company.
(3) Assumption of Options Upon Certain Events. The Board may grant Awards
------------------------------------------
under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a
result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the
employing corporation. The substitute Awards shall be granted on such
terms and conditions as the Board considers appropriate in the
circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make provision
-----------
satisfactory to the Board for payment of, any taxes required by law to be
withheld in connection with Awards to such Participant no later than the
date of the event creating the tax liability. The Board may allow
Participants to satisfy such tax obligations in whole or in part in shares
of Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment
of any kind otherwise due to a Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
------------------
outstanding Award, including but not limited to, substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant's consent to such
action shall be required unless the Board determines that the action,
taking into account any related action, would not materially and adversely
affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
-------------------------------
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or
6
<PAGE>
removed to the satisfaction of the Company, (ii) in the opinion of the
Company's counsel, all other legal matters in connection with the issuance
and delivery of such shares have been satisfied, including any applicable
securities laws and any applicable stock exchange or stock market rules
and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
------------
become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-
based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in
part, as the case may be.
9. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim or
--------------------------------------
right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any
other relationship with the Company. The Company expressly reserves the
right at any time to dismiss or otherwise terminate its relationship with a
Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
------------------------
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on the
-------------------------------
date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall
become exercisable, vested or realizable, as applicable to such Award,
unless and until the Plan has been approved by the Company's stockholders.
No Awards shall be granted under the Plan after the completion of ten years
from the earlier of (i) the date on which the Plan was adopted by the Board
or (ii) the date the Plan was approved by the Company's stockholders, but
Awards previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
-----------------
any portion thereof at any time.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
--------------------
shall mean approval by a vote of the stockholders in accordance with the
requirements of the Articles of Incorporation and Bylaws of the Company and
applicable law..
7
<PAGE>
(f) Governing Law. The provisions of the Plan and all Awards made hereunder
-------------
shall be governed by and interpreted in accordance with the laws of the
Commonwealth of Massachusetts, without regard to any applicable conflicts
of law.
8
<PAGE>
EXHIBIT 10.5
January 5, 1999
Mr. Joseph Bellini
805 Huntington Court
Southlake. TX 76092
Dear Joe:
We at C-Bridge Internet Solutions, Inc. ("C-bridge" or the "Company") are
pleased to offer you the position of President and Chief Operating Officer of
our Company. This position will report directly to the Chief Executive Officer
of C-bridge. Subject to your acceptance of the terms of this letter agreement,
your employment with us will commence on February 4, 1999.
As a full time employee, you will receive compensation as follows: (i)
$250,000.00 base salary paid in equal semi-monthly installments, (ii) $50,000.00
performance bonus depending on your achievement of certain goals to be
determined by you and the Company, and (iii) $50,000.00 additional bonus
depending on your surpassing certain goals to be determined by you and the
Company. You will be eligible to participate in all employee benefit plans and
programs made available generally to employees of C-bridge or to executive
employees of C-bridge. Descriptions of the benefit plans currently being
offered are available for your review. Please note that any benefit may, from
time to time, be amended or terminated with or without prior notice. In
accordance with Company policies, you will also be reimbursed for all business,
promotional, entertainment expenses incurred on behalf of the Company or to
further the Company's business.
Although you will be employed full time by C-bridge, you will have the
right to participate in charitable and community organizations, and also to
participate in activities outside of the Company related to the Company's
business, such as, for example, industry trade shows, seminars, forums, lectures
and standards setting committees. You will also have the right to provide
advisory services to your former employer under a separate agreement with your
former employer, such services to be limited to a maximum of 30 days per year.
However, none of these activities may interfere in any important way with your
responsibilities as Chief Operating Officer of the Company.
Effective upon your employment, you will receive stock options to purchase
1,550,000 shares of the common stock of the Company, S0.000001 par value per
share (the "Options"; "Common Stock"). To the maximum extent possible under
applicable tax rules and tax rules and regulations then in effect, the Options
will be incentive stock options within the meaning of section 422(b) of the
Internal Revenue Code of 1986, as amended, for federal income tax purposes, and
the balance, if any, of the Options will be non-qualified stock options. The
Options will be issued at the current exercise price of $.30 per share. The
Options will vest over a four year period, in eight equal semi-annual
installments commencing six months after the date of grant, except that (i) 100%
of the Options shall vest immediately upon the sale of the Company or a change
of control (a transaction after which new stockholders other than Sundar
Subramaniam, John Donovan, or trusts for the benefit of them or their families
own more than fifty percent (50%) of the outstanding shares of the Company) and
(ii) if at the time of the Company's IPO (as defined below) less than 50% of the
Options have vested, then 50% of the Options shall vest immediately upon such
IPO and the remainder shall vest in four equal semi-annual installments
commencing six months after the IPO. The Options will terminate immediately if
your employment is terminated by the Company for "Cause" (as defined below) or
if you voluntarily leave the Company. If the Company terminates your employment
without Cause or if you die, the portion of the Options that would have vested
at the end of that semi-annual period if not for your termination or death shall
vest immediately. Accordingly, you or
<PAGE>
your estate, as the case may be, may exercise the vested portion of the Options
in accordance with their terms. Notwithstanding anything to the contrary in this
Agreement or your Incentive Stock Option and Non-Qualified Stock Option
Agreements, which shall be in the form attached hereto as Exhibits A and B and
be dated as of the first day of your employment with the Company, in the event
that your employment is terminated by the Company without Cause, the options
which have vested as of the date of termination will remain exercisable until 90
days after termination, after which date they shall be deemed to have expired.
In the case of a conflict or ambiguity between the provisions hereof and the
provisions of Exhibit A or Exhibit B hereto, the provisions hereof shall
prevail.
For purposes of this Agreement, an IPO shall be a firm commitment
underwritten public offering of Common Stock made in compliance with the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state laws which has an aggregate offering price of $20,000,000.00 or more.
With respect to protection against dilution, you will not be treated any
differently than any current stockholder. We anticipate that the Board may issue
further options to employees, including officers, as dictated by the interests
of the Company. All options will be issued under the Company's 1997 Stock
Incentive Plan, as amended, or successor plans. You will receive the equivalent
registration rights, if any, granted to Sundar Subramaniam. The Company shall
use it best efforts to have the stock issued to you pursuant to the exercise of
the Options qualify under for the exemption from registration provided by Rule
701 promulgated under the Securities Act, or any successor rule.
You may exercise your options and pay for the stock with other stock which
you already hold, provided the Company will not thereby incur an expense charge
(normally, the shares must be held for six months to avoid such a charge). If
this method of payment is not feasible because of such expense charge, the
Company will cooperate with you to facilitate the exercise of the Options and
payment of the exercise price of the shares.
The Company may discharge you at any time for Cause upon delivery of
written notice to you, making reference to this paragraph and specifying with
particularity the actions or inactions constituting such Cause. For purposes of
this letter agreement, a termination for "Cause" shall mean only termination for
any one or more of the following reasons:
a. being convicted of criminal conduct constituting a felony offense, other
than a traffic offense, whether or not related to your employment;
b. negligence in the performance of your duties on behalf of the Company
which results in a material detriment to the Company and is not cured or
corrected within thirty (30) days after your receipt of written notice from the
Company referring to this paragraph and describing with specificity the conduct
or omission constituting negligence;
c. fraud or embezzlement with respect to funds of the Company, as determined
by the Board; or
d. your failure to comply with lawful instructions given to you by the Board
of Directors which is not cured or corrected within thirty (30) days after your
receipt of written notice from the Company referring to this paragraph and
describing with specificity the instructions with which you did not comply.
Notwithstanding the foregoing, a refusal by you to move your residence away from
the Boston area at the Company's request will not constitute a failure to comply
under this paragraph.
It is understood that you are not being offered employment for a definite
period of time and that either you or C-bridge may terminate the employment
relationship at any time and for any reason without prior notice.
As you know, the Immigration Reform and Control Act requires employers to
verify the employment eligibility and identity of new employees. Enclosed is a
copy of the Form I-9 that you will be
<PAGE>
required to complete within the first three days of your employment. Please
bring the appropriate documents listed on that form with you when you report to
work.
We have agreed upon a form of "Confidentiality and Non-Competition
Agreement" (the "CNA") a copy of which is attached as Exhibit C. This offer of
employment is conditioned on your willingness to sign and abide by the terms of
this agreement. In making this offer, C-bridge understands that you are not
under any obligation to any former employer or any person, firm or corporation
which would prevent, limit or impair in any way the performance by you of your
duties as an employee of C-bridge, other than as set forth in the CNA, the
third paragraph hereof, or as otherwise disclosed in writing to the Company on
or prior to today. Please return the signed CNA with the signed copy of this
offer letter.
Please acknowledge your acceptance of this offer by signing at the bottom
of this letter agreement and returning a signed copy to the attention of Laura
Kelly, Human Resources. An extra copy of this offer, signed on behalf of the
Company, has been included for your records.
The undersigned officer represents and warrants that he has full power and
authority to enter into this letter agreement on behalf of the Company, and that
the execution, delivery and performance of this letter agreement have been
authorized by the Board of Directors of the Company. Upon your acceptance of
this letter agreement by signing and returning it to the Company, this letter
agreement will become binding upon you and the Company. Notwithstanding the
foregoing, the Company and you may enter into a more formal employment agreement
consistent with the terms of this letter agreement, but this letter agreement
and the offer of employment contained herein are not contingent in any manner on
the execution and delivery of a separate employment agreement.
Notwithstanding the formal nature of this letter agreement, you should know
that we are very excited at the prospect of working with you to continue our
task of creating a great company. We know that your leadership will be
instrumental in moving us forward We believe this will mark the beginning of a
long-term mutually beneficial relationship. We look forward to having you on
board.
Sincerely,
/s/ Sundar Subramaniam
______________________
Sundar Subramaniam
Chairman
ACKNOWLEDGED AND AGREED
/s/ Joseph M. Bellini
_______________________________
Joseph Bellini
<PAGE>
EXHIBIT 10.6
COMMERCIAL BUILDING LEASE
Agreement of Lease made as of the 1st day of May 1999 (the "Effective
Date") by and between Property Management Partners, Inc., a Massachusetts
corporation with an address of 219 Vassar Street, Cambridge, Massachusetts 02139
(referred to as "Sublandlord"), and C-Bridge Internet Solutions, Inc., a
Delaware corporation with an address of 219 Vassar Street, Cambridge,
Massachusetts 02139 (hereinafter referred to as "Subtenant").
WHEREAS, John J. Donovan, Jr. as trustee under a Declaration of Trust dated
April 14, 1980 and recorded with the Middlesex South District Registry of Deeds
at Book 13951, Page 54 (the "Landlord") has leased the Premises (as defined
below) to Sublandlord; and
WHEREAS, Sublandlord and Subtenant desire that Subtenant shall sublease the
Premises on the terms and conditions set forth herein.
NOW THEREFORE, In consideration of the mutual covenants contained herein
and other valuable consideration received, and with the intent to be legally
bound, Sublandlord and Subtenant agree as follows:
1. PREMISES. Sublandlord hereby demises and leases unto Subtenant and
Subtenant hereby accepts from Sublandlord, subject to the conditions hereinbelow
set forth, a portion consisting of approximately 28,159 (twenty-eight thousand
one hundred fifty-nine) square feet of the commercial building located at 219
Vassar Street, Cambridge, Massachusetts 02139 and an a adjacent parking area of
approximately 23,500 (twenty-three thousand five hundred) square feet, as set
forth on Exhibit A hereto (hereinafter called "the Premises"). Sublandlord
---------
leases to Subtenant the Premises, together with all easements, rights or
privileges necessary in connection with the use of the Premises for the
Permitted Use, as defined below. This Lease also includes all fixtures,
equipment, and personal property in the Premises. Sublandlord is delivering the
Premise in an "As-Is" condition.
2. TERM. TO HAVE AND TO HOLD, the Premises for a term commencing on the
Effective Date and ending on the fifth anniversary thereof (the "Initial Term")
unless sooner terminated or extended as hereinafter provided.
3. RENT OPERATING EXPENSES AND CAPITAL EXPENSES
3.1. BASIC RENT. From and after the Effective Date, Subtenant shall pay
to Sublandlord without deduction or offset, monthly rent as follows:
May 1, 1999 to April 1, 2000: $46,932.00 (Forty-Six Thousand Nine Hundred
Thirty-Two Dollars)
May 1, 2000 to April 1, 2001: $48,105.00 (Forty-Eight Thousand One Hundred
Five Dollars)
May 1, 2001 to April 1, 2002: $49,278.00 (Forty-Nine Thousand Two Hundred
Seventy-Eight Dollars)
May 1, 2002 to April 1, 2003: $50,451.00 (Fifty Thousand Four Hundred
Fifty-One Dollars)
May 1, 2003 to April 1, 2004: $51,624.00 (Fifty-One Thousand Six Hundred
Twenty-Four Dollars)
(collective, the "Basis Rent") each monthly installment payable on the
first day of each month during the term of this Lease to the Sublandlord at
219 Vassar Street, Cambridge, Massachusetts 02139 or at such other address
as Sublandlord may specify in writing to Subtenant. No demand, notice or
invoice shall be required for the payment of Basic Rent. An installment of
rent in the amount of one (1) full month's Basic Rent shall be delivered to
Sublandlord concurrently with Subtenant's execution of this Lease and shall
be applied against the Basic Rent first due hereunder. Balances due to
Sublandlord not received when due shall bear interest at a rate of 1
percent per calendar month or fraction thereof until received.
1
<PAGE>
3.2. OPERATING EXPENSES.
(a) Subtenant shall pay when due directly to those third parties
rendering appropriate invoices "Building Costs" and "Property Taxes,"
as those terms are defined below. For convenience of reference,
Property Taxes and Building Costs shall be referred to collectively as
"Operating Expenses."
(b) Even though the Lease has terminated and the Subtenant has
vacated the Premises, Subtenant shall pay for all Operating Expenses
accrued up to the date of such termination and vacation, (cf)
The term "Building Costs" shall include all expenses of operation and
maintenance of the Premises to the extent such expenses are not billed
to and paid directly by Subtenant, and shall include the following
charges by way of illustration but not limitation: water and sewer
charges; insurance premiums; license, permit, and inspection fees;
heat; light; power; air conditioning; supplies; materials; equipment;
tools; the reasonable cost of any environmental, insurance, tax, or
other consultant utilized by Sublandlord in connection with the
Premises; establishment of reasonable reserves for replacements and/or
repair of equipment and supplies; and costs incurred in connection
with compliance of any laws or changes in laws applicable to the
Premises enacted after the Effective Date. It is understood that
Building Costs shall include competitive charges for direct services
provided by any subsidiary or division of Sublandlord.
(d) The term "Property Taxes" as used herein shall include the
following: (i) all real estate taxes or personal property taxes, as
such property taxes may be reassessed from time to time; and (ii)
other taxes, charges and assessments which are levied with respect to
this Lease or to the Premises, and any improvements, fixtures and
equipment and other property of Sublandlord located on the Premises,
except that general net income and franchise taxes imposed against
Sublandlord shall be excluded; and (iii) all assessments and fees for
public improvements, services, and facilities and impacts thereon;
(iv) any tax, surcharge or assessment which shall be levied in
addition to or in lieu of real estate or personal property taxes; and
(v) costs and expenses incurred in contesting the amount or validity
of any Property Tax by appropriate proceedings. If, by applicable law,
any taxes or assessments may be paid in installments at the option of
the taxpayer, then whether or not Sublandlord elects to pay such taxes
or assessments in installments, Subtenant's liability for such taxes
shall be computed as if such election had been made and only the
installments thereof which would have become due during the Term of
this Lease shall be included within the definition of Property Taxes.
(e) Subtenant shall have the right to audit all invoices for Operating
Expenses rendered to it for payment.
3.3 CAPITAL EXPENSES. On January 3, 2000, Subtentant shall pay to
Sublandlord $1,375,000.00 (One Million Three Hundred Seventy Five
Thousand Dollars), such sum to be used by Sublandlord for such capital
improvements or material repairs as the Premises may need from time to
time during the Term or any extension thereof. However, any portion
of this payment not so spent during the Term or any extension thereof
shall not be refunded to Subtenant.
4. EXTENSION. After the Initial Term, if Subtenant holds over and Basic Rent
and Operating Expenses are accepted by Sublandlord, a month to month tenancy
only shall be created which will otherwise be governed by the terms and
conditions of this Lease. During such a month-to-month tenancy, Sublandlord and
Subtenant may from time to time negotiate a new rental price, which price may
not be increased more frequently than every 12 months and which will not affect
the month-to-month nature of the tenancy.
2
<PAGE>
5. USE.
5.1 The Premises shall be used by Subtenant solely for office space and
the rendering of
educational services and training and for activities incidental thereto (the
"Permitted Use"). Subtenant may not use the Premises for any other purpose
without obtaining the prior written consent of Sublandlord.
5.2 Regardless of whether his employment by the Subtenant continues,
Professor John J. Donovan shall have the right to use the Premises for the
Permitted Use in substantially the same manner as he has prior to the Term.
6. FACILITIES MANAGEMENT AGREEMENT. To induce Sublandlord to enter into this
Lease and as a condition hereof, Sublandlord and Subtenant shall enter into a
Facilities Management Agreement (the "FMA") in the form attached hereto as
Exhibit A.
- ---------
7. SUBLETTING AND ASSIGNMENT
7.1 Upon the terms and condition set forth in this section 7, Subtenant may
assign this entire Lease or sublet the entire Premises to any
financially responsible party, subject, however, to all of the
provisions of this Lease and section 7.3 below.
7.2 For the purposes of this Lease, any transfer of more than 49 percent of
the ownership interests in Subtenant (considered on an aggregate basis
from the current ownership structure of Subtenant) prior to the
effective date of a Registration Statement on Form S-1 filed by
Subtenant pursuant to the Securities Act of 1933, as amended. shall be
deemed to be an assignment requiring the consent of Sublandlord.
7.3 Subtenant may assign this Lease or sublet the Premises subject to
Sublandlord's prior written consent, which consent shall not
unreasonably be withheld, on the basis of the following terms and
conditions:
(i) It is agreed that any assignment or sublease of any kind executed
by Subtenant from time to time, or the acceptance of Basic Rent or
Operating Expenses from such assignee or subtenant, shall not affect
the obligations of Subtenant hereunder, and in no event and under no
circumstances shall same release or discharge Subtenant from its
obligations as Subtenant under this Lease and Subtenant shall be remain
liable for the observance of all of the covenants and provisions of
this Lease, including but not limited to paying the Basic Rent and
Operating Expenses throughout the term of this Lease or any extension
hereof. The acceptance, in and of itself, of any Basic Rent and
Operating Expenses from any subtenant and/or assignee shall not be
deemed a waiver of this covenant, or release Subtenant from its
obligations hereunder.
(ii) Subtenant herewith guarantees to Sublandlord the prompt payment
all Basic Rent and Operating Expenses, including any Basic Rent and
Operating Expenses which shall become due and owing to Sublandlord from
any assignee or subtenant and the full performance of said assignee or
subtenant of all the covenants, conditions, terms, and obligations of
this Lease. Subtenant further warrants Sublandlord that if any assignee
shall fail to pay any installment of Basic Rent or Operating Expenses
when due, Subtenant, upon receipt of ten (10) days written notice
thereof from Sublandlord, shall pay and satisfy all of the arrearages
Basic Rent or Operating Expenses.
(iii) The assignee or subtenant shall actually take occupancy of the
Premises.
3
<PAGE>
8. SUBTENANT'S TAX OBLIGATION.
Subtenant shall discharge when due all real estate taxes, ordinary and special
assessments and other governmental charges levied on or which would become a
lien upon the land or building in which the Premises are located.
9. INSURANCE
9.1 Subtenant, at its sole cost and expense, but for the mutual benefit of
Sublandlord and Subtenant, shall keep the Premises insured during the
term of this Lease, against loss or damage by fire and against loss or
damage by other risks now or hereafter embraced by "Extended
Coverage," so-called, in amounts equal to "full replacement cost,"
being the cost of replacing the building and parking lot on the
Premises.
9.2 Subtenant shall, at Subtenant's sole cost and expense, but for the
mutual benefit of Sublandlord and Subtenant, maintain general public
liability insurance against claims for personal injury, death or
property damage occurring upon, in or about the Premises, such
insurance to afford protection to the limit of not less than
$2,000,000.00 in respect to injury or death to a single person and to
the limit of not less than $1,000,000.00 in respect to any one
accident, and to the limit of not less than $500,000.00 in respect to
property damage.
9.3 All policies of insurance shall provide that the proceeds thereof
shall be payable to or inure to the benefit of the Sublandlord as co-
insured and loss payee and the Subtenant and, if the Sublandlord so
requires, also be payable to the holder of any first mortgage to which
this Lease shall become subordinate. All policies of insurance shall,
to the extent obtainable, provide that any loss shall be payable
notwithstanding any act of negligence of the Subtenant which might
otherwise result in forfeiture of said insurance.
9.4 All policies of insurance shall be written with companies reasonably
satisfactory to the Sublandlord and authorized to do business in the
Commonwealth of Massachusetts and shall contain an agreement by the
insurer that such policy shall not be cancelled without at least
thirty (30) days prior written notice to Sublandlord.
10. SUBLANDLORD'S INTEREST. Sublandlord has the right to assign or
transfer any and all rights, title and interest under this Lease. This Lease
shall be binding upon and shall inure to the benefit of the parties and their
respective heirs, legal representatives, successors and assigns, provided,
however, that if Landlord sells the Premises or the Sublandlord assigns its
interest in the Premises, Sublandlord may, at its sole option, be released from
all liabilities under this Lease, and the purchaser in either case, shall be
deemed to have assumed all of the obligations and liabilities of Sublandlord
under this Lease.
11. REPAIRS AND MAINTENANCE.
11.1 Sublandlord shall not have any obligation to make any repairs or
alterations to the
Premises or any part thereof, except as otherwise expressly provided
herein. Throughout the Initial Term and any extension thereof,
Subtenant covenants and agrees to maintain the Premises and all
additions and improvements made upon them in such repair, order and
condition as the same are in at the commencement of said term or may
be put in by Sublandlord during the continuance thereof, reasonable
wear and tear, damage by fire or any other casualty, taking by eminent
domain, and items which Sublandlord is expressly obligated to repair
only excepted. Without limiting the generality of the foregoing,
Sublandlord shall be responsible for interior maintenance and repairs,
cleaning of the parking lot and trash removal.
11.2 Subject to section 11.1 hereof, Sublandlord covenants and agrees that
Sublandlord will make at its own expense all necessary repairs and
replacements to the exterior physical structure of the Premises so
that the Premises will comply with applicable law and any
4
<PAGE>
other required structural repairs and replacements to the Premises.
Structural repairs and replacements shall mean and include repairs and
replacements to the roof and exterior walls of the Premises and to
major items of equipment such as HVAC equipment. Sublandlord also
covenants and agrees that Sublandlord will make all necessary repairs
relating to paving of the parking lot, except in the case of major
damage caused by Subtenant.
12. TENANT'S IMPROVEMENTS.
12.1 After the prior written consent of the Sublandlord, which
shall not be unreasonably withheld, Subtenant may install in the
Premises such fixtures (trade or otherwise) and equipment as Subtenant
deems desirable and all of said items shall remain Subtenant's
property and Subtenant may remove, and/or replace, said fixtures and
equipment, in the Premises, at any time and from time to time during
the Initial Term or any extension thereof. Sublandlord shall not
mortgage, pledge or encumber said fixtures or equipment. Subtenant
shall make all repairs or replacement at Subtenant's expense in
connection with the removal of any fixtures or equipment installed as
provided in this paragraph.
12.2 All signs, counters, shelving, trade and light fixtures, contents, and
other equipment, which may at any time be installed or placed in or
upon the Premises, by or at the expense of Subtenant, are and shall
remain the property of Subtenant, and Subtenant shall remove the same
and repair all damage to the Premises caused by such installation or
removal prior to or at the expiration date of the Initial Term or any
extension thereof.
13. SIGNS. Subtenant shall have the right to install, maintain and replace, at
its own cost and expense, after the prior written consent of Sublandlord in each
instance, such signs on the Premises and in common areas such as driveways,
parking areas and sidewalks as it determines, provided the same shall be in
compliance with all laws, orders, rules and regulations of all governmental
authorities having jurisdiction thereof.
14. DAMAGE OR DESTRUCTION. If the Premises shall be damaged or destroyed by
fire or other cause, the same shall be repaired or replaced or restored to the
condition the same were in immediately preceding such fire or other cause by,
and at the expense of, Sublandlord, but only to extent that Sublandlord has
received insurance proceeds sufficient therefor, and the Basic Rent or Operating
Expenses and any other charges shall, until such repairs have been made, be
abated as to the part of the Premises which is unusable by Subtenant on a just
and equitable basis. Such repairs shall be made promptly subject to reasonable
delay which may arise by reason of adjustment of insurance on the part of
Sublandlord and for delay on account of labor troubles or any other cause beyond
Sublandlord's control. Sublandlord shall not be liable for any inconvenience or
annoyance to Subtenant or injury to the business of Subtenant resulting from
delays in repairing such damage, except that Sublandlord agrees to use its best
efforts to procure such insurance proceeds and to repair such damage
expeditiously, and except that Sublandlord shall not unreasonably interfere with
Subtenant's business in making such repairs. If the common areas are totally
damaged or are rendered wholly untenantable by fire or other cause so that they
cannot reasonably be expected to be restored or rebuilt within a four (4) month
period, either Sublandlord or Subtenant may within thirty (30) days of the
occurrence of such damage, terminate this Lease upon thirty (30) days prior
notice in writing to the other. Notwithstanding anything to the contrary in
this Lease contained, if Sublandlord shall not have completed repair of such
damage within four (4) months from the occurrence of such fire or other
casualty, Subtenant may terminate this Lease by written notice to Sublandlord
and thereafter this Lease shall be of no further force or effect. Upon the
termination of this Lease under the condition herein provided for, Subtenant's
liability for Basic Rent or Operating Expenses accruing thereafter shall cease
as of the day following the casualty. Sublandlord shall not be obligated to
expend funds to repair or replace the common areas in an amount in excess of the
insurance proceeds received as a result of such damage or destruction.
5
<PAGE>
15. DELIVERY OF POSSESSION. If Sublandlord is unable through no fault of its
own to deliver possession of the Premises to Subtenant on the Effective Date,
this Lease will continue in effect, but Basic Rent or Operating Expenses and
other amounts will be prorated according to when possession is given to
Subtenant. The term of this Lease will not be extended by any such delay. If
Sublandlord is unable to deliver possession within 30 days of the Effective
Date, either Sublandlord or Subtenant may terminate this Lease and all payments
made will be returned to Subtenant and all obligations of the parties will
cease. Sublandlord will not be liable for any damages for such delay or failure
to deliver.
16. QUIET POSSESSION. Sublandlord represents and warrants to Subtenant that
Sublandlord has the lawful right and authority to enter into this Lease for the
entire term hereof. Sublandlord covenants and agrees that Subtenant, upon
performance of its obligations under this Lease, shall peaceably and quietly
have, hold and enjoy the Premises throughout the Initial Term and all extensions
thereof.
17. FORCE MAJEURE.
17.1 Neither party will be liable to the other for any delay or failure in
the performance of any of its obligations herein when due to labor
disputes, inability to obtain materials or services, wars,
governmental laws or restrictions, weather, acts of God or of the
Public Enemy, or any other cause beyond the reasonable control of such
party, provided, however, that this section shall not excuse Subtenant
from the prompt payment of Basic Rent or Operating Expenses or any
other amount due herein.
17.2 IN NO EVENT SHALL SUBLANDLORD EVER BE LIABLE TO SUBTENANT FOR ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES SUFFERED BY SUBTENANT FROM
WHATEVER CAUSE.
18. COMPLIANCE WITH LAW. Subtenant, at its sole expense, shall comply with all
present and future laws, ordinances, regulations and requirements of any
federal, state or local authority relating to Subtenant's use of the Premises.
Subtenant covenants not to commit any nuisance on the Premises; will not
overload the Premises, will not carry on any business, trade or occupation upon
the Premises or make any use thereof which shall be unlawful or offensive or
contrary to any law or ordinance for the time being in force. Subtenant will
not do any act upon the Premises which will make them uninsurable against fire
or which is liable to increase the premium for fire insurance on the Premises
over the normal premium for the stipulated use of the Premises. If such
premiums are increased, Subtenant shall pay the amount of such increase.
Subtenant will keep the Premises equipped with all safety appliances required by
law or ordinance, or any order or regulation of any public authority because of
the use made of the Premises.
19. RULES AND REGULATIONS. Subtenant shall comply with all rules and
regulations currently in effect or which Sublandlord may hereafter adopt for the
safety, care and orderly operation of the Premises and for the benefit and
comfort of other tenants or neighbors. The current rules and regulations, if
any, are attached hereto and made a part of this Lease.
20. CONDEMNATION. If the entire building in which the Premises are located is
acquired or condemned by the power of eminent domain by any public or other
authority, then this Lease will terminate upon the date such taking becomes
effective. Basic Rent or Operating Expenses and other payments will be
apportioned as of such date. If any part of the Premises or building containing
the Premises is so acquired or condemned so as to render the Premises unsuitable
for the use for which the same are leased, then this Lease may be terminated by
either party upon thirty (30) days written notice to the other. Basic Rent or
Operating Expenses and other payments will be apportioned between the parties as
of the date of termination. If this Lease is not so terminated, then Basic Rent
or Operating Expenses and other payments will be abated according to the nature
and extent of the area taken. All damages awarded for such taking shall belong
to and be the exclusive property of Sublandlord. Subtenant agrees to sign such
further instruments of assignment as Sublandlord may reasonably request to
accomplish the foregoing. Provided, however, that any damages awarded for
moving expenses or Subtenant's fixtures, improvements or equipment shall belong
to Subtenant.
6
<PAGE>
21. INDEMNIFICATION.
21.1 Subtenant shall indemnify and hold Sublandlord harmless from any and
all claims, loss, damages, liens, expenses, including reasonable
attorney's fees, and liabilities of whatever nature, arising out of or
relating to (i) any default by Subtenant in the performance or
observance of any covenant, term or condition of this Lease, (ii) loss
or damage to any property or injury or death to Subtenant or any
person occurring on or about the Premises due to any cause other than
Sublandlord's or Landlord's negligence, and (iii) Subtenant's use and
occupancy of the Premises.
21.2 Sublandlord shall indemnify and hold Subtenant harmless from any and
all claims, loss, damages, liens, expenses, including reasonable
attorney's fees, and liabilities of whatever nature, arising out of or
relating to any default by Sublandlord in the performance or of any
covenant, term or condition of this Lease.
22. DEFAULTS AND REMEDIES
22.1 Subtenant shall be in default hereunder upon the occurrence of any
of the following mentioned events, in which case Sublandlord may avail
itself of any or all remedies provided for in this section:
(i) if Subtenant is delinquent in the due and punctual payment of any
installment of Basic Rent or Operating Expenses which shall
become due and owing to Sublandlord hereunder for the space of
twenty-five (25) days after such Basic Rent or Operating Expenses
shall become due and payable;
(ii) if Subtenant allows the Premises to become vacant for more than
30 days coupled with nonpayment of Basic Rent or Operating
Expenses, or if the Subtenant allows the Premises to be used for
a purpose other than the use permitted hereunder;
(iii) if the Subtenant suffers, allows or causes any construction lien
or any other lien of record (the "Lien") to be imposed against
the Premises and said Lien is not discharged of record or bonded
by a reputable surety authorized to do business in the
Commonwealth of Massachusetts within thirty (30) days from the
date of filing;
(iv) if Subtenant shall in any way violate any law, regulation or
ordinance materially affecting the Premises or the use thereof
and such violation is not cured within thirty (30) days from the
date of written notice from Sublandlord to Subtenant of such
violation;
(v) if the Subtenant is delinquent in the performance of or
compliance with any of the other material covenants, agreements
and conditions contained herein for a period of thirty (30) days
after written notice thereof from Sublandlord to Subtenant;
(vi) if Subtenant shall make an assignment for the benefit of its
creditors;
(vii) if any petition shall be filed by or against Subtenant in any
court, whether or not pursuant to any statute of the United States
or of any state, in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceedings and with respect
to a petition filed against Subtenant the same is not dismissed
within sixty (60) days thereafter; or
7
<PAGE>
(viii) if, in any proceedings, a receiver or trustee be appointed for all
or any portion of Subtenant's property and with respect to a
petition filed against Subtenant the same is not dismissed within
sixty (60) days thereafter.
22.2 Upon the occurrence of an event of default, Sublandlord, at any time
thereafter, may give written notice to Subtenant specifying such event
of default and stating that this Lease shall expire on the date
specified in such notice, which date shall be at least ten (10) days
from Subtenant's receipt of such notice, and if Subtenant does not
cure the default within such 10 day period, or if such default is not
curable within such ten (10) day period, Subtenant has not commenced
to cure such default and continued to diligently pursue cure until
completion, then upon the date specified in such notice this Lease and
all rights of the Subtenant hereunder shall terminate.
22.3 Upon the expiration of this Lease, pursuant to Section 22.2 hereof,
the Subtenant shall peacefully surrender the Premises to Sublandlord
and Sublandlord upon or at any time after such expiration may, without
further notice, re-enter the Premises and repossess it by summary
proceedings, or ejectment and may dispossess the Subtenant and remove
the Subtenant and all other persons and property from the Premises and
may have, hold and enjoy the Premises and the right to receive all
rental income therefrom.
22.4 In any case where Sublandlord has recovered possession of the Premises
by reason of Subtenant's default, Sublandlord may, at Sublandlord's
option, occupy the Premises or cause the Premises to be redecorated,
altered, divided, consolidated with other adjoining premises, or
otherwise changed or prepared for reletting, and may relet the
Premises or any part thereof or otherwise, for a term or terms to
expire prior to, at the same time as, or subsequent to, the original
expiration date of the Lease, and receive the Basic Rent or Operating
Expenses therefor. Basic Rent or Operating Expenses so received shall
be applied first to the payment of such reasonable expenses as
Sublandlord may have incurred in connection with the recovery of the
reletting, including brokerage and reasonable attorney's fees, and to
the costs and expenses of performance of the other covenants of
Subtenant as herein provided.
22.5 No such expiration of this Lease pursuant to Article 22.2 hereof or
entry by Sublandlord or its agents shall relieve Subtenant of its
liability and obligations under this Lease and such liability and
obligations shall survive any such expiration. In the event the
Sublandlord shall thereafter relet the premises, the Sublandlord shall
immediately notify Subtenant of same and Subtenant shall thereupon be
entitled to repayment or credit from Sublandlord for all net rental
actually collected, less any expenses incurred by Sublandlord.
22.6 Sublandlord shall use reasonable and prudent efforts to relet the
Premises. If Sublandlord shall thereafter relet the Premises,
Subtenant shall be entitled to a credit from Sublandlord against the
Basic Rent or Operating Expenses due hereunder for all rental
collected, less any expenses incurred by the Sublandlord with respect
to the reletting, including cost of retrofit and tenant finish work,
brokerage fees and legal expenses. If Sublandlord elects pursuant
hereto, actually to occupy and use the Premises or any part thereof
during any part of the balance of the Initial Term or extension
thereof, there shall be allowed against Subtenant's obligations for
Basic Rent or Operating Expenses or damages as herein defined, during
the period of Sublandlord's occupancy the reasonable value of such
occupancy, not to exceed in any event, the Basic Rent or Operating
Expenses due hereunder and such occupancy shall not be construed as a
release of Subtenant's liability hereunder.
8
<PAGE>
23. NO WAIVER. One or more waivers of any covenant or condition by
Sublandlord or Subtenant shall not be construed as a waiver of a subsequent
breach of the same or any other covenant or condition, and the consent or
approval by Sublandlord requiring the other party's consent or approval to or of
any similar subsequent act. The failure of either party to seek redress for
violation of, or to insist upon strict performance of, any term, covenant or
condition in this Lease shall not prevent a similar subsequent act from
constituting a default under this Lease.
24. REMEDIES CUMULATIVE. To the extent permitted by law, the rights and
remedies of Sublandlord herein are cumulative, and the exercise of any one of
them will not be deemed to be in exclusion of any other. The rights and
remedies herein are in addition to any other rights and remedies available to
Sublandlord at law or equity.
25. RIGHT TO CURE OTHER'S DEFAULT. If either Sublandlord or Subtenant fails
to perform any covenant, term or condition of this Lease, the other party may,
after giving reasonable notice, perform such covenant, term or condition and
expend whatever sums may be necessary. All sums expended shall be repaid on
demand. This performance shall not waive any rights or remedies which either
party may have against the other for such default.
26. SUBORDINATION OF LEASE. This Lease shall be subject and subordinate
in all respects to all
mortgages to recognized lending institutions which may hereafter affect the
Premises and each and every of the advances which have heretofore been made or
which may hereafter be made thereunder, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Subtenant agrees to
execute such instruments of subordination in confirmation of the foregoing
agreement as such holder may request. Subtenant hereby appoints such holder as
Subtenant's attorney-in-fact to execute such subordination agreements upon
default of Subtenant in complying with such holder's request. Sublandlord
agrees to attempt in good faith to obtain a non-disturbance agreement from any
such mortgagee in favor of Subtenant.
27. SURRENDER AND HOLDING OVER. No surrender of the Premises or this Lease
shall be
effective unless accepted in writing by Sublandlord. At the expiration or
sooner termination of this Lease, Subtenant will remove its effects and
peaceably deliver possession of the Premises to Sublandlord in as good repair
and condition as they were at the commencement of this Lease, ordinary wear and
tear excepted. Any property left on the Premises after Subtenant vacates or
abandons the Premises shall be deemed abandoned and Sublandlord may remove,
store and/or dispose of the same as it sees fit, subject to applicable law.
28. NOTICES. Every notice, approval, consent or other communication authorized
or required by this Lease shall not be effective unless delivered personally or
in writing and sent by United States registered or certified mail, return
receipt requested, or by reputable overnight courier directed to the address
listed above or such other address as either party may designate by notice from
time to time.
29. ENTIRE AGREEMENT. The parties acknowledge that they have read and
understand the terms of this Lease. This Lease contains the entire agreement
and understanding between the parties regarding the Premises and is subject to
no agreements, conditions or representations that are not expressly set forth
herein, except for the FMA. This Lease may only be amended by a writing signed
by both Sublandlord and Subtenant.
30. INVALIDITY OF CERTAIN PROVISIONS. If any provision of this Lease shall be
invalid or unenforceable, the remaining provisions of this Lease shall not be
affected thereby and each and every provision of this Lease shall be enforceable
to the fullest extent permitted by law.
31. CAPTIONS. The captions in this Lease are inserted only for
convenience and in no way construe or interpret the provisions hereof or affect
their scope or intent.
9
<PAGE>
32. NET LEASE. It is understood and agreed that Subtenant, during the term
hereof, is to do all things and make all payments connected with the Premises or
arising out of any occupation of the Premises or any part thereof or its
appurtenances, except as otherwise expressly provided in this Lease, and under
no condition or contingency is Sublandlord to be called upon to do or perform
any act or action or be subject to any liability or responsibility or to make
any payments with respect to the Premises or any part thereof, except as
otherwise expressly provided in this Lease, all so that this Lease shall yield
net to the Sublandlord the Basic Rent specified in this Lease, except as
otherwise expressly provided in this Lease.
33. RIDERS. The riders and exhibits, if any, attached hereto are made a part of
this Lease.
33. GOVERNING LAW. This Lease shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
WITNESS the execution hereof under seal as of the day and year first written
above.
SUBLANDLORD:
PROPERTY MANAGEMENT PARTNERS, INC.
By: /s/ Steven Jaworski
--------------------------
Steven Jaworski
President
SUBTENANT:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Richard O. Wester
--------------------------
Name:
Title:
10
<PAGE>
Exhibit 10.7
STOCK PURCHASE AGREEMENT
between
C-BRIDGE INTERNET SOLUTIONS, INC.
and
RAYMOND J. LANE
<PAGE>
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (the "Agreement") made as of the 9th day of June,
1999 by and between C-Bridge Internet Solutions, Inc., a Delaware corporation
(the "Company"), and Raymond J. Lane, a California resident (the "Investor").
Preliminary Statement
---------------------
The Investor desires to purchase, and the Company desires to sell, 333,334
shares (collectively, the "Shares") of the common stock, $0.000001 par value per
share (the "Common Stock"), of the Company, for the consideration set forth
below, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of the Shares
-------------------------------
1.01 Purchase of the Shares from the Company. Subject to and upon
---------------------------------------
the terms and conditions of this Agreement, at the closing of the transactions
contemplated by this Agreement (the "Closing"), the Company shall sell,
transfer, convey, assign and deliver to the Investor, and the Investor shall
purchase, acquire and accept from the Company, the Shares. At the Closing, the
Company shall deliver to the Investor certificate(s) evidencing the Shares.
1.02 Further Assurances. At any time and from time to time after the
------------------
Closing, at the Investor's request and without further consideration, the
Company shall promptly execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take all such other action as the
Investor may reasonably request, more effectively to transfer, convey and assign
to the Investor, and to confirm the Investor's title to, the Shares and to carry
out the purpose and intent of this Agreement.
1.03 Purchase Price for the Shares. The purchase price to be paid by
-----------------------------
the Investor for the Shares shall be Six Dollars ($6.00) per share, for an
aggregate consideration of Two Million and Four Dollars ($2,000,004) (the
"Purchase Price"). At the Closing, the Investor shall deliver to the Company
the Purchase Price in cash, by
-1-
<PAGE>
cashier's or certified check, or by wire transfer of immediately available funds
to an account designated by the Company.
2. Representations of the Company
------------------------------
The Company represents and warrants to the Investor that:
2.01 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby and thereby. The Company is duly qualified
to do business and in good standing in all jurisdictions in which its ownership
of property or the character of its business requires such qualification, except
where the failure to be so qualified would not reasonably be expected to result
in a material adverse effect on the condition (financial or otherwise) of the
assets, properties and business of the Company (a "Company Material Adverse
Effect"). Certified copies of the Certificate of Incorporation and Bylaws of
the Company, each as amended to date, have been previously delivered to the
Investor, are true, complete and correct, and no amendments have been made
thereto or have been authorized since the date thereof.
2.02 Capitalization of the Company. The Company's authorized capital
-----------------------------
stock consists of 30,000,000 shares of Common Stock and 5,000,000 shares of
undesignated Preferred Stock, $.01 par value per share, of which less than
11,000,000 shares of Common Stock and no shares of Preferred Stock are issued
and outstanding on the date hereof. All such issued and outstanding shares of
Common Stock have been, and on the Closing Date the Shares will be, duly and
validly issued and are, or will be on such date, fully paid and non-assessable.
Except for outstanding warrants and options to acquire less than 7,000,000
shares of Common Stock, there are not, and on the Closing Date there will not
be, outstanding (i) any options, warrants or other rights to purchase from the
Company any capital stock of the Company; (ii) any securities convertible into
or exchangeable for shares of such stock; or (iii) any other commitments of any
kind for the issuance of additional shares of capital stock or options, warrants
or other securities of the Company. 510,000 shares of issued and outstanding
shares of Common Stock are held in the treasury of the Company.
2.03 Authorization. The execution and delivery by the Company of
-------------
this Agreement and the agreements provided for herein, and the consummation by
the
-2-
<PAGE>
Company of all transactions contemplated hereunder and thereunder by the
Company, have been duly authorized by all requisite corporate action. This
Agreement has been duly executed by the Company. This Agreement and all other
agreements and obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. The execution, delivery and performance by the Company
of this Agreement and the agreements provided for herein, and the consummation
by the Company of the transactions contemplated hereby and thereby, will not,
with or without the giving of notice or the passage of time or both, (a) violate
the provisions of any law, rule or regulation applicable to the Company; (b)
violate the provisions of the Certificate of Incorporation or Bylaws of the
Company; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator; or (d) conflict with or result in the breach or
termination of any term or provision of, or constitute a default under, or cause
any acceleration under, or cause the creation of any lien, charge or encumbrance
upon the properties or assets of the Company pursuant to, any indenture,
mortgage, deed of trust or other instrument or agreement to which the Company is
a party or by which the Company or any of its properties is or may be bound,
except for such instances which would not reasonably be expected to result,
either individually or in the aggregate, in a Company Material Adverse Effect.
2.04 Financial Statements. The financial statements dated as of
--------------------
March 31, 1999 of the Company (the "Company Financial Statements"), were
prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements), and fairly present in all
material respects, the financial position of the Company as at the respective
dates indicated thereon and the results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which are not
expected to be material in amount.
2.05 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
(a) reflected and reserved against in the most recent balance sheet included in
the Company Financial Statements (the "Balance Sheet") or (b) incurred in the
ordinary course of business after the date of the Balance Sheet and not material
in amount, either individually or in the aggregate, the Company has no liability
or obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, which is material to the condition (financial or
otherwise) of the assets, properties or business of the Company.
-3-
<PAGE>
2.06 Litigation. There is no action, suit or proceeding to which the
----------
Company is a party (either as a plaintiff or defendant) pending or, to the
knowledge of the Company, threatened, before any court or governmental agency,
authority, body or arbitrator ("Governmental Entity") which would be considered
reasonably likely to result in a Company Material Adverse Effect. The Company
has not been permanently or temporarily enjoined by any order, judgment or
decree of any Governmental Entity from engaging in or continuing any conduct or
practice in connection with the business, assets, or properties of the Company,
and there is not in existence on the date hereof any order, judgment or decree
of any Governmental Entity enjoining or requiring the Company to take any action
of any kind with respect to its business, assets or properties.
2.07 Intangible Property. The Company owns, is licensed or otherwise
-------------------
possesses legally enforceable rights to use, all items of intangible property
used or otherwise necessary in connection with the business of the Company,
including, but not limited to, trade secrets, know-how, any other confidential
information of the Company, United States and foreign patents, trade names,
trademarks, trade name and trademark registrations, copyrights and copyright
registrations, and applications for any of the foregoing (the "Intangible
Property"). Except as otherwise disclosed in Schedule 2.07 attached hereto:
-------------
(a) the Company has the right and authority to use, and to continue to
use after the Closing, the Intangible Property in connection with the conduct of
its business in the manner presently conducted, and such use or continuing use
does not and will not conflict with, infringe upon or violate any rights of any
other person, corporation or entity;
(b) the Company has not received written notice of, and has no
knowledge of any reasonable basis for, a pleading or threatened claim,
interference action or other judicial or adversarial proceeding against the
Company that any of the operations, activities, products, services or
publications of the Company or any of its customers or distributors infringes or
will infringe any patent, trademark, trade name, copyright, trade secret or
other property right of a third party, or that it is illegally or otherwise
using the trade secrets, formulae or property rights of others, except for such
claims, actions and proceedings which would not reasonably be expected to
result, either individually or in the aggregate, in a Company Material Adverse
Effect;
-4-
<PAGE>
(c) there are no outstanding, nor to the knowledge of the Company, any
threatened disputes or other disagreements with respect to any licenses or
similar agreements or arrangements to which the Company is a party or with
respect to infringement by a third party of any of the Intangible Property; and
(d) the Company has taken reasonable steps to protect its right, title
and interest in and to the Intangible Property and the continued use of the
Intangible Property.
2.08 Properties. All real property leases of the Company are in good
----------
standing, valid and effective in accordance with their respective terms, and the
Company is not in default under any such leases, except where the lack of such
good standing, validity or effectiveness or the existence of such default would
not reasonably be expected to result in a Company Material Adverse Effect.
2.09 Tax Matters. Except for such instances as would not,
-----------
individually or in the aggregate, be considered reasonably likely to result in a
Company Material Adverse Effect:
(a) within the times and in the manner prescribed by law, the Company
has filed all federal, state and local tax returns and all tax returns for
foreign countries, provinces and other governing bodies having jurisdiction to
levy taxes upon them which are required to be filed;
(b) the Company has paid all taxes, interest, penalties, assessments
and deficiencies which have become due or which have been claimed to be due,
including, without limitation, income, franchise, real estate, sales and
withholding taxes and other employee benefits, taxes and imports;
(c) the Company has not waived or extended any applicable statute of
limitations relating to the assessment of federal, state, local or foreign
taxes; and
(d) no examination of the federal, state, local or foreign tax returns
of the Company is currently in progress nor, to the knowledge of the Company,
threatened and no deficiencies have been asserted or assessed against either the
Company as a result of any audit by the Internal Revenue Service or any state or
local taxing authority and no such deficiency has been proposed or threatened.
-5-
<PAGE>
2.10 Books and Records. The general ledgers and books of account of
-----------------
the Company, all federal, state and local income, franchise, property and other
tax returns filed by the Company are in all material respects true, complete and
correct and have been maintained in accordance with good business practice and
in accordance with all applicable procedures required by laws and regulations.
2.11 Contracts and Commitments. The Company has not breached, or
-------------------------
received in writing any claim or threat that it has breached, any of the
material terms or conditions of any agreement, contract or commitment that would
permit any other party to collect material damages from the Company under any
contract which is material to the Company ("Company Material Contract"). Each
Company Material Contract that has not expired or been terminated in accordance
with its terms is in full force and effect and is not subject to any material
default thereunder of which the Company is aware by any party obligated to the
Company pursuant to such the Company Material Contract. To the knowledge of the
Company, none of the parties to the Company Material Contracts have terminated
or in any way expressed an intent to materially reduce or terminate the amount
of business with the Company in the future.
2.12 Compliance with Agreements and Laws. The Company has complied
-----------------------------------
in all material respects with all applicable federal, state, local and foreign
statutes, laws and regulations, and is not in violation of, and has not received
any notices of violation with respect to, any such statute, law or regulation
with respect to the conduct of its business or the ownership or operation of its
business, including the federal Foreign Corrupt Practices Act and all United
States statutes, laws and regulations as from time to time govern the license
and delivery of technology and products abroad by persons subject to the
jurisdiction of the United States.
2.13 Environmental Matters. To the knowledge of the Company, no
---------------------
underground storage tanks are present under any property that the Company
currently occupies or that the Company has at any time owned, operated, occupied
or leased and no amount of any Hazardous Materials (as defined below) is present
as a result of the actions of the Company or, to the knowledge of the Company,
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereon,
that the Company has at any time owned, operated, occupied or leased, except for
such instances where the presence of such underground storage tanks or Hazardous
Materials would not reasonably be expected to have a Company Material Adverse
Effect. At no time has the Company engaged in any Hazardous Materials
Activities (as defined below) in violation of any rule, regulation, treaty or
statute promulgated by any Governmental
-6-
<PAGE>
Entity to prohibit, regulate or control Hazardous Materials or any Hazardous
Materials Activities, which violation has or would be reasonably likely to have
a Company Material Adverse Effect. The Company holds all Environmental Permits
(as defined below), the absence of which would reasonably be expected to have a
Company Material Adverse Effect. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending or, to the knowledge
of the Company, threatened, concerning any Environmental Permit or any Hazardous
Materials Activities of the Company. The Company is not aware of any fact or
circumstance which would reasonably be expected to involve the Company in any
environmental litigation or impose upon the Company any environmental liability
which would reasonably be expected to have a Company Material Adverse Effect.
For purposes of this Agreement, "Hazardous Materials" means any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws; "Hazardous Materials Activities" means the
transportation, storage, use, manufacture, disposal of, release or exposure of
employees or others to Hazardous Materials; and "Environmental Permits" means
environmental approvals, permits, licenses, clearances and consents.
2.14 Employee Benefit Plans.
----------------------
(a) Employee Plans. The Company has made available to the Investor
--------------
true, correct and complete copies of all pension, benefit, profit sharing,
retirement, deferred compensation, welfare, insurance, disability, bonus,
vacation pay, severance pay and other similar plans, programs and agreements,
whether reduced to writing or not, other than any "multiemployer plan" as such
term is defined in Section 4001(a)(3) of ERISA, relating to the Company's
employees maintained by the Company or by any other member (hereinafter,
"Affiliate") of any controlled group of corporations, group of trades or
businesses under common control, or affiliated service group (as defined for
purposes of Section 414(b), (c) and (m), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code")) (the "Employee Plans") and, except as set
forth on Schedule 2.14(a) attached hereto, the Company has no
-------- -------
-7-
<PAGE>
obligations, contingent or otherwise, past or present, under applicable law or
the terms of any Employee Plan.
(b) Prohibited Transactions. Neither the Company nor any of its
-----------------------
Affiliates, directors, officers, employees or agents, or any "party in interest"
or "disqualified person," as such terms are defined in Section 3 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975
of the Code has, with respect to any Employee Plan, engaged in or been a party
to any nonexempt "prohibited transaction," as such term is defined in Section
4975 of the Code or Section 406 of ERISA, in connection with which, directly or
indirectly, the Investor or any of his Affiliates or any Employee Plan or any
related funding medium could be subject to either a penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code.
(c) Compliance. With respect to all Employee Plans, the Company and
----------
its Affiliates are in compliance in all material respects with the requirements
prescribed by any and all statutes, orders or governmental rules or regulations
currently in effect, including, but not limited to, ERISA and the Code,
applicable to such Employee Plans. The Company and its Affiliates have in all
respects performed all obligations required to be performed by them under, and
is not in violation in any respect of, and there has been no default or
violation by any other party with respect to, any of the Employee Plans. Except
as set forth on Schedule 2.14(c) attached hereto: (i) none of the Employee Plans
----------------
which are subject to Title IV of ERISA has been or will be terminated in whole
or in part within the meaning of ERISA or the Code; (ii) no liability has been
incurred to, nor has any event or circumstance occurred, nor will any event or
circumstance occur prior to the Closing Date, which could result in such a
liability being asserted by, the Pension Benefit Guaranty Corporation ("PBGC")
with respect to any Employee Plan (other than the payment of annual premiums
under Section 4007 of ERISA or benefits payable in accordance with the terms of
such Employee Plan); (iii) no Employee Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code, or both, incurred any
"accumulated funding deficiency" (as defined in ERISA), whether or not waived;
(iv) neither the Company nor any Affiliate has failed to pay any amounts due and
owing as required by the terms of any Employee Plan; (v) there has been no
"reportable event" within the meaning of Section 4043(b)(1)-(9) of ERISA, or any
event described in Section 4063(a) of ERISA, with respect to any Employee Plan,
other than as disclosed herein or on accompanying schedules; (vi) neither
Company nor any Affiliate has failed to make any payment to an Employee Plan
required under Section 302 of ERISA nor has any lien ever been imposed under
Section 302(f) of ERISA; and
-8-
<PAGE>
(vii) neither the Company nor any Affiliate has adopted an amendment to any
Employee Plan which requires the provision of security under Section 307 of
ERISA, (viii) the PBGC has not instituted any proceedings to terminate an
Employee Plan pursuant to Section 4042 of ERISA.
2.15 Absence of Certain Changes or Events. Since the date of the
------------------------------------
Balance Sheet, the Company has conducted its businesses only in the ordinary
course, in a manner consistent with past practice, and there has not been: (i)
any Company Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to the Company which would
reasonably be expected to result in a Company Material Adverse Effect; (iii) any
material change by the Company in its accounting methods, principles or
practices; (iv) any revaluation by the Company of any of its assets, other than
in the ordinary course of business consistent with past practice, or (v) any
other action or event that would reasonably be expected to result in a Company
Material Adverse Effect.
2.16 Regulatory Approvals. All consents, approvals, authorizations
--------------------
or other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Company and which are necessary for the execution
and delivery by the Company of this Agreement or any documents to be executed
and delivered by the Company in connection herewith have been, or prior to the
Closing Date will be, obtained and satisfied.
2.17 Disclaimer of Other Representations and Warranties; Schedules.
--------------------------------------------------------------
(a) THE COMPANY DOES NOT MAKE, AND HAS NOT MADE, AND SHALL NOT BE
DEEMED TO HAVE MADE, ANY REPRESENTATIONS OR WARRANTIES RELATING TO THE COMPANY,
THE BUSINESS OF THE COMPANY OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY OTHER THAN THOSE EXPRESSLY SET FORTH HEREIN. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, THE COMPANY HAS NOT MADE, AND SHALL
NOT BE DEEMED TO HAVE MADE, ANY REPRESENTATIONS OR WARRANTIES AS TO THE
INFORMATION CONTAINED IN ANY MANAGEMENT PRESENTATION RELATING TO THE BUSINESS OF
THE COMPANY IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND NO
STATEMENT MADE IN ANY SUCH PRESENTATION SHALL BE DEEMED A REPRESENTATION OR
WARRANTY HEREUNDER OR OTHERWISE. IT IS UNDERSTOOD THAT ANY COST ESTIMATES,
PROJECTIONS OR OTHER PREDICTIONS, ANY DATA, ANY FINANCIAL
-9-
<PAGE>
INFORMATION OR ANY PRESENTATIONS ARE NOT AND SHALL NOT BE DEEMED TO BE OR TO
INCLUDE REPRESENTATIONS OR WARRANTIES OF THE COMPANY (IT BEING UNDERSTOOD THAT
THIS SECTION SHALL NOT BE DEEMED TO LIMIT THE REPRESENTATIONS AND WARRANTIES
CONTAINED HEREIN, INCLUDING BUT NOT LIMITED TO, THOSE WITH RESPECT TO THE
FINANCIAL STATEMENTS). NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO MAKE ANY
REPRESENTATION OR WARRANTY RELATING TO THE COMPANY, THE BUSINESS OF THE COMPANY
OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND, IF
MADE, SUCH REPRESENTATION OR WARRANTY MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
(b) Notwithstanding anything to the contrary contained in this
Agreement, any information disclosed in one Schedule shall be deemed to be
disclosed in all Schedules. Certain information set forth in the Schedules may
not be required to be disclosed pursuant to this Agreement. The disclosure of
any information shall not be deemed to constitute an acknowledgment that such
information is required to be disclosed in connection with the representations
and warranties made by the Company in this Agreement or that it is material, nor
shall such information be deemed to establish a standard of materiality.
3. Representations of the Investor
-------------------------------
The Investor represents and warrants to the Company as follows:
(a) the Investor is acquiring the Shares for his own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same; and the Investor has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof;
(b) the Investors's overall commitment to investments which are not
readily marketable is not disproportionate to the Investor's net worth and the
Investor's investment in the Company will not cause such overall commitment to
become excessive. The Investor has adequate net worth and means of providing
for current needs and personal contingencies to sustain a complete loss of the
Investor's investment in the Company, and the Investor has no need for liquidity
in this investment;
-10-
<PAGE>
(c) the Investor has substantial knowledge and experience in making
investment decisions of this type and is capable of evaluating the merits and
risks of this investment;
(d) the Company has made available to the Investor all documents
requested and has provided answers to all of his questions regarding an
investment in the Company. In evaluating the suitability of an investment in
the Company, the Investor has not relied upon any representations or other
information (whether oral or written) other than as set forth in this Agreement.
In addition, the Investor has had an opportunity to discuss this investment with
representatives of the Company and to ask questions of them;
(e) the Investor is acquiring shares of Common Stock without being
furnished any offering literature or prospectus;
(f) the Investor understands that an investment in the Company
involves significant risks, and the Investor is aware of all of the risk factors
related to the purchase of shares of Common Stock; and
(g) the certificate representing shares of Common Stock will contain a
legend substantially as follows:
"These shares have not been registered under the Securities Act of
1933. They may not be offered or transferred by sale, assignment, pledge or
otherwise unless (i) a registration statement for the shares under Securities
Act of 1933 is in effect or (ii) the corporation has receives an opinion of
counsel, which is satisfactory to the corporation, to the effect that such
registration is not required under the Securities Act of 1933."
4. Public Announcements
--------------------
The parties agree that, except as required by applicable law or
regulation, any and all general public pronouncements or other general public
communications concerning this Agreement and the purchase of the Shares by the
Investor, and the timing, manner and content of such disclosures, shall be
subject to the mutual agreement of the Company and the Investor.
-11-
<PAGE>
5. Conditions to Obligations of the Investor
-----------------------------------------
The obligations of the Investor under this Agreement are subject to
the fulfillment, at the Closing Date, of the following conditions precedent,
each of which may be waived in the sole discretion of the Investor:
5.01 Continued Truth of Representations and Warranties of the
--------------------------------------------------------
Company; Compliance with Covenants and Obligations. The representations and
- ---------------------------------------------------
warranties of the Company shall be true and correct on and as of the Closing
Date as though such representations and warranties were made on and as of such
date (even though they purport to have been given on a date prior to the Closing
Date), except for any changes permitted by the terms hereof or consented to in
writing by the Investor. The Company shall have performed and complied with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with prior to or at the Closing
Date, and the Company shall have delivered to the Investor a certificate signed
by the President and Chief Financial Officer of the Company to such effect.
5.02 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Investor to own the Shares after the Closing.
5.03 Closing Deliveries. The Investor shall have received at or
-------------------
prior to the Closing such documents, instruments or certificates as the Investor
may reasonably request including, without limitation:
(a) the stock certificate representing the Shares;
(b) such certificates of the Company's officers and such other
documents evidencing satisfaction of the conditions specified in this Section as
the Investor shall reasonably request;
(c) a certificate of the Secretary of State of the State of Delaware
as to the legal existence and good standing (including tax) of the Company in
Delaware;
-12-
<PAGE>
(d) certificates of the Secretary of the Company attesting to the
incumbency of the Company's officers, the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement, and the
authenticity and continuing validity of the charter documents delivered to the
Investor;
(e) a cross receipt executed by the Company.
6. Conditions to Obligations of the Company
----------------------------------------
The obligations of the Company under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in the sole discretion of the Company:
6.01 Continued Truth of Representations and Warranties of the
--------------------------------------------------------
Investor; Compliance with Covenants and Obligations. The representations and
- ---------------------------------------------------
warranties of the Investor in this Agreement shall be true and correct on and as
of the Closing Date as though such representations and warranties were made on
and as of such date. The Investor shall have performed and complied with all
terms, conditions, covenants, obligations, agreements and restrictions required
by this Agreement to be performed or complied with by him prior to or at the
Closing Date.
6.02 Adverse Proceedings. No action or proceeding by or before any
-------------------
court or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Company to issue and sell the Shares.
6.03 Closing Deliveries. The Company shall have received at or
-------------------
prior to the Closing such documents, instruments or certificates as the Company
may reasonably request including, without limitation:
(a) payment of the Purchase Price; and
(b) a cross receipt executed by the Investor.
7. Survival of Representations. All representations and warranties made
---------------------------
by the Company in this Agreement, or in any instrument or document furnished in
connection with this Agreement or the transactions contemplated hereby, shall
survive
-13-
<PAGE>
the Closing and (any investigation at any time made by or on behalf of
the Investor) for a period of one year.
8. Termination of Agreement; Option to Proceed; Damages
----------------------------------------------------
8.01 Termination by Lapse of Time. This Agreement shall terminate at
----------------------------
5:00 p.m., Boston Time, on June 15, 1999, if the transactions contemplated
hereby have not been consummated, unless such date is extended by the written
consent of the Company and the Investor.
8.02 Termination by Agreement of the Parties. This Agreement may be
---------------------------------------
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Investor shall have no further obligation
or liability to the Company under this Agreement, and the Company shall have no
further obligation or liability to the Investor under this Agreement.
8.03 Termination by Reason of Breach. This Agreement may be
-------------------------------
terminated by the Company, if at any time prior to the Closing there shall occur
a material breach of any of the representations, warranties or covenants of the
Investor or the failure by the Investor to perform any condition or obligation
hereunder, and may be terminated by the Investor, if at any time prior to the
Closing there shall occur a material breach of any of the representations,
warranties or covenants of the Company or the failure of the Company to perform
any condition or obligation hereunder.
9. Brokers
-------
9.01 For the Company. The Company represents and warrants that no
---------------
person, firm or corporation has acted in the capacity of broker or finder on its
behalf to bring about the negotiation of this Agreement. The Company agrees to
indemnify and hold harmless the Investor against any claims or liabilities
asserted against him by any person acting or claiming to act as a broker or
finder on behalf of the Company.
9.02 For the Investor. The Investor represents and warrants that no
----------------
person, firm or corporation has acted in the capacity of broker or finder on his
behalf to bring about the negotiation of this Agreement. The Investor agrees to
indemnify and hold harmless the Company against any claims or liabilities
asserted against him by any person acting or claiming to act as a broker or
finder on behalf of the Investor.
-14-
<PAGE>
9.03 Notices
-------
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally or sent by telex, federal
express, registered or certified mail, postage prepaid, addressed as follows or
to such other address of which the parties may have given notice:
To the Investor: Raymond J. Lane
With a copy to: Alan H. Roth
To the Company: C-Bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, MA 02139
Attention: Alan Roth, Esq.
With a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess, Esq.
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally, or
(b) three business days after being sent, if sent by registered or certified
mail.
10. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Investor, on the one hand, and the Company, on the other hand, may not assign
their respective obligations hereunder without the prior written consent of the
other party; provided, however, that the Investor may assign this Agreement, and
-------- -------
its rights and obligations hereunder, to an Affiliate of the Investor. Any
assignment in contravention of this provision shall be null and void. No
assignment shall release the Investor or the Company from any obligation or
liability under this Agreement.
-15-
<PAGE>
11. Entire Agreement; Amendments; Attachments
-----------------------------------------
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto
represent the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and understandings
between such parties. The Investor and the Company, by the consent of its Board
of Directors or officers authorized by such Board, may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Investor and the Company.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provisions of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
12. Severability
------------
Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering that or any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
13. Expenses
--------
The Investor, on the one hand, and the Company, on the other hand,
will pay all fees and expenses (including, without limitation, legal and
accounting fees and expenses) incurred by them, respectively, in connection with
the transactions contemplated hereby.
14. Legal Fees
----------
In the event that legal proceedings are commenced by the Investor
against the Company, or by the Company against the Investor, in connection with
this Agreement or the transactions contemplated hereby, the party or parties
which do not prevail in such proceedings shall pay the reasonable attorneys'
fees and other costs and
-16-
<PAGE>
expenses, including investigation costs, incurred by the prevailing party in
such proceedings.
15. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
16. Section Headings
----------------
The section headings are for the convenience of the parties and in no
way alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
17. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
-17-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed under seal by the
parties hereto as of and on the date first above written.
INVESTOR:
/s/ Raymond J. Lane
-----------------------------------
RAYMOND J. LANE
COMPANY:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
-----------------------------------
Title: President and Chief Executive Officer
------------------------------------------
-18-
<PAGE>
Exhibit 10.8
C-BRIDGE INTERNET SOLUTIONS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
Dated as of October 7, 1999
<PAGE>
Table of Contents
Page No.
1. Authorization and Sale of Shares............................... 1
1.1 Authorization........................................... 1
1.2 Sale of Shares.......................................... 1
1.3 Use of Proceeds......................................... 1
2. The Closings................................................... 1
3. Representations of the Company................................. 2
3.1 Organization and Standing.............................. 2
3.2 Capitalization......................................... 3
3.3 Subsidiaries, Etc...................................... 3
3.4 Securityholder Lists and Agreements.................... 4
3.5 Issuance of Shares..................................... 4
3.6 Authority for Agreement; No Conflict................... 4
3.7 Governmental Consents.................................. 5
3.8 Litigation............................................. 6
3.9 Financial Statements................................... 6
3.10 Absence of Undisclosed Liabilities..................... 6
3.11 Events Subsequent to the Balance Sheet................. 6
3.12 Taxes.................................................. 7
3.13 Property and Assets.................................... 8
3.14 Intellectual Property.................................. 8
3.15 Insurance.............................................. 9
3.16 Material Contracts and Obligations..................... 9
3.17 Compliance.............................................10
3.18 Absence of Changes.....................................10
3.19 Employees..............................................10
3.20 ERISA..................................................11
3.21 Books and Records......................................11
3.22 Permits................................................11
3.23 Environmental Matters..................................11
3.24 U.S. Real Property Holding Corporation.................12
3.25 Disclosures............................................12
3.26 Year 2000..............................................12
4. Representations of the Purchasers..............................13
4.1 Investment..............................................13
4.2 Authority...............................................13
4.3 Experience..............................................13
-i-
<PAGE>
5. Conditions to the Obligations of the Purchasers................14
5.1 Accuracy of Representations and Warranties.............14
5.2 Performance............................................14
5.3 Opinion of Counsel.....................................14
5.4 Ancillary Agreements...................................14
5.5 Non-Competition Agreement..............................14
5.6 Outsourcing Agreement..................................14
5.7 Certificates and Documents.............................14
5.8 Minimum Investment.....................................15
5.9 Compliance Certificates................................15
5.10 Other Matters..........................................15
6. Condition to the Obligations of the Company....................15
6.1 Accuracy of Representations and Warranties.............15
7. Affirmative Covenants of the Company...........................15
7.1 Inspection and Observation..............................15
7.2 Financial Statements and Other Information..............16
7.3 Material Changes and Litigation.........................17
7.4 Agreements with Employees; Options......................17
7.5 Directors...............................................18
7.6 Reservation of Common Stock.............................18
7.7 Related Party Transactions..............................18
7.8 Termination of Covenants................................18
8. Transfer of Shares.............................................18
8.1 Restricted Shares.......................................18
8.2 Requirements for Transfer...............................19
8.3 Legend..................................................19
8.4 Rule 144A Information...................................19
9. Miscellaneous..................................................20
9.1 Successors and Assigns..................................20
9.2 Confidentiality.........................................20
9.3 Survival of Representations and Warranties..............20
9.4 Expenses................................................21
9.5 Indemnification.........................................21
9.6 Brokers.................................................21
9.7 Severability............................................21
9.8 Specific Performance....................................21
9.9 Governing Law...........................................22
9.10 Notices.................................................22
9.11 Complete Agreement......................................22
-ii-
<PAGE>
9.12 Amendments and Waivers..................................22
9.13 Pronouns................................................23
9.14 Counterparts; Facsimile Signatures......................23
9.15 Section Headings........................................23
10. Definitions....................................................23
EXHIBITS
Exhibit A - List of Purchasers
Exhibit B - Certificate of Amendment
Exhibit C-1 - Nondisclosure and Assignment of Inventions Agreement
Exhibit C-2 - Confidentiality and Non-Competition Agreement
Exhibit D - Opinion of Counsel
Exhibit E - Stockholders' Voting Agreement
Exhibit F - Investor Rights Agreement
-iii-
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement dated as of October 7, 1999 is entered into by and among C-
bridge Internet Solutions, Inc., a Delaware corporation (the "Company"), and the
individuals and entities listed on Exhibit A attached hereto (collectively, the
---------
"Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
--------------------------------
1.1 Authorization. The Company has, or before the Closing (as
-------------
defined in Section 2) will have, duly authorized the sale and issuance, pursuant
to the terms of this Agreement, of 1,850,000 shares of its Series A Convertible
Preferred Stock, $0.01 par value per share (the "Series A Preferred"), having
the rights, restrictions, privileges and preferences set forth in the
Certificate of Amendment attached hereto as Exhibit B (the "Certificate of
---------
Amendment"). The Company has, or before the Closing will have, adopted and
filed the Certificate of Amendment with the Secretary of State of the State of
Delaware.
1.2 Sale of Shares. Subject to the terms and conditions of this
--------------
Agreement, at the Closing the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase, the number of shares of
Series A Preferred set forth opposite such Purchaser's name on Exhibit A for the
---------
purchase price of $6.00 per share (the "Purchase Price"). The shares of Series
A Preferred sold under this Agreement are referred to as the "Shares." The
Company's agreement with each of the Purchasers is a separate agreement, and the
sale of Shares to each of the Purchasers is a separate sale.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of the Shares for general corporate and working capital purposes.
2. The Closings.
------------
(a) The closing (the "Closing") of the sale and purchase of the Shares
under this Agreement shall take place at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts at 10:00 a.m. on October 8, 1999, or at such
other time, date and place as are mutually agreeable to the Company and
O'Sullivan, Graev & Karabell, LLP, special counsel to the Purchasers. At the
Closing, the Company shall deliver to each of the Purchasers a certificate for
the number of Shares being purchased
<PAGE>
at the Closing by such Purchaser, registered in the name of such Purchaser,
against payment to the Company of the Purchase Price, by wire transfer, check,
cancellation of indebtedness or other method acceptable to the Company. The date
of the Closing is hereinafter referred to as the "Closing Date." If at the
Closing any of the conditions specified in Section 6 shall not have been
fulfilled, each of the Purchasers shall, at his or its election, be relieved of
all of his or its obligations under this Agreement without thereby waiving any
other rights he or it may have by reason of such failure or such non-
fulfillment.
(b) The Company may sell, at any time prior to 30 days after the
Closing, in one or more closings (each, a "Subsequent Closing"), up to 333,334
additional Shares at the Purchase Price, to such purchasers (each, an
"Additional Purchaser") as may be approved by the Board of Directors of the
Company. At each Subsequent Closing, (i) the Company and each Additional
Purchaser shall execute and deliver a counterpart signature page hereto,
whereupon such Additional Purchaser shall become a "Purchaser" hereunder and the
Shares purchased by such Additional Purchaser shall be deemed to be "Shares" for
purposes of this Agreement, and (ii) the Company shall cause Exhibit A hereto be
---------
amended to reflect the purchases made by the Additional Purchasers at each
Subsequent Closing. At each Subsequent Closing, the Company shall deliver to
each Additional Purchaser a certificate for the number of Shares being purchased
at the Subsequent Closing by such Additional Purchaser, registered in the name
of such Additional Purchaser, against payment to the Company of the Purchase
Price in the manner specified above. The Company shall deliver to each
Purchaser, within 15 days after any Subsequent Closing, written notice of such
Subsequent Closing (which notice shall specify the names of each Additional
Purchaser and the number of shares of Series A Preferred issued to each).
3. Representations of the Company. Except as disclosed by the Company in
------------------------------
the Disclosure Schedule dated the date hereof (the "Disclosure Schedule") and
delivered to the Purchasers, the Company hereby represents and warrants to each
of the Purchasers that the statements contained in this Section 3 are true,
complete and correct. The Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section
3, and the disclosures in any paragraph of the Disclosure Schedule shall qualify
only the corresponding paragraph of this Section 3, unless otherwise specified.
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and to enter into and perform this Agreement and all other
agreements required to be executed by the Company at or prior to the Closing
pursuant to Section 5.4 (the "Ancillary Agreements") and to carry out the
transactions contemplated by this Agreement and the Ancillary Agreements. The
Company is duly
-2-
<PAGE>
qualified to do business as a foreign corporation and is in good standing in the
Commonwealth of Massachusetts and in each other jurisdiction in which the
failure so to qualify would have a material adverse effect on the business,
assets or condition (financial or otherwise) of the Company (a "Company Material
Adverse Effect"). The Company has furnished to the Purchasers true, complete and
correct copies of its Certificate of Incorporation and By-laws, each as amended
to date and presently in effect. The Company has at all times complied with all
provisions of its Certificate of Incorporation and By-laws and is not in default
under, or in violation of, any such provision.
3.2 Capitalization. The authorized capital stock of the Company
--------------
(immediately prior to the Closing) will consist of 30,000,000 shares of common
stock, $0.01 par value per share (the "Common Stock"), of which 12,167,687
shares are issued and outstanding (including 510,000 shares held in treasury by
the Company) and 9,727,081 shares have been reserved for issuance pursuant to
the 1997 Stock Incentive Plan and the 1999 Stock Incentive Plan (the "Plans") of
the Company and other arrangements as approved by the Board of Directors, and
5,000,000 shares of Preferred Stock, $0.01 par value per share, of which
1,850,000 shares have been designated as Series A Preferred, none of which
shares are issued or outstanding. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as provided in this Agreement, (i) no subscription,
warrant, option, convertible security or other right (contingent or otherwise)
to purchase or acquire any shares of capital stock of the Company is authorized
or outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof, and (iv) there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. All of the issued and outstanding shares of
capital stock of the Company have been offered, issued and sold by the Company
in compliance with applicable federal and state securities laws. Except as
contemplated by the Ancillary Agreements, no person has any right to cause the
Company to effect the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of any securities (including debt securities) of the
Company.
Immediately upon consummation of the Closing, the Shares shall represent
(on an as converted basis), at least seven and two-tenths percent (7.2%) of the
Company's Common Stock on a fully diluted basis, including the conversion of all
outstanding shares of Preferred Stock and including the exercise of all options,
warrants or rights to purchase or receive shares of Common Stock.
-3-
<PAGE>
3.3 Subsidiaries, Etc. Section 3.3 of the Disclosure Schedule sets
-----------------
forth for each subsidiary of the Company (a "Subsidiary") (a) its name and
jurisdiction of incorporation, (b) the number of shares of authorized, issued
and outstanding capital stock of each class of its capital stock and (c) the
names and the number of shares held by each holder of such shares. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary is duly qualified to conduct business and is in good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to so qualify would not have a material adverse effect on the
business, properties or rights of such Subsidiary. Each Subsidiary has all
requisite corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by it. The Company
has delivered or made available to special counsel to the Purchasers correct and
complete copies of the Certificate of Incorporation and By-laws of each
Subsidiary, as amended to date. All of the issued and outstanding shares of
capital stock of each Subsidiary are duly authorized, validly issued, fully
paid, nonassessable and are held of record and beneficially by either the
Company or another Subsidiary, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
claims, security interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Company or any
Subsidiary is a party or which are binding on any of them providing for the
issuance, disposition or acquisition of any capital stock of any Subsidiary.
There are no outstanding stock appreciation, phantom stock or similar rights
with respect to any Subsidiary. There are no voting trusts, proxies or other
agreements or understandings with respect to the voting of any capital stock of
any Subsidiary. No Subsidiary is in default under or in violation of any
provision of its Charter or By-Laws. The Company does not control directly or
indirectly or have any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary.
3.4 Securityholder Lists and Agreements. Section 3.4 of the
-----------------------------------
Disclosure Schedule sets forth a true, complete and correct list of the
securityholders of the Company, showing the number of shares of Common Stock or
other securities of the Company held by each securityholder as of the date of
this Agreement and, in the case of options, warrants and other convertible
securities, the exercise price thereof and the number and type of securities
issuable thereunder. Except as provided in this Agreement, there are no
agreements, written or oral, between the Company and any holder of its
securities, or, to the Company's knowledge, among any holders of its securities,
relating to the acquisition (including without limitation rights of first
refusal, anti-dilution or pre-emptive rights), disposition, registration under
the Securities Act or voting of the capital stock of the Company.
-4-
<PAGE>
3.5 Issuance of Shares. The issuance, sale and delivery of the
------------------
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have been, or
will be on or prior to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and all such shares have been duly reserved
for issuance. The Shares when so issued, sold and delivered against payment
therefor in accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion, will be duly and validly issued, fully paid and nonassessable.
3.6 Authority for Agreement; No Conflict. The execution, delivery
------------------------------------
and performance by the Company of this Agreement and the Ancillary Agreements,
and the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action. This
Agreement has been, and the Ancillary Agreements when executed at the Closings
will be, duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms, subject as to enforcement of remedies to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
generally the enforcement of creditors' rights and subject to a court's
discretionary authority with respect to the granting of a decree ordering
specific performance or other equitable remedies. The execution of and
performance of the transactions contemplated by this Agreement and the Ancillary
Agreements and compliance with their respective provisions by the Company will
not (a) conflict with or violate any provision of the Certificate of
Incorporation or By-laws of the Company, (b) require on the part of the Company
any filing with, or any permit, authorization, consent or approval of, any
court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (each of the foregoing is
hereafter referred to as a "Governmental Entity"), (c) conflict with, result in
a breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to which
the Company is a party or by which the Company is bound or to which its assets
are subject, other than any of the foregoing events listed in this clause (c)
which do not and would not be considered reasonably likely to, either
individually or in the aggregate, have a Company Material Adverse Effect, (d)
result in the imposition of any Security Interest upon any assets of the Company
or (e) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its properties or assets. For purposes of
this Agreement, "Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien (whether arising by contract or by
operation of law).
-5-
<PAGE>
3.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Entity is required on the part of the Company in
connection with the execution and delivery of this Agreement or the Ancillary
Agreements, the offer, issuance, sale and delivery of the Shares, the issuance
and delivery of the shares of Common Stock issuable upon conversion of the
Shares or the other transactions to be consummated at the Closing, as
contemplated by this Agreement and the Ancillary Agreements, except such filings
as shall have been made prior to and shall be effective on and as of the Closing
and such filings required to be made after the Closing under applicable federal
and state securities laws, all of which filings are specified in Section 3.7 of
the Disclosure Schedule. Based on the representations made by each of the
Purchasers in Section 4 of this Agreement, the offer and sale of the Shares to
each of the Purchasers will be in compliance with applicable federal and state
securities laws.
3.8 Litigation. There is no action, suit or proceeding, or
----------
governmental inquiry or investigation, pending, or, to the Company's knowledge,
any reasonable basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it, or which would reasonably be expected to result, either individually or
in the aggregate, in a Company Material Adverse Effect, nor is there any
litigation pending, or, to the Company's knowledge, any reasonable basis
therefor or threat thereof, against the Company, the proposed activities of the
Company, or negotiations by the Company with prospective investors in the
Company. The Company is not subject to any outstanding judgement, order or
decree.
3.9 Financial Statements. The Company has furnished to each of the
--------------------
Purchasers a complete and correct copy of (i) the audited balance sheet of the
Company at December 31, 1998 and the related audited statements of operations
and cash flows for the fiscal year then ended, and (ii) the unaudited balance
sheet of the Company (the "Balance Sheet") at June 30, 1999 (the "Balance Sheet
Date") and the related statements of operations and cash flow for the six months
then ended, (collectively, the "Financial Statements"). The Financial
Statements are complete and correct, are in accordance with the books and
records of the Company and present fairly in all material respects the financial
condition and results of operations of the Company, at the dates and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied, except that the unaudited
Financial Statements may not be in accordance with GAAP because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
3.10 Absence of Undisclosed Liabilities. The Company does not have
----------------------------------
any liability (whether known or unknown and whether absolute or contingent),
except for (a) liabilities shown on the Balance Sheet, (b) liabilities which
have arisen since the
-6-
<PAGE>
Balance Sheet Date in the ordinary course of business and which are similar in
nature and amount to the liabilities which arose during the comparable period of
time in the immediately preceding fiscal period and (c) contractual and other
liabilities incurred in the ordinary course of business which are not required
by GAAP to be reflected on a balance sheet.
3.11 Events Subsequent to the Balance Sheet.
--------------------------------------
Since the Balance Sheet Date, the Company has operated in the ordinary
course consistent with past practice, and the Company has not suffered any
Company Material Adverse Effect. Since that date, except as set forth on
Schedule 3.10:
- -------------
(a) the Company has not sold, leased, licensed, transferred or
assigned any material asset, other than in the ordinary course of business,
consistent with past practice;
(b) no person has accelerated, terminated, modified or canceled any
contract (or series of related contracts) involving more than $100,000 to which
the Company is a party or by which the Company is bound and, to the knowledge of
the Company, no person has notified the Company in writing that it intends to
take any such action;
(c) the Company has not experienced any material damage, destruction
or loss (whether or not covered by insurance) to any of its respective material
assets;
(d) the Company has not paid any dividends, made any redemptions of or
distributions in respect of its capital stock;
(e) the Company has not paid any fee, interest, dividend, royalty or
any other payment of any kind to any affiliate thereof, other than the payment
to the officers and directors of the Company of their current salaries (if any);
(f) the Company has not increased the compensation of any employee,
officer or director of the Company or made any contributions to any employee
benefit plan other than in the ordinary course of business and consistent with
past practice;
(g) the Company has not incurred any material indebtedness or any
material increase in the amount payable by the Company under any credit or loan
agreement to which the Company is a party;
-7-
<PAGE>
(h) the Company has not incurred any single capital expenditure in
excess of $100,000 or capital expenditures in the aggregate in excess of
$250,000; and
(i) the Company has not committed to do any of the foregoing.
3.12 Taxes. The amount shown on the Balance Sheet as provision for
-----
taxes is sufficient in all material respects for payment of all accrued and
unpaid federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently
effective extensions with respect to all federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns are true,
complete and correct and all taxes shown thereon to be due have been timely paid
with exceptions not material in the aggregate to the Company. Federal income
tax returns of the Company have not been audited by the Internal Revenue
Service, and no controversy with respect to taxes of any type is pending or, to
the Company's knowledge, threatened. The Company has withheld or collected from
each payment made to its employees the amount of all taxes required to be
withheld or collected therefrom and has paid all such amounts to the appropriate
taxing authorities when due. Neither the Company nor any of its stockholders
has ever filed (a) an election pursuant to Section 1362 of the Internal Revenue
Code of 1986, as amended (the "Code"), that the Company be taxed as an S
Corporation or (b) consent pursuant to Section 341(f) of the Code relating to
collapsible corporations. The Company has not incurred any obligation to make
any payments that (A) will be non-deductible under, or would otherwise
constitute a "parachute payment" within the meaning of, Section 280G of the Code
(or any corresponding provision of state, local or foreign income tax law) or
(B) are or may be subject to the imposition of an excise tax under Section 7999
of the Code.
3.13 Property and Assets. The Company has good title to, or a valid
-------------------
leasehold interest in, all of its material properties and assets, including all
properties and assets reflected in the Balance Sheet, except those disposed of
since the date thereof in the ordinary course of business, and none of such
properties or assets is subject to any Security Interest other than those the
material terms of which are described in the Balance Sheet or in Section 3.12 of
the Disclosure Schedule.
3.14 Intellectual Property.
---------------------
(a) The Company owns, free and clear of all Security Interests, or has
the legally enforceable right to use, all Intellectual Property (as defined
below in this Section 3.13) used by it in its business as currently conducted.
No other person or entity (other than licensors of software that is generally
commercially available, licensors of Intellectual Property under the agreements
disclosed pursuant to paragraph (d) below and non-exclusive licensees of the
Company's Intellectual
-8-
<PAGE>
Property in the ordinary course of the Company's business) has any rights to any
of the Intellectual Property owned or used by the Company, and, to the Company's
knowledge, no other person or entity is infringing, violating or
misappropriating any of the Intellectual Property that the Company owns. For
purposes of this Agreement, "Intellectual Property" means all (i) patents and
patent applications, (ii) copyrights and registrations thereof, (iii) mask works
and registrations and applications for registration thereof, (iv) computer
software, data and documentation, (v) trade secrets and confidential business
information, whether patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and techniques,
research and development information, copyrightable works, financial, marketing
and business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (vi) trademarks, service marks,
trade names, domain names and applications and registrations therefor and (vii)
other proprietary rights relating to any of the foregoing.
(b) None of the activities or business conducted by the Company
infringes, violates or constitutes a misappropriation of (or in the past
infringed, violated or constituted a misappropriation of) any Intellectual
Property of any other person or entity. The Company has not received any
written complaint, claim or notice alleging any such infringement, violation or
misappropriation, and to the knowledge of the Company, there is no reasonable
basis for any such complaint, claim or notice.
(c) Section 3.13(c) of the Disclosure Schedule identifies each (i)
patent that has been issued or assigned to the Company with respect to any of
its Intellectual Property, (ii) pending patent application that the Company has
made with respect to any of its Intellectual Property, (iii) any copyright or
trademark registration or application with respect to the Company's Intellectual
Property, and (iv) license or other agreements pursuant to which the Company has
granted any rights to any third party with respect to any of its Intellectual
Property.
(d) Section 3.13(d) of the Disclosure Schedule identifies each
agreement with a third party pursuant to which the Company obtains rights to
Intellectual Property material to the business of the Company (other than
software that is generally commercially available) that is owned by a party
other than the Company. Other than license fees for software that is generally
commercially available, the Company is not obligated to pay any royalties or
other compensation to any third party in respect of its ownership, use or
license of any of its Intellectual Property.
(e) The Company has taken commercially reasonable precautions (i) to
protect its rights in its Intellectual Property and (ii) to maintain the
confidentiality of its trade secrets, know-how and other confidential
Intellectual Property, and, to the Company's knowledge, there have been no acts
or omissions
-9-
<PAGE>
(other than those made based on reasonable, good faith business decisions) by
the officers, directors, shareholders and employees of the Company the result of
which would be to materially compromise the rights of the Company to apply for
or enforce appropriate legal protection of the Company's Intellectual Property.
(f) All of the Company's Intellectual Property has been created by
employees of the Company within the scope of their employment by the Company or
by independent contractors of the Company who have executed agreements expressly
assigning all right, title and interest in such Intellectual Property to the
Company. No portion of the Company's Intellectual Property was jointly
developed with any third party.
3.15 Insurance. The Company maintains valid policies of workers'
---------
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
3.16 Material Contracts and Obligations. Section 3.15 of the
----------------------------------
Disclosure Schedule sets forth a list of all material agreements or commitments
of any nature (whether written or oral) to which the Company is a party or by
which it is bound, including, without limitation, (a) any agreement which
requires future expenditures by the Company in excess of $100,000 or which might
result in payments to the Company in excess of $100,000, (b) any employment and
consulting agreements, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase and similar plans and arrangements, (c) any distributor,
sales representative or similar agreement, (d) any agreement with any current or
former stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity, (e) any agreement under which the
Company is restricted from carrying on any business anywhere in the world, (f)
any agreement relating to indebtedness for borrowed money, (g) any agreement for
the disposition of a material portion of the Company's assets, and (h) any
agreement for the acquisition of the business or shares of another party. The
Company has made available to the Purchasers copies of such of the foregoing
agreements (or an accurate summary of any oral agreement). All of such
agreements and contracts are valid, binding and in full force and effect.
Neither the Company, nor, to the Company's knowledge, any other party thereto,
is in default of any of its obligations under any of the agreements or contracts
listed on the Disclosure Schedule, in a manner which could reasonably be
expected to result in a Company Material Adverse Effect.
-10-
<PAGE>
3.17 Compliance. The Company has, in all material respects, complied
----------
with all laws, regulations and orders applicable to its present business and has
all material permits and licenses required thereby. There is no term or
provision of any mortgage, indenture, contract, agreement or instrument to which
the Company is a party or by which it is bound, or, to the Company's knowledge,
of any provision of any state or federal judgment, decree, order, statute, rule
or regulation applicable to or binding upon the Company, which materially
adversely affects or, so far as the Company may now foresee, in the future could
reasonably be expected to result in a Company Material Adverse Effect. To the
Company's knowledge, none of the employees of the Company is in material
violation of any term of any contract or covenant (either with the Company or
with another entity) relating to employment, patents, assignment of inventions,
proprietary information disclosure, non-competition or non-solicitation.
3.18 Absence of Changes. Since the Balance Sheet Date, there has
------------------
been no material adverse change in the business, assets or condition (financial
or otherwise), other than changes occurring in the ordinary course of business
(which ordinary course changes have not, individually or in the aggregate, had a
Company Material Adverse Effect); provided, however, that the Purchasers
acknowledge that the Company has continued to incur operating losses since the
Balance Sheet Date.
3.19 Employees. It is the policy of the Company that all employees
---------
of the Company who have access to confidential or proprietary information of the
Company have executed and delivered nondisclosure and assignment of invention
agreements in the form of Exhibit C-1 and confidentiality and non-competition
-----------
agreements in the form of Exhibit C-2. The Company is not aware that any key
-----------
employee of the Company has plans to terminate his or her employment
relationship with the Company. All employees of the Company are engaged by the
Company on a full time basis. The Company has complied in all material respects
with all applicable laws relating to wages, hours, equal opportunity, collective
bargaining, workers' compensation insurance and the payment of social security
and other taxes. None of the employees of the Company is represented by any
labor union, and there is no labor strike or other labor trouble pending with
respect to the Company (including, without limitation, any organizational drive)
or, to the Company's knowledge, threatened.
3.20 ERISA. The Company does not have or otherwise contribute to or
-----
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended, other than a medical benefit plan with
respect to which the Company has made all required contributions and has
complied with all applicable laws.
-11-
<PAGE>
3.21 Books and Records. The minute books of the Company contain true,
-----------------
complete and correct records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock
ledger of the Company is true, complete and correct and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
3.22 Permits. Section 3.21 of the Disclosure Schedule sets forth a
-------
list of all material permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity ("Permits") issued to or held by the
Company. Such listed Permits are the only Permits that are required for the
Company to conduct its business as presently conducted, except for those the
absence of which could not reasonably be expected to result in a Company
Material Adverse Effect. Each such Permit is in full force and effect and, to
the knowledge of the Company, no suspension or cancellation of such Permit is
threatened and there is no reasonable basis for believing that such Permit will
not be renewable upon expiration.
3.23 Environmental Matters.
---------------------
(a) The Company has complied in all material respects with all
applicable Environmental Laws (as defined below in this Section 3.22(a)). There
is no pending or, to the knowledge of the Company, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Company. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the protection of human health
or the environment, including without limitation CERCLA (as defined below), the
Resource Conservation and Recovery Act of 1976, any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
industrial, toxic or hazardous materials or substances, or solid or hazardous
waste, including without limitation, emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants, or chemicals; (v) the protection
of wild life, marine life and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels, abandoned or
discarded barrels, containers and other closed receptacles; (vii) health and
safety of employees and other persons; and (viii) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, toxic or hazardous materials or substances or oil or
petroleum products or solid or hazardous waste. As used in this Section 3.22,
the terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA").
-12-
<PAGE>
(b) Neither the Company, nor to the knowledge of the Company, any
third party has released any Materials of Environmental Concern (as defined
below in this Section 3.22(b)) into the environment at any parcel of real
property or any facility formerly or currently owned, operated or controlled by
the Company. The Company is not aware of any releases of Materials of
Environmental Concern at parcels of real property of facilities other than those
owned, operated or controlled by the Company that could reasonably be expected
to have an adverse impact on the real property or facilities owned, operated or
controlled by the Company. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the federal Resource
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products, or any other material subject to regulation under any Environmental
Law.
3.24 U.S. Real Property Holding Corporation. The Company is not now
--------------------------------------
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
3.25 Disclosures. Neither this Agreement, the Disclosure Schedule nor
-----------
any Exhibit hereto, nor any report, certificate or instrument furnished to any
of the Purchasers or their special counsel in connection with the transactions
contemplated by this Agreement, including, without limitation, the Business Plan
of the Company dated May, 1999 (the "Plan"), when read together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading. Each projection furnished in the Plan was prepared in good faith
based on reasonable assumptions and represents the Company's best estimate as of
such date of future results based on information available as of such date.
3.26 Year 2000.
---------
All of the Company's software programs are designed to be used prior to,
during and after the calendar year 2000 A.D., and such products, devices and
programs will operate during each such time period without error relating to
date data and date-dependent data, specifically including any error relating to,
or the program of, date data which represents or references different centuries
or more than one century, other than such errors which have not had nor could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. Other than any
-13-
<PAGE>
of the following which has not had nor could reasonably be expected to have a
Company Material Adverse Effect, without limiting the generality of the
foregoing:
(a) each such program will not abnormally end or provide invalid or
incorrect results as a result of date data, specifically including date data
which represents or references different centuries or more than one century; and
(b) each such program has been designed to ensure Year 2000
compatibility, including, but not limited to, date data century recognition,
calculations which accommodate same century and multi-century formulas and date
values and date data interface values that reflect the appropriate century.
4. Representations of the Purchasers. Each of the Purchasers severally
---------------------------------
represents and warrants to the Company as follows:
4.1 Investment. Such Purchaser is acquiring the Shares, and the
----------
shares of Common Stock into which the Shares may be converted, for his, her or
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof. Such Purchaser is an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
4.2 Authority. Such Purchaser has full power and authority to enter
---------
into and to perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 Experience. Such Purchaser has carefully reviewed the
----------
representations concerning the Company contained in this Agreement, has read the
Plan and has made detailed inquiry concerning the Company, its business and its
personnel; the officers of the Company have made available to such Purchaser any
and all written information which he, she or it has requested and have answered
to such Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in finance and business that
he, she or it is capable of evaluating the risks and merits of his, her or its
investment in the Company and such Purchaser is able financially to bear the
risks thereof.
5. Conditions to the Obligations of the Purchasers. The obligation of
-----------------------------------------------
each of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
-14-
<PAGE>
5.1 Accuracy of Representations and Warranties. Each representation
------------------------------------------
and warranty contained in Section 3 shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representation and warranty had been made on and as of that date.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 Opinion of Counsel. Each Purchaser shall have received an
------------------
opinion from Hale and Dorr LLP, counsel for the Company, dated the Closing Date,
addressed to the Purchasers, and satisfactory in form and substance to each
Purchaser, to the effect set forth on Exhibit D.
---------
5.4 Ancillary Agreements.
--------------------
(a) Stockholders' Voting Agreement. The Stockholders' Voting
------------------------------
Agreement attached hereto as Exhibit E ( the "Stockholders' Voting Agreement")
---------
shall have been executed and delivered by each of the Purchasers and by each of
the Founders (as defined therein). All such action shall have been taken as may
be necessary to elect a Board of Directors of the Company, effective upon the
Closing, in accordance with the Stockholders' Voting Agreement.
(b) Investor Rights Agreement. The Investor Rights Agreement attached
-------------------------
hereto as Exhibit F (the "Investor Rights Agreement") shall have been executed
---------
and delivered by the Company and each of the Purchasers.
5.5 Non-Competition Agreement. A non-competition agreement between
-------------------------
Professor John J. Donovan, CEE Incorporated and Cambridge Executive Enterprises,
Inc. on terms reasonably acceptable to the Purchasers, shall have been executed
and delivered.
5.6 Outsourcing Agreement. An exclusive outsourcing agreement by and
---------------------
among CEE Incorporated, Cambridge Executive Enterprises, Inc. and the Company,
on terms reasonably acceptable to the Purchasers, shall have been executed and
delivered to the Purchasers.
5.7 Certificates and Documents. The Company shall have delivered to
--------------------------
special counsel to the Purchasers:
(a) The Certificate of Incorporation of the Company, as amended and in
effect as of the Closing Date (including the Certificate of Amendment),
certified by the Secretary of State of the State of Delaware;
-15-
<PAGE>
(b) a certificate, as of the most recent practicable date, as to the
corporate good standing of the Company issued by the Secretary of State of the
State of Delaware;
(c) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors and stockholders of the
Company, authorizing and approving all matters in connection with this Agreement
and the transactions contemplated hereby, certified by the Secretary or
Assistant Secretary of the Company as of the Closing Date.
5.8 Minimum Investment. Purchasers shall have tendered at the
------------------
Closings aggregate consideration of not less than $8.0 million for the purchase
of Shares.
5.9 Compliance Certificates. The Company shall have delivered to the
-----------------------
Purchasers a certificate, executed by the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1, 5.2, 5.4, 5.5 and 5.6 of this Agreement.
5.10 Other Matters. All corporate and other proceedings in connection
-------------
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
6. Condition to the Obligations of the Company. The obligations of the
-------------------------------------------
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following condition on or before the Closings:
6.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of the Purchasers contained in Section 4 shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
that date.
7. Affirmative Covenants of the Company.
------------------------------------
7.1 Inspection and Observation. The Company shall permit each
--------------------------
Purchaser, or any authorized representative thereof reasonably acceptable to the
Company, to visit and inspect the properties of the Company, including its
corporate
-16-
<PAGE>
and financial records, and to discuss its business and finances with officers of
the Company, during normal business hours following reasonable notice and as
often as may be reasonably requested.
7.2 Financial Statements and Other Information.
------------------------------------------
(a) The Company shall deliver to each Purchaser:
(i) within 90 days after the end of each fiscal year of
the Company, an audited balance sheet of the Company as at the end of such year
and audited statements of income and of cash flows of the Company for such year,
certified by certified public accountants of established national reputation
selected by the Company, and prepared in accordance with GAAP; and
(ii) within 45 days after the end of each fiscal quarter
of the Company (other than the fourth quarter), an unaudited balance sheet of
the Company as at the end of such quarter, and unaudited statements of income
and of cash flows of the Company for such fiscal quarter and for the current
fiscal year to the end of such fiscal quarter.
(b) The Company shall deliver to each Major Purchaser (as defined
in paragraph (d) below):
(i) within 30 days after the end of each month (other
than the last month of any fiscal quarter), an unaudited balance sheet of the
Company as at the end of such month and unaudited statements of income and of
cash flows of the Company for such month and for the current fiscal year to the
end of such month, setting forth in comparative form the Company's projected
financial statements for the corresponding periods for the current fiscal year;
(ii) as soon as available, but in any event prior to the
commencement of each new fiscal year, a business plan and projected financial
statements for such fiscal year;
(iii) such other notices, information and data with
respect to the Company as the Company delivers to the holders of its capital
stock at the same time it delivers such items to such holders; and
(iv) with reasonable promptness, such other information
and data as such Major Purchaser may from time to time reasonably request.
(c) The foregoing financial statements shall be prepared on a
consolidated basis if the Company then has any subsidiaries. The financial
statements
-17-
<PAGE>
delivered pursuant to clause (ii) of paragraph (a) and clause (i) of paragraph
(b) shall be accompanied by a certificate of the chief financial officer of the
Company stating that such statements have been prepared in accordance with GAAP
consistently applied (except as noted) and fairly present in all material
respects the financial condition and results of operations of the Company at the
date thereof and for the periods covered thereby.
(d) For purposes of this Agreement, the term "Major Purchaser" shall
mean a Purchaser purchasing not less than 166,666 Shares so long as such
Purchaser continues to own not less than 166,666 Shares. For purposes of
determining the number of Shares held by a Purchaser: (i) the foregoing numbers
shall be adjusted for any stock splits, stock dividends, recapitalizations or
similar events; (ii) Shares shall include Shares which have been converted into
Common Stock so long as such Common Stock is held by such Purchaser; and (iii)
Shares shall include Shares held by affiliates of such Purchaser and, with
respect to a Purchaser that is a corporation or partnership, Shares distributed
to and held by its shareholders and partners.
7.3 Material Changes and Litigation. The Company shall promptly
-------------------------------
notify the Purchasers of any material adverse change in the business, assets or
condition (financial or otherwise) of the Company and of any litigation or
governmental proceeding or investigation brought or, to the Company's knowledge,
threatened against the Company, officer, director, key employee or principal
stockholder of the Company which, if adversely determined, could be considered
reasonably likely to result in a Company Material Adverse Effect.
7.4 Agreements with Employees; Options.
----------------------------------
(a) The Company shall require all persons now or hereafter employed by
the Company who have access to confidential and proprietary information of the
Company to enter into nondisclosure and assignment of inventions agreements
substantially in the form of Exhibit C-1 and confidentiality and non-competition
-----------
agreements substantially in the form of Exhibit C-2, or such other form as may
-----------
be approved by the Board of Directors of the Company.
(b) Unless otherwise agreed by a majority of the members of the Board
of Directors who are not employees of the Company, all options or restricted
stock granted or issued under the Plans of the Company shall become exercisable
at the rate of 12.5% every six months from the grant or issue and thereafter
over the subsequent four years so long as the holder continues to be an employee
or consultant of the Company, subject to accelerated vesting of 100% of the
unvested portion of such options or restricted stock in the event of an
Acquisition Event (as defined in the standard form of stock option agreement and
restricted stock agreement for use under such Plan).
-18-
<PAGE>
(c) The Company shall purchase and keep in force directors and
officers' insurance (including coverage for all outside directors) in such an
amount and with such coverage as is customary for similar businesses and
adequate to the needs of the Company.
7.5 Directors.
---------
(a) The Company shall promptly reimburse in full each director of the
Company who is not an employee of the Company and who was elected as a director
solely or in part by the holders of Series A Preferred for all of his or her
reasonable out-of-pocket expenses incurred in attending each meeting of the
Board of Directors of the Company or any committee thereof.
(b) The Board of Directors shall meet on at least a quarterly basis,
unless otherwise agreed by a majority of the members of the Board of Directors
who are not employees of the Company.
7.6 Reservation of Common Stock. The Company shall reserve and
---------------------------
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
7.7 Related Party Transactions.
--------------------------
(a) The Company shall not enter into any agreement with any
stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity, without the consent of at least a
majority of the members of the Company's Board of Directors having no interest
in such agreement or arrangement.
(b) The affirmative vote of both a majority of the members of the
Board of Directors, and the director elected solely by the holders of the Series
A Preferred, shall be required to (i) establish or increase the compensation of
executive officers of the Company or (ii) grant stock options to any officer of
the Company.
7.8 Termination of Covenants. The covenants of the Company contained
------------------------
in Sections 7.1 through 7.7 shall terminate, and be of no further force or
effect, upon the closing of the Company's first public offering of Common Stock
pursuant to an effective registration statement under the Securities Act,
resulting in gross proceeds to the Company of at least $15.0 million, at a price
to the public of at least $10.00 per
-19-
<PAGE>
share (as adjusted for stock splits, stock dividends, recapitalizations and
similar events).
8. Transfer of Shares.
------------------
8.1 Restricted Shares. "Restricted Shares" means (i) the Shares,
-----------------
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by the
Purchasers pursuant to the Investor Rights Agreement, and (iv) any other shares
of capital stock of the Company issued in respect of such shares (as a result of
stock splits, stock dividends, reclassifications, recapitalizations, or similar
events); provided, however, that shares of Common Stock which are Restricted
-------- -------
Shares shall cease to be Restricted Shares (x) upon any sale pursuant to a
registration statement under the Securities Act, Section 4(1) of the Securities
Act or Rule 144 under the Securities Act or (y) at such time as they become
eligible for sale under Rule 144(k) under the Securities Act.
8.2 Requirements for Transfer.
-------------------------
(a) Restricted Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or (ii) the
Company first shall have been furnished with an opinion of legal counsel,
reasonably satisfactory to the Company, to the effect that such sale or transfer
is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Purchaser which is a
corporation to a wholly owned subsidiary of such corporation, a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, or a transfer by a Purchaser which is a
limited liability company to a member of such limited liability company or a
retired member who resigns after the date hereof or to the estate of any such
member or retired member; provided that the transferee in each case agrees in
writing to be subject to the terms of this Section 8 to the same extent as if it
were the original Purchaser hereunder, (ii) inter-fund transfers (such as
transfers to affiliates of the Purchasers), or (iii) a transfer made in
accordance with Rule 144 under the Securities Act.
8.3 Legend. Each certificate representing Restricted Shares shall
------
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged
-20-
<PAGE>
or hypothecated unless and until such shares are registered under such
Act or an opinion of counsel satisfactory to the Company is obtained
to the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
8.4 Rule 144A Information. The Company shall, at all times during
---------------------
which it is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, upon
the written request of any Purchaser, provide in writing to such Purchaser and
to any prospective transferee of any Restricted Shares of such Purchaser the
information concerning the Company described in Rule 144A(d)(4) under the
Securities Act ("Rule 144A Information"). The Company also shall, upon the
written request of any Purchaser, cooperate with and assist such Purchaser or
any member of the National Association of Securities Dealers, Inc. PORTAL system
in applying to designate and thereafter maintain the eligibility of the
Restricted Shares for trading through PORTAL. The Company's obligations under
this Section 8.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares.
9. Miscellaneous.
-------------
9.1 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement, and the rights and obligations of each
Purchaser hereunder, may be assigned by such Purchaser to any person or entity
to which Shares are transferred by such Purchaser, and such transferee shall be
deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company. The
Company may not assign its rights under this Agreement.
9.2 Confidentiality. Each Purchaser agrees that he, she or it will
---------------
keep confidential and will not disclose, divulge or use for any purpose other
than to monitor his, her or its investment in the Company any confidential,
proprietary or secret information which such Purchaser may obtain from the
Company pursuant to financial statements, reports and other materials submitted
by the Company to such Purchaser pursuant to this Agreement, or pursuant to
visitation or inspection rights granted
-21-
<PAGE>
hereunder ("Confidential Information"), unless such Confidential Information is
known, or until such Confidential Information becomes known, to the public
(other than as a result of a breach of this Section 9.2 by such Purchaser);
provided, however, that a Purchaser may disclose Confidential Information (i)
- -------- -------
to its attorneys, accountants, consultants, and other professionals to the
extent necessary to obtain their services in connection with monitoring its
investment in the Company, (ii) to any prospective purchaser of any Shares from
such Purchaser as long as such prospective purchaser agrees in writing to be
bound by the provisions of this Section 9.2, (iii) to any affiliate of such
Purchaser or to a partner, stockholder or subsidiary of such Purchaser, provided
that such affiliate agrees in writing to be bound by the provisions of this
Section 9.2, or (iv) as may otherwise be required by law, provided that the
Purchaser takes reasonable steps to minimize the extent of any such required
disclosure.
9.3 Survival of Representations and Warranties. All agreements,
------------------------------------------
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
9.4 Expenses. The Company shall pay, at the Closing, the reasonable
--------
fees (up to a maximum of $20,000) and disbursements of O'Sullivan, Graev and
Karabell LLP, special counsel to the Purchasers, in connection with the
preparation of this Agreement and the other agreements contemplated hereby and
the closing of the transactions contemplated hereby.
9.5 Indemnification.
---------------
(a) The Company shall indemnify, defend and hold each Purchaser
harmless against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of any
of the representations, warranties, covenants, or agreements of the Company
contained in this Agreement, except that the obligation of the Company to any
Purchaser with respect to any such liability, loss or damage shall not exceed
the purchase price for the Shares purchased by such Purchaser.
(b) Each Purchaser shall, severally and not jointly, indemnify and
hold the Company harmless against all liability, loss or damage, together with
all reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties, covenants, or agreements of
such Purchaser contained in this Agreement, except that the obligation of such
Purchaser to the Company with respect to any such liability, loss or damage
shall not exceed an amount equal to the purchase price for the Shares purchased
by such Purchaser.
-22-
<PAGE>
9.6 Brokers. The Company and each Purchaser (i) represents and
-------
warrants to the other parties hereto that he, she or it has not retained a
finder or broker in connection with the transactions contemplated by this
Agreement, and (ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to brokerage
or finders' fees or commissions, or consulting fees in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any statement or representation alleged to have been made by such
indemnifying party.
9.7 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9.8 Specific Performance. In addition to any and all other remedies
--------------------
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
9.9 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
9.10 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at C-bridge Internet Solutions, Inc., 219 Vassar Street,
Suite 2, Cambridge, Massachusetts 02139, Attention: President, or at such other
address or addresses as may have been furnished in writing by the Company to the
Purchasers, with a copy to Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, Attention: John A. Burgess, Esq.;
If to a Purchaser, at the address set forth on Exhibit A for such
---------
Purchaser, or at such other address or addresses as may have been furnished to
the Company in writing by such Purchaser, with a copy to O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, Attention: Ilan
S. Nissan, Esq.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal
-23-
<PAGE>
delivery, messenger service, telecopy, first class mail or electronic mail), but
no such notice, request, consent or other communication shall be deemed to have
been duly given unless and until it is actually received by the party for whom
it is intended. Any party may change the address to which notices, requests,
consents or other communications hereunder are to be delivered by giving the
other parties notice in the manner set forth in this Section.
9.11 Complete Agreement. This Agreement (including its Exhibits) and
------------------
the Ancillary Agreements constitute the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter including,
without limitation, that certain Term Sheet dated September 10, 1999.
9.12 Amendments and Waivers. Except as otherwise expressly set forth
----------------------
in this Agreement, any term of this Agreement may be amended or terminated and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of at least 50% of the shares of
Common Stock issued or issuable upon conversion of the Shares. Notwithstanding
the foregoing, this Agreement may be amended with the consent of the holders of
less than all of the shares of Common Stock issued or issuable upon conversion
of the Shares only in a manner which applies to all such holders in the same
fashion. Any amendment, termination or waiver effected in accordance with this
Section 9.11 or Section 2(b) shall be binding upon each holder of any Shares
(including shares of Common Stock into which such Shares have been converted)
even if they do not execute such consent, each future holder of all such
securities and the Company. No waivers of or exceptions to any term, condition
or provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
9.13 Pronouns. Whenever the context may require, any pronouns used in
--------
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
9.14 Counterparts; Facsimile Signatures. 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 one and the same document. This
Agreement may be executed by facsimile signatures.
9.15 Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
-24-
<PAGE>
10. Definitions. For purposes of this Agreement, each of the following
-----------
defined terms is defined in the Section of this Agreement indicated below:
Defined Term Section
------------ -------
Additional Purchaser 2(b)
Ancillary Agreements 3.1
Balance Sheet 3.9
Balance Sheet Date 3.9
CERCLA 3.23(a)
Certificate of Amendment 1.1
Closing 2(a)
Closing Date 2(a)
Code 3.12
Common Stock 3.2
Company Introduction
Company Material Adverse Effect 3.1
Confidential Information 9.2
Disclosure Schedule 3
Environmental Law 3.23(a)
ERISA 3.20
Exchange Act 8.4
Financial Statements 3.9
GAAP 3.9
Governmental Entity 3.6
Intellectual Property 3.14(a)
Investor Rights Agreement 5.4(b)
Major Purchaser 7.2(d)
Materials of Environmental Concern 3.23(b)
Permits 3.22
Plans 3.2
Purchase Price 1.2
Purchasers Introduction
Restricted Shares 8.1
Rule 144A Information 8.4
Securities Act 3.2
Security Interest 3.6
Series A Preferred 1.1
Shares 1.2
Stockholders' Voting Agreement 5.4(a)
Subsequent Closing 2(b)
-25-
<PAGE>
Executed as of the date first written above.
COMPANY:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
-----------------------------------------
PURCHASERS:
INSIGHT CAPITAL PARTNERS III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
------------------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS (CAYMAN)
III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
------------------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS III -
CO-INVESTORS, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
------------------------------------
Name:
Title:
-26-
<PAGE>
H&D INVESTMENTS 97
By: /s/ John M. Westcott, Jr.
-----------------------------------------
Name: John M. Westcott, Jr.
Title: General Partner
-27-
<PAGE>
ORACLE CORPORATION
By: /s/ Matt Mosman
-----------------------------------------
Name: Matt Mosman
Title: Vice President, Corporate Development
-28-
<PAGE>
EXHIBIT A
---------
List of Purchasers
------------------
Name and Address No. of Shares of Aggregate
of Purchaser Series A Preferred Purchase Price
- ------------------------------------ -------------------- ------------------
InSight Capital Partners III, L.P. 954,129 $5,724,774
527 Madison Avenue
10/th/ Floor
New York, New York 10022
InSight Capital Partners 236,355 $1,418,130
(Cayman) III, L.P.
c/o W.S. Walker & Company
Walker House
P.O. Box 265GT
Mary Street
George Town
Grand Cayman, Cayman Islands
InSight Capital Partners III - 142,849 $ 857,094
Co-Investors, L.P.
527 Madison Avenue
10/th/ Floor
New York, New York 10022
H&D Investments 97 6,667 $ 40,002
Attn: Paul P. Brountas, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Oracle Corporation 305,555 1,833,330
500 Oracle Parkway
Redwood Shores, California
94065
Total: $9,873,330
----- ----------
<PAGE>
Exhibit 10.9
C-BRIDGE INTERNET SOLUTIONS, INC.
STOCKHOLDERS' VOTING AGREEMENT
------------------------------
This Agreement dated as of October 7, 1999 is entered into by and among
the persons and entities listed on Exhibit A attached hereto (individually, a
"Purchaser" and collectively, the "Purchasers"), C-bridge Internet Solutions,
Inc., a Delaware corporation (the "Company") and Cambridge Technology
Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as Trustee of the
Winsor Trust, Hamilton Trust Company Limited, as Trustee of the Willingdon
Trust, Mr. Joseph M. Bellini and Mr. Richard O. Wester (individually, a
"Founder" and collectively, the "Founders"). The Purchasers and the Founders are
sometimes referred to in this Agreement collectively as the "Stockholders."
Recitals:
--------
1. The Founders own certain outstanding shares of the Common Stock, par
value $0.01 per share ("Common Stock"), of the Company;
2. The Purchasers are purchasing, concurrently herewith, certain shares
of capital stock of the Company pursuant to the Series A Convertible Preferred
Stock Purchase Agreement of even date herewith (the "Purchase Agreement"); and
3. The Purchasers and Founders wish to provide for their continuing
representation on the Board of Directors of the Company in the manner set forth
below.
In consideration of the mutual covenants contained herein and the
consummation of the sale and purchase of shares of capital stock of the Company
pursuant to the Purchase Agreement, and for other valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Voting of Shares.
----------------
(a) In any and all elections of directors of the Company
(whether at a meeting or by written consent in lieu of a meeting), each
Stockholder shall vote or cause to be voted all Shares (as defined in Section 2
below) owned by him or it, or over which he or it has voting control, and
otherwise use his or its respective best efforts, so as to fix the number of
directors of the Company at six and to elect one member designated by the
Purchasers (by action of the holders of a majority of the Shares held by all
Purchasers). In addition, the Company shall invite a representative selected by
<PAGE>
the Purchasers to attend all meetings of the Company's Board of Directors in a
non-voting observer capacity. The Company shall provide such representative with
the same financial and other information that is provided to the members of the
Board of Directors in connection with any meetings of the Board of Directors of
the Company. The director initially designated by the Purchasers is Ramanan
Raghavendran, and the representative initially designated by the Purchasers as
having observer rights is Peter Sobiloff.
(b) The Purchasers shall not vote to remove any director
designated by the Founders, and the Founders shall not vote to remove any
director designated by the Purchasers, unless the other requests so.
(c) The Company shall provide the Stockholders with 30 days'
prior written notice of any intended mailing of a notice to stockholders for a
meeting at which directors are to be elected. The Purchasers and Founders shall
give written notice to all other parties to this Agreement, no later than 20
days prior to such mailing, of the persons designated by the Purchasers and
Founders as nominees for election as directors. The Company agrees to nominate
and recommend for election as directors only the individuals designated, or to
be designated, pursuant to Section 1(a). If the Purchasers or Founders shall
fail to give notice to the Company as provided above, it shall be deemed that
the designees of the Purchasers or Founders, as the case may be, then serving as
directors shall be their designees for reelection.
2. Shares. "Shares" shall mean and include any and all shares of Common
------
Stock and/or shares of capital stock of the Company, by whatever name called,
which carry voting rights (including voting rights which arise by reason of
default) and shall include any such shares now owned or subsequently acquired by
a Stockholder, however acquired, including without limitation stock splits and
stock dividends.
3. Bylaws. The Company will not amend its bylaws so as to preclude the
------
majority of stockholders from calling a special meeting.
4. Termination. This Agreement shall terminate in its entirety on the
-----------
earliest of (a) the tenth anniversary of the date of this Agreement, (b) the
closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Act"), resulting in at least $15,000,000 of gross
proceeds to the Company at a minimum price to the public of $10.00 per share
(subject to appropriate adjustment for stock splits, stock dividends,
recapitalizations and other similar events), or (c) the sale of all or
substantially all of the assets or
-2-
<PAGE>
business of the Company, by merger, sale of assets or otherwise. Notwithstanding
the foregoing, Section 3 of this Agreement shall terminate one year from the
date of this Agreement.
5. No Revocation. The voting agreements contained herein are coupled
-------------
with an interest and may not be revoked, except by an amendment, modification or
termination effected in accordance with Section 7(e) hereof. Nothing in this
Section 4 shall be construed as limiting the provisions of Section 3 or 7(e)
hereof.
6. Restrictive Legend. All certificates representing Shares owned or
------------------
hereafter acquired by the Stockholders or any transferee of the Stockholders
bound by this Agreement shall have affixed thereto a legend substantially in the
following form:
"The shares of stock represented by this certificate are
subject to certain voting agreements as set forth in a
Stockholders' Voting Agreement, as amended from time to time,
by and among the registered owner of this certificate, the
Company and certain other stockholders of the Company, a copy
of which is available for inspection at the offices of the
Secretary of the Company."
7. Transfers of Rights. Any transferee to whom Shares are transferred
-------------------
by a Stockholder, whether voluntarily or by operation of law, shall be bound by
the voting obligations imposed upon the transferor under this Agreement, to the
same extent as if such transferee were a Stockholder hereunder and no
Stockholder shall transfer any Shares unless the transferee agrees in writing to
be bound by this Agreement.
8. General.
-------
(a) Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) Specific Performance. In addition to any and all other
--------------------
remedies that may be available at law in the event of any breach of this
Agreement, each Purchaser shall be entitled to specific performance of the
agreements and obligations of the Stockholders hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction. The liability of Hamilton Trust Company Limited shall be limited
to the extent of the assets held from time to time by Hamilton Trust Company
Limited solely in its capacity as Trustee of the Willingdon Trust and not
otherwise. Until the first anniversary of this Agreement, the Seller will
-3-
<PAGE>
not transfer further any shares of the Company without the prior consent of the
Purchasers, which will not unreasonably be withheld.
(c) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at C-bridge Internet Solutions, Inc., 219 Vassar
Street, Suite 2, Cambridge, Massachusetts 02139, Attention: President, or at
such other address or addresses as may have been furnished in writing by the
Company to the Purchasers, with a copy to Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109, Attention: John A. Burgess, Esq.;
If to a Purchaser, at his or its address set forth in Schedule A
hereto, or at such other address or addresses as may have been furnished to the
other parties hereto in writing by such Purchaser, with a copy to O'Sullivan
Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112,
Attention: Ilan S. Nissan, Esq; or
If to a Founder, at the address below his signature hereto, or at such
other address or addresses as may have been furnished to the other parties
hereto in writing by such Founder.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) Complete Agreement; Amendments. This Agreement constitutes
------------------------------
the entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
relating to
-4-
<PAGE>
such subject matter. No amendment, modification or termination of, or waiver
under, any provision of this Agreement shall be valid unless in writing and
signed by (i) Founders then employed by the Company holding at least 50% of the
voting power of the Shares held by all of the Founders then employed by the
Company and (ii) Purchasers holding a majority of the voting power of the Shares
then held by all of the Purchasers (giving effect to the conversion into Common
Stock of all securities convertible thereunto), provided that this Agreement may
be amended with the consent of less than all of the Purchasers only in a manner
which affects all Purchasers in the same fashion), and (iii) the Company, and
any such amendment, modification, termination or waiver shall be binding on all
parties hereto; provided that the consent of a party shall not be required for
any amendment, modification or termination of, or waiver under, any provision of
this Agreement if such party is not adversely affected thereby.
(f) Pronouns. Whenever the context may require, any pronouns
--------
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
(g) Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(h) Section Headings. The section headings are for the
----------------
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
[remainder of page intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
COMPANY:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
---------------------------------------------
PURCHASERS:
INSIGHT CAPITAL PARTNERS III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
---------------------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS (CAYMAN) III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
---------------------------------------
Name:
Title:
-6-
<PAGE>
INSIGHT CAPITAL PARTNERS III- CO-INVESTORS, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
---------------------------------------
Name:
Title:
H&D INVESTMENTS 97
By: /s/ John M. Westcott, Jr.
---------------------------------------------
Name: John M. Westcott, Jr.
Title: General Partner
FOUNDERS:
HAMILTON TRUST COMPANY
LIMITED, AS TRUSTEE OF THE
WILLINGDON TRUST
By: /s/ D. Morrison
-------------------------------------------
By: /s/ R. Shaw
---------------------------------------
BUTTERFIELD TRUST (BERMUDA)
LIMITED, AS TRUSTEE OF THE WINSOR
TRUST
By: /s/ J. Leonard
-------------------------------------------
By: /s/ D. Marwick
--------------------------------------
-7-
<PAGE>
CAMBRIDGE TECHNOLOGY
ENTERPRISES, LIMITED
By: /s/ Alan Roth
-------------------------------------------
President
JOSEPH M. BELLINI
/s/ Joseph M. Bellini
----------------------------------------------
RICHARD O. WESTER
/s/ Richard O. Wester
----------------------------------------------
-8-
<PAGE>
ORACLE CORPORATION
By: /s/ Matt Mosman
-------------------------------------------
Name: Matt Mosman
Title: Vice President, Corporate
Department
-9-
<PAGE>
EXHIBIT A
---------
List of Purchasers
------------------
Name and Address
of Purchaser
- ----------------------------------
InSight Capital Partners III, L.P.
527 Madison Avenue
10th Floor
New York, New York 10022
InSight Capital Partners
(Cayman) III, L.P.
c/o W.S. Walker & Company
Walker House
P.O. Box 265GT
Mary Street
George Town
Grand Cayman, Cayman Islands
InSight Capital Partners III -
Co-Investors, L.P.
527 Madison Avenue
10th Floor
New York, New York 10022
H&D Investments 97
Attn: Paul P. Brountas, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
<PAGE>
Oracle Corporation
500 Oracle Parkway
Redwood Shores, California 94065
-11-
<PAGE>
Exhibit 10.10
C-BRIDGE INTERNET SOLUTIONS, INC.
INVESTOR RIGHTS AGREEMENT
-------------------------
This Agreement dated as of October 7, 1999 is entered into by and among C-
bridge Internet Solutions, Inc., a Delaware corporation (the "Company"), and the
individuals and entities listed on Exhibit A attached hereto (the "Purchasers").
---------
Recitals
--------
WHEREAS, the Company and the Purchasers have entered into a Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to (i) the registration of shares of capital stock of
the Company under the Securities Act (as defined below), (ii) the Purchasers'
right of first refusal with respect to certain issuances of securities of the
Company, and (iii) certain negative covenants of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act (as defined
below).
"Common Stock" means the common stock, $0.01 par value per share, of
------------
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initiating Holders" means the Stockholders initiating a request for
------------------
registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
<PAGE>
"Initial Public Offering" means the initial underwritten public
-----------------------
offering of shares of Common Stock pursuant to an effective Registration
Statement.
"Other Holders" shall have the meaning set forth in Section 2.1(d).
-------------
"Prospectus" means the prospectus included in any Registration
----------
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed by the
----------------------
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 2.4.
---------------------
"Registrable Shares" means (i) the shares of Common Stock issued or
------------------
issuable upon conversion of the Shares, (ii) any shares of Common Stock, and any
shares of Common Stock issued or issuable upon the conversion or exercise of any
other securities, acquired by the Purchasers pursuant to Section 3 of this
Agreement, (iii) any other shares of Common Stock issued in respect of such
shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events), and (iv) the shares of Common Stock
purchased in connection with the Common Stock Purchase Agreement of even date
herewith by and among Hamilton Trust Company Limited, a Trustee of the
Willingdon Trust and the Purchasers; provided, however, that shares of Common
-------- -------
Stock which are Registrable Shares shall cease to be Registrable Shares upon (i)
any sale pursuant to a Registration Statement or Rule 144 under the Securities
Act (as defined below) or (ii) any sale in any manner to a person or entity
which, by virtue of Section 5 of this Agreement, is not entitled to the rights
provided by this Agreement. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of Registrable Shares, the
determination of such percentage shall include shares of Common Stock issuable
upon conversion of the Shares even if such conversion has not been effected.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
-2-
<PAGE>
"Selling Stockholder" means any Stockholder owning Registrable Shares
-------------------
included in a Registration Statement.
"Shares" shall have the meaning specified in Subsection 1.2 of the
------
Purchase Agreement.
"Stockholders" means the Purchasers and any persons or entities to
------------
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 5 hereof.
2. Registration Rights
-------------------
2.1 Required Registrations.
----------------------
(a) At any time after the six month anniversary of an Initial Public
Offering, the Purchasers may request once only, in writing, that the Company
effect the registration on Form S-1 (or such successor form), of Registrable
Shares having an aggregate value of at least $1,000,000 (based on the then
current public market price).
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders holding in the aggregate at least 25%
of the Registrable Shares then outstanding may request, in writing, that the
Company effect the registration (which may, at such Stockholder's request, be a
shelf registration pursuant to Rule 415 of the Securities Act) on Form S-3 (or
such successor form), of Registrable Shares having an aggregate value of at
least $1,000,000 (based on the then current public market price).
(c) Upon receipt of any request for registration pursuant to this
Section 2, the Company shall promptly give written notice of such proposed
registration to all other Stockholders. Such Stockholders shall have the right,
by giving written notice to the Company within 30 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(d) below. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all Registrable Shares which
the Company has been requested to so register (provided, however, that in the
case of a registration requested under Sections 2.1(a) or (b), the Company will
only be obligated to effect such registration on Form S-3 (or any successor
form).
-3-
<PAGE>
(d) If the Initiating Holders intend to distribute the Registrable
Shares covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Sections 2.1(a)
or (b), and the Company shall include such information in its written notice
referred to in Section 2.1(c). The right of any other Stockholder to include
its Registrable Shares in such registration pursuant to Sections 2.1(a) or (b)
shall be conditioned upon such other Stockholder's participation in such
underwriting on the terms set forth herein.
If the Company desires that any officers or directors of the Company
holding securities of the Company be included in any registration for an
underwritten offering requested pursuant to Section 2.1(d) or if other holders
of securities of the Company who are entitled, by contract with the Company, to
have securities included in such a registration (the "Other Holders") request
such inclusion, the Company may include the securities of such officers,
directors and Other Holders in such registration and underwriting on the terms
set forth herein. The Company shall (together with all Stockholders, officers,
directors and Other Holders proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form
(including, without limitation, customary indemnification and contribution
provisions on the part of the Company) with the managing underwriter; provided,
--------
however, that such underwriting agreement shall not provide for indemnification
- -------
or contribution obligations on the part of Stockholders materially greater than
the obligations of the Stockholders pursuant to Section 2.5. Notwithstanding any
other provision of this Section 2.1(d), if the managing underwriter advises the
Company that the inclusion of all shares requested to be registered would
adversely affect the offering, the securities of the Company held by any
stockholder other than the Purchasers shall be excluded from such registration
and underwriting to the extent deemed advisable by the managing underwriter, and
if a further limitation of the number of shares is required, the number of
shares that may be included in such registration and underwriting shall be
allocated among all holders of Registrable Shares requesting registration in
proportion, as nearly as practicable, to the respective number of Registrable
Shares held by them at the time of the request for registration made by the
Initiating Holders pursuant to Sections 2.1(a) or (b). If any holder of
Registrable Shares, officer, director or Other Holder who has requested
inclusion in such registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, and the securities so withdrawn shall also be withdrawn from
registration. If the managing underwriter has not limited the number of
Registrable Shares or other securities to be underwritten, the Company may
include securities for its own account in such registration if the managing
underwriter so agrees and if the number of Registrable Shares and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
-4-
<PAGE>
(e) The Initiating Holders shall have the right to select the managing
underwriter(s) for any underwritten offering requested pursuant to Sections
2.1(a) or (b), subject to the approval of the Company, which approval will not
be unreasonably withheld or delayed.
(f) The Company shall not be required to effect more than three (3)
registrations pursuant to Section 2.1(a) or (b). In addition, the Company shall
not be required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after the
effective date of any other Registration Statement of the Company. For purposes
of this Section 2.1(f), a Registration Statement shall not be counted until such
time as such Registration Statement has been declared effective by the
Commission (unless the Initiating Holders withdraw their request for such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and elect not to pay the
Registration Expenses therefor pursuant to Section 2.4).
(g) If at the time of any request to register Registrable Shares by
Initiating Holders pursuant to this Section 2.1, the Company is engaged or has
plans to engage in a registered public offering or is engaged in any other
activity which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested registration, then the
Company may at its option direct that such request be delayed for a period not
in excess of 90 days from the date of such request, such right to delay a
request to be exercised by the Company not more than once in any 12-month
period.
2.2 Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration Statement
(other than a Registration Statement filed pursuant to Section 2.1 and a
Registration Statement covering shares to be sold solely for the account of
Other Holders) at any time and from time to time, it will, prior to such filing,
give written notice to all Stockholders of its intention to do so. Upon the
written request of a Stockholder or Stockholders given within 20 days after the
Company provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best efforts
to cause all Registrable Shares which the Company has been requested by such
Stockholder or Stockholders to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request of
such Stockholder or Stockholders; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 2.2
without obligation to any Stockholder.
-5-
<PAGE>
(b) If the registration for which the Company gives notice pursuant to
Section 2.2(a) is a registered public offering involving an underwriting, the
Company shall so advise the Stockholders as a part of the written notice given
pursuant to Section 2.2(a) or (b). In such event, the right of any Stockholder
to include its Registrable Shares in such registration pursuant to Section 2.2
shall be conditioned upon such Stockholder's participation in such underwriting
on the terms set forth herein. All Stockholders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for the
underwriting by the Company. Notwithstanding any other provision of this Section
2.2, if the managing underwriter determines that the inclusion of all shares
requested to be registered would adversely affect the offering, the Company may
limit the number of Registrable Shares to be included in the registration and
underwriting. The Company shall so advise all holders of Registrable Shares
requesting registration, and the number of shares that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by holders other than
Stockholders and Other Holders shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and, if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Stockholders and Other Holders requesting registration in proportion,
as nearly as practicable, to the respective number of shares of Common Stock (on
an as-converted basis) which they held at the time the Company gives the notice
specified in Section 2.2(a). If any Stockholder or Other Holder would thus be
entitled to include more securities than such holder requested to be registered,
the excess shall be allocated among other requesting Stockholders and Other
Holders pro rata in the manner described in the preceding sentence. If any
holder of Registrable Shares or any officer, director or Other Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company, and any Registrable Shares
or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(c) Notwithstanding the foregoing, the Company shall not be
required, pursuant to this Section 2.2, to include any Registrable Shares in a
Registration Statement if such Registrable Shares can then be sold pursuant to
Rule 144(k) under the Securities Act.
-6-
<PAGE>
2.3 Registration Procedures.
-----------------------
-7-
<PAGE>
(a) If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any Registrable
Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become effective as soon as possible;
(ii) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to comply with the
provisions of the Securities Act (including the anti-fraud provisions thereof)
and to keep the Registration Statement effective for 24 months from the
effective date or such lesser period until all such Registrable Shares are sold;
(iii) as expeditiously as possible furnish to each Selling Stockholder
such reasonable numbers of copies of the Prospectus, including any preliminary
Prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by such Selling Stockholder;
(iv) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the Selling Stockholder; provided, however, that the Company shall not be
-------- -------
required in connection with this paragraph (iv) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
(v) as expeditiously as possible, cause all such Registrable Shares to
be listed on each securities exchange or automated quotation system on which
similar securities issued by the Company are then listed;
(vi) promptly provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(vii) promptly make available for inspection by the Selling
Stockholders, any managing underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant or other agent
-8-
<PAGE>
retained by any such underwriter or selected by the Selling Stockholders, all
financial and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement;
(viii) as expeditiously as possible, notify each Selling Stockholder,
promptly after it shall receive notice thereof, of the time when such
Registration Statement has become effective or a supplement to any Prospectus
forming a part of such Registration Statement has been filed; and
(ix) as expeditiously as possible following the effectiveness of such
Registration Statement, notify each seller of such Registrable Shares of any
request by the Commission for the amending or supplementing of such Registration
Statement or Prospectus.
(b) If the Company has delivered a Prospectus to the Selling
Stockholders and after having done so the Prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
Selling Stockholders and, if requested, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the reasonable judgment of the Company, it
is advisable to suspend use of a Prospectus included in a Registration Statement
due to pending material developments or other events that have not yet been
publicly disclosed and as to which the Company believes public disclosure would
be detrimental to the Company, the Company shall notify all Selling Stockholders
to such effect, and, upon receipt of such notice, each such Selling Stockholder
shall immediately discontinue any sales of Registrable Shares pursuant to such
Registration Statement until such Selling Stockholder has received copies of a
supplemented or amended Prospectus or until such Selling Stockholder is advised
in writing by the Company that the then current Prospectus may be used and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. Notwithstanding
anything to the contrary herein, the Company shall not exercise its rights under
this Section 2.3(c) to suspend sales of Registrable Shares for a period in
excess of 90 days in any 365-day period.
-9-
<PAGE>
2.4 Allocation of Expenses. The Company will pay all Registration
----------------------
Expenses for all registrations under this Agreement; provided, however, that if
-------- -------
a registration under Section 2.1 is withdrawn at the request of the Initiating
Holders (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and if the Initiating Holders
elect not to have such registration counted as a registration requested under
Section 2.1, the requesting Stockholders shall pay the Registration Expenses of
such registration pro rata in accordance with the number of their Registrable
Shares included in such registration. For purposes of this Section, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company and the fees and expenses of one counsel selected by the
Selling Stockholders to represent the Selling Stockholders, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of Selling Stockholders' own counsel (other than the
counsel selected to represent all Selling Stockholders).
2.5 Indemnification and Contribution.
--------------------------------
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless each Selling Stockholder, each underwriter of such Registrable
Shares, and each other person, if any, who controls such Selling Stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act against
any losses, claims, damages or liabilities, joint or several, to which such
Selling Stockholder, underwriter or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such Selling Stockholder,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such Selling Stockholder, underwriter or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based
-10-
<PAGE>
upon any untrue statement or omission made in such Registration Statement,
preliminary prospectus or prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such Selling Stockholder, underwriter or controlling
person specifically for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each Selling Stockholder,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors and officers and each underwriter (if any) and each person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company, such directors and
officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such Selling Stockholder
furnished in writing to the Company by or on behalf of such Selling Stockholder
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; provided, however, that the
-------- -------
obligations of a Selling Stockholder hereunder shall be limited to an amount
equal to the net proceeds to such Selling Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that counsel for the
-------- -------
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
-------- -------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section except to the extent
that the Indemnifying Party is adversely affected by such failure. The
Indemnified Party may participate in such defense at such party's expense;
-11-
<PAGE>
provided, however, that the Indemnifying Party shall pay such expense if
- -------- -------
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding; provided further that in no event shall the
-------- -------
Indemnifying Party be required to pay the expenses of more than one law firm per
jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also
shall be responsible for the expenses of such defense if the Indemnifying Party
does not elect to assume such defense. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such claim or litigation, and no Indemnified Party shall consent to entry of
any judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 2.5 is
due in accordance with its terms but for any reason is held to be unavailable to
an Indemnified Party in respect to any losses, claims, damages and liabilities
referred to herein, then the Indemnifying Party shall, in lieu of indemnifying
such Indemnified Party, contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities to
which such party may be subject in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and the Selling Stockholders
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Selling
Stockholders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact related to information
supplied by the Company or the Selling Stockholders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Selling Stockholders agree that
it would not be just and equitable if contribution pursuant to this Section 2.5
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph of Section 2.5, (a) in no case
shall any one Selling Stockholder be liable or responsible for any amount in
excess of the net proceeds received by such Selling Stockholder from the
offering of Registrable Shares and (b) the Company shall be liable and
responsible for any amount in excess of such proceeds; provided, however, that
-------- -------
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any party entitled to
contribution will,
-12-
<PAGE>
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties under this Section, notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties from whom contribution may be sought shall not relieve
such party from any other obligation it or they may have thereunder or otherwise
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its prior written consent,
which consent shall not be unreasonably withheld.
2.6 Other Matters with Respect to Underwritten Offerings. In the
----------------------------------------------------
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2.1, the Company agrees to (a)
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering; (b) use its best efforts to cause
its legal counsel to render customary opinions to the underwriters with respect
to the Registration Statement; and (c) use its best efforts to cause its
independent public accounting firm to issue customary "cold comfort letters" to
the underwriters with respect to the Registration Statement.
2.7 Information by Holder. Each holder of Registrable Shares
---------------------
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
2.8 "Stand-Off" Agreement; Confidentiality of Notices. Each
-------------------------------------------------
Stockholder, if requested by the Company and the managing underwriter of an
underwritten public offering by the Company of Common Stock, shall not sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by such Stockholder for a period of 180 days following the
effective date of a Registration Statement; provided, however, that:
-------- -------
(a) such agreement shall only apply to the Initial Public
Offering; and
(b) all stockholders of the Company then holding at least 1% of the
outstanding Common Stock (on an as-converted basis) and all officers and
directors of the Company enter into similar agreements.
-13-
<PAGE>
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such 180-day period. This section is binding on any future
holders of the Shares regardless of whether such future holders are transferred
the benefits of the registration rights provisions of this section.
Any Stockholder receiving any written notice from the Company regarding the
Company's plans to file a Registration Statement shall treat such notice
confidentially and shall not disclose such information to any person other than
as necessary to exercise its rights under this Agreement.
2.9 Limitations on Subsequent Registration Rights. The Company shall
---------------------------------------------
not, without the prior written consent of Stockholders holding at least 50% of
the Registrable Shares then held by all Stockholders, enter into any agreement
(other than this Agreement) with any holder or prospective holder of any
securities of the Company which grant such holder or prospective holder rights
to include securities of the Company in any Registration Statement, unless (a)
such rights to include securities in a registration initiated by the Company or
by Stockholders are not as favorable or more favorable than the rights granted
to Other Holders under Sections 2.1 and 2.2 of this Agreement, and (b) no rights
are granted to initiate a registration, other than registration pursuant to a
registration statement on Form S-3 (or its successor) in which Stockholders are
entitled to include Registrable Shares on a pro rata basis with such holders
based on the number of shares of Common Stock (on an as-converted basis) owned
by Stockholders and such holders.
2.10 As previously disclosed to the Purchasers, the Company has
granted rights to Hamilton Trust Company Limited, as Trustee of the Willingdon
Trust, Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor Trust and
Cambridge Technology Enterprises Limited (the "Founders"), pursuant to a letter
from the Company to the Founders of even date herewith, that if, after its
Initial Public Offering and until the third anniversary thereof, the Company
proposes to file a registration statement with the Securities and Exchange
Commission for a public offering and sale of the Common Stock, or a security
which is convertible into Common Stock (other than a registration statement on
Form S-8 or Form S-4, or their successors) at any time and from time to time,
the Company will, prior to such filing, give written notice to each of the
Founders of its intention to do so and, upon the written request of any or all
of the Founders, respectively, given within 20 days after the Company provides
such notice, the Company shall register on their behalf up to 20 percent of the
aggregate number of shares of Common Stock held by the Founders provided that
(i) their right to sell shares shall be subject to inclusion at the discretion
of the underwriters on a one-for-one basis (treating the Founders as a single
Person and the Purchasers as a single Person for such purposes), and (ii) the
Company shall have the
-14-
<PAGE>
right to postpone or withdraw any proposed registration at any time without
obligation to any of the Founders.
2.1 Rule 144 Requirements. After the earliest of (i) the closing of
---------------------
the sale of securities of the Company pursuant to a Registration Statement, (ii)
the registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) make and keep current public information about the Company
available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Company, and (iii) such other
reports and documents of the Company as such holder may reasonably request to
avail itself of any similar rule or regulation of the Commission allowing it to
sell any such securities without registration.
2.1 Termination. All of the Company's obligations to register
-----------
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
five years after the consummation of the Initial Public Offering.
3. Right Of First Refusal
----------------------
3.1 Rights of Purchasers
--------------------
(a) The Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, (i)
any shares of its Common Stock, (ii) any other equity securities of the Company,
including, without limitation, shares of preferred stock, (iii) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
equity securities of the Company, or (iv) any debt securities convertible into
capital stock of the Company (collectively, the "Offered Securities"), unless in
each such case the Company shall have first complied with this Section 3.1. The
Company shall deliver to each Purchaser a written notice of
-15-
<PAGE>
any proposed or intended issuance, sale or exchange of Offered Securities (the
"Offer"), which Offer shall (i) identify and describe the Offered Securities,
(ii) describe the price and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities to be issued,
sold or exchanged, (iii) identify the persons or entities (if known) to which or
with which the Offered Securities are to be offered, issued, sold or exchanged
and (iv) offer to issue and sell to or exchange with such Purchaser (A) a pro
rata portion of the Offered Securities determined by dividing the aggregate
number of shares of Common Stock then held by such Purchaser (giving effect to
the conversion of all shares of convertible preferred stock then held) by the
total number of shares of Common Stock then outstanding (giving effect to the
conversion of all outstanding shares of convertible preferred stock) (the "Basic
Amount"), and (B) any additional portion of the Offered Securities attributable
to the Basic Amounts of other Purchasers as such Purchaser shall indicate it
will purchase or acquire should the other Purchasers subscribe for less than
their Basic Amounts (the "Undersubscription Amount").
(b) To accept an Offer, in whole or in part, a Purchaser must deliver
a written notice to the Company prior to 30 days after the date of delivery of
the Offer, setting forth the portion of the Purchaser's Basic Amount that such
Purchaser elects to purchase and, if such Purchaser shall elect to purchase all
of its Basic Amount, the Undersubscription Amount (if any) that such Purchaser
elects to purchase (the "Notice of Acceptance"). If the Basic Amounts
subscribed for by all Purchasers are less than the total of all of the Basic
Amounts available for purchase, then each Purchaser who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
-------- -------
Amounts subscribed for exceed the difference between the total of all of the
Basic Amounts available for purchase and the Basic Amounts subscribed for (the
"Available Undersubscription Amount"), each Purchaser who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Purchaser bears to the total Undersubscription Amounts subscribed
for by all Purchasers, subject to rounding by the Board of Directors to the
extent it deems reasonably necessary.
(c) The Company shall have 90 days from the expiration of the period
set forth in Section 3.1(b) above to issue, sell or exchange all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
the Purchasers (the "Refused Securities"), but only to the offerees or
purchasers described in the Offer (if so described therein) and only upon terms
and conditions (including, without limitation, unit prices and interest rates)
which are not more favorable, in the
-16-
<PAGE>
aggregate, to the acquiring person or persons or less favorable to the Company
than those set forth in the Offer.
(d) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 3.1(c) above), then each Purchaser may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 3.1(b) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Purchasers pursuant to Section 3.1(b) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Purchasers in accordance with Section 3.1(a) above.
(e) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Purchasers shall acquire from the
Company, and the Company shall issue to the Purchasers, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 3.1(d) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Purchasers and their respective counsel.
(f) Any Offered Securities not acquired by the Purchasers or other
persons in accordance with Section 3.1(c) above may not be issued, sold or
exchanged until they are again offered to the Purchasers under the procedures
specified in this Agreement.
(g) The rights of the Purchasers under this Section 3 shall not apply
to:
(1) Common Stock issued as a stock dividend to holders of Common Stock
or upon any subdivision or combination of shares of Common Stock;
(2) the issuance of any shares of Common Stock upon shares of
convertible preferred stock;
-17-
<PAGE>
(3) the issuance of up to 9,727,081 shares of Common Stock or such
greater number as is approved by vote of not less than a majority of the non-
employee directors of the Company, or the grant of options or warrants therefor,
including shares issued upon exercise of options outstanding on the date of this
Agreement (such number to be proportionately adjusted in the event of any stock
splits, stock dividends, recapitalizations or similar events occurring on or
after the date of this Agreement) to officers, directors, consultants and
employees of the Company or any subsidiary pursuant to any plan, agreement or
arrangement approved by a vote of not less than a majority of the Board of
Directors of the Company (it being understood that any shares subject to options
that expire or terminate unexercised shall not count towards the maximum number
set forth in this clause (3));
(4) securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity; or
(5) shares of Common Stock sold by the Company in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act.
3.2 Termination. This Section 3 shall terminate upon the earlier of
-----------
the following events:
(a) The sale of all or substantially all of the assets or business of
the Company, by merger, sale of assets or otherwise; or
(b) The consummation of the Initial Public Offering.
4. Negative Covenants. So long as at least 500,000 Shares (such number
------------------
to be proportionately adjusted in the event of any stock splits, stock
dividends, recapitalizations or similar events occurring on or after the date of
this Agreement) are outstanding the Company shall not, without the prior written
consent of the holders of not less than 50% of the then outstanding Shares:
(a) amend the Certificate of Incorporation of the Company to authorize
any additional shares of Common Stock or Series A Preferred or to authorize or
designate any other class or series of stock or senior to, or on a parity with,
the Series A Preferred as to dividends, rights upon liquidation or redemption;
(b) declare or pay any dividends or distributions on Common Stock
other than dividends payable solely in Common Stock;
-18-
<PAGE>
(c) make (or permit any corporation, a majority of the voting stock of
which is owned or controlled by the Company to make) any loan or advance to, or
own any stock or other securities of, any subsidiary or other corporation,
partnership, or other entity unless it is wholly owned by the Company;
(d) make any loan or advance to any person, including, without
limitation, any employee or director of the Company or any subsidiary, except
advances and similar expenditures in the ordinary course of business or under
the terms of an employee stock or option plan approved by the Board of
Directors;
(e) incur any indebtedness for borrowed money (except for operating
credit facilities as approved by the Board of Directors, including, but not
limited to equipment financing not exceeding $5,000,000 in the aggregate);
(f) guarantee directly or indirectly, any indebtedness or obligations
except for trade accounts of any subsidiary arising in the ordinary course of
business;
(g) merge with or into or consolidate with any other corporation;
(h) sell, lease, license or otherwise dispose of all or substantially
all of its properties or assets;
(i) acquire all or substantially all of the properties, assets or
stock of any other corporation or entity (except for a consideration of less
than 10% of the Company's consolidated net worth as of the end of the prior
fiscal quarter);
(j) voluntarily liquidate or dissolve;
(k) amend any provision of, or add any provision to, the Company's
Certificate of Incorporation or By-Laws, which such amendment or provisions
would adversely affect the Series A Preferred; or
(l) apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, of any shares of its Common Stock (other
than purchases of Common Stock from employees, directors or consultants, at
cost, upon termination of their employment or services).
(m) make any material change to the Company's business or operations.
-19-
<PAGE>
5. Transfers of Rights. This Agreement, and the rights and obligations
-------------------
of each Purchaser hereunder, may be assigned by such Purchaser to (i) any person
or entity to which at least 100,000 Shares are transferred by such Purchaser or
(ii) to any affiliate, limited partner or general partner of such Purchaser,
and such transferee shall be deemed a "Purchaser" for purposes of this
Agreement; provided that the transferee provides written notice of such
assignment to the Company and agrees in writing to be bound hereby.
6. General.
-------
(a) Severability. The invalidity or unenforceability of any provision
------------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(b) Specific Performance. In addition to any and all other remedies
--------------------
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
(c) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at C-bridge Internet Solutions, Inc., 219 Vassar Street,
Suite 2, Cambridge, Massachusetts 02139, Attention: President, or at such other
address or addresses as may have been furnished in writing by the Company to the
Purchasers, with a copy to Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109, Attention: John A. Burgess, Esq.; or
If to a Purchaser, at his or its address set forth on Exhibit A, or at such
---------
other address or addresses as may have been furnished to the Company in writing
by such Purchaser, with a copy to O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112, Attention: Ilan S. Nissan, Esq.
-20-
<PAGE>
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) Complete Agreement. This Agreement constitutes the entire
------------------
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
(f) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or terminated and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least 50% of the Registrable Shares held by all of the Stockholders; provided,
--------
however, that this Agreement may be amended with the consent of the holders of
- -------
less than all Registrable Shares only in a manner which applies to all such
holders in the same fashion. Any such amendment, termination or waiver effected
in accordance with this Section 6(f) shall be binding on all parties hereto,
even if they do not execute such consent. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
(g) Pronouns. Whenever the context may require, any pronouns used in
--------
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(h) Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for the convenience of
----------------
the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
-21-
<PAGE>
(j) Additional Purchasers. Persons or entities that, after the date
---------------------
hereof, purchase Shares pursuant to the Purchase Agreement and become
"Additional Purchasers" thereunder may, with the prior written approval of the
Company (but without the need for approval by any other party to this
Agreement), become parties to this Agreement by executing and delivering a
counterpart signature page hereto, whereupon they shall be deemed "Purchasers"
for all purposes of this Agreement.
-22-
<PAGE>
Executed as of the date first written above.
COMPANY:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
--------------------------------------------
PURCHASERS:
INSIGHT CAPITAL PARTNERS III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
----------------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS (CAYMAN)
III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
----------------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS III -
CO-INVESTORS, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
----------------------------------
Name:
Title:
-23-
<PAGE>
H&D INVESTMENTS 97
By: /s/ John M. Westcott, Jr.
--------------------------------------------
Name: John M. Westcott, Jr.
Title: General Partner
-24-
<PAGE>
ORACLE CORPORATION
By: /s/ Matt Mosman
------------------------
Name: Matt Mosman
Title: Vice President, Corporate Development
<PAGE>
EXHIBIT A
List of Purchasers
------------------
Name and Address
of Purchaser
- ---------------------
Insight Capital Partners III, L.P.
527 Madison Avenue
10th Floor
New York, New York 10022
InSight Capital Partners
(Cayman)III, L.P.
c/o W.S. Walker & Company
Walker House
P.O. Box 265GT
Mary Street
George Town
Grand Cayman, Cayman Islands
InSight Capital Partners III -
Co-Investors, L.P.
527 Madison Avenue
10th Floor
New York, New York 10022
H&D Investments 97
Attn: Paul P. Brountas, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Oracle Corporation
500 Oracle Parkway
Redwood Shores, California
94065
<PAGE>
Exhibit 10.11
C-BRIDGE INTERNET SOLUTIONS, INC.
RIGHT OF FIRST OFFER AND CO-SALE AGREEMENT
------------------------------------------
This Agreement dated as of October 7, 1999 is entered into by and among
Hamilton Trust Company Limited, as Trustee of the Willingdon Trust, Cambridge
Technology Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as Trustee
of the Winsor Trust (individually, a "Founder" and collectively, the
"Founders"), the persons and entities listed on Exhibit A attached hereto
---------
(individually, a "Purchaser" and collectively, the "Purchasers"), and C-bridge
Internet Solutions, Inc., a Delaware corporation (the "Company").
Recitals
--------
As used in this Agreement, the term "Shares" shall include all shares
of capital stock of the Company held by the Founders or Purchasers, whether now
owned or hereafter acquired. For purposes of calculating any Purchaser's "pro
rata" ownership of Shares, all shares of Preferred Stock of the Company shall be
deemed to have been converted into Common Stock of the Company.
The purpose of this Agreement is to protect the management and control
of the Company from influence by any person not acceptable to the Company or the
Purchasers and Founders and to assist the Purchasers and Founders in selling
their Shares if they so desire.
NOW, THEREFORE, for valuable consideration, it is agreed as follows.
1. Restrictions on Transfer.
------------------------
1.1 Any sale, transfer or other disposition, whether voluntarily or
by operation of law ("Transfer") of any of the Shares by a Founder or Purchaser,
other than according to the terms of this Agreement, shall be void and transfer
no right, title, or interest in or to any of such Shares to the purported
transferee.
1.2 An original copy of this Agreement, duly executed by each of the
parties hereto, shall be delivered to the Secretary of the Company and
maintained at the principal executive office of the Company and made available
for inspection by any person requesting it.
<PAGE>
1.3 Each Founder and Purchaser agrees to present the certificates
representing the Shares presently owned or hereafter acquired by him to the
Secretary of the Company and cause the Secretary to stamp on the certificate in
a prominent manner the following legend:
"The sale or other disposition of any of the shares represented
by this certificate is restricted by a Right of First Offer and
Co-Sale Agreement, dated as of October 7, 1999, as amended from
time to time, among certain of the shareholders of this
corporation and this corporation (the "Agreement"). A copy of
the Agreement is available for inspection during normal business
hours at the principal executive office of this corporation."
2. Transfers Not Subject to Restrictions.
-------------------------------------
2.1 Any Purchaser may Transfer Shares to any affiliates, general
partners or limited partners, without compliance with Sections 3 through 6
hereof provided that the transferee delivers to the Company a written instrument
agreeing to be bound by the terms of this Agreement as if it were a Founder or
Purchaser. Any Founder may Transfer Shares to a beneficiary or stockholder, as
appropriate, provided that the transferee delivers to the Company a written
instrument agreeing to be bound by the terms of this Agreement as if it were a
Founder or Purchaser.
2.2 The rights of the Company and the Purchasers and Founders under
Sections 4 and 5 hereof shall not apply to any pledge of Shares by a Founder or
Purchaser which creates a mere security interest, provided the pledgee provides
the Company and the Purchasers or Founders with a written agreement to be bound
hereby to the same extent as the pledging Founder or Purchaser.
3. Offer of Sale; Notice of Proposed Sale.
--------------------------------------
If any Founder or Purchaser desires to Transfer any of his Shares, or
any interest in such Shares, in any transaction other than pursuant to Section 2
of this Agreement, such Founder or Purchaser (the "Selling Party") shall first
deliver written notice of his desire to do so (the "Notice") to the Company and
each of the Purchasers (or to the Founders, if the Selling Party is a
Purchaser), in the manner prescribed in Section 9.4 of this Agreement. The
Notice must specify: (i) the number of Shares the Selling Party proposes to sell
or otherwise dispose of (the "Offered Shares"), (ii) the consideration per Share
to be delivered to the Selling Party for the proposed sale,
-2-
<PAGE>
transfer or disposition, and (iii) all other material terms and conditions of
the proposed transaction.
4. Company's Option to Purchase.
----------------------------
4.1 Subject to Section 6.1, the Company shall have the first option
to purchase all or any part of the Offered Shares for the consideration per
share and on the terms and conditions specified in the Notice. The Company must
exercise such option, no later than 15 days after such Notice is deemed under
Section 9.4 hereof to have been delivered to it, by written notice to the
Selling Party.
4.2 In the event the Company does not exercise its option within such
15-day period with respect to all of the Offered Shares, the Company shall, by
the last day of such period, give written notice of that fact to the Purchasers
or Founders, as the case may be (the "Purchaser Notice"). The Purchaser Notice
shall specify the number of Offered Shares not purchased by the Company (the
"Remaining Shares").
4.3 In the event the Company duly exercises its option to purchase
all or part of the Offered Shares, the closing of such purchase shall take place
at the offices of the Company on the later of (i) the date five days after the
expiration of such 15-day period or (ii) the date that the Purchasers or
Founders consummate their purchase of Remaining Shares under Section 5.3 hereof.
4.4 Notwithstanding anything to the contrary herein, neither the
Company nor any of the Purchasers or Founders shall have any right to purchase
any of the Offered Shares hereunder unless the Company and/or the Purchasers
and/or the Founders exercise their option or options to purchase all of the
Offered Shares.
5. Purchasers' or Founders' Option to Purchase.
-------------------------------------------
5.1 Subject to Section 6.1, each Purchaser or Founder shall have an
option, exercisable for a period of 15 days from the date of delivery of the
Purchaser Notice, to purchase, on a pro rata basis according to the number of
Shares owned by such Purchaser or Founder, the Remaining Shares for the
consideration per share and on the terms and conditions set forth in the Notice.
Such option shall be exercised by delivery by such Purchaser or Founder of
written notice to the Secretary of the Company. Alternatively, each Purchaser
or Founder, if the Purchaser proposes to transfer Common Stock, may, subject to
any lock-up letter, within the same 15-day period, notify the Secretary of the
Company of its desire to participate in the sale of the Shares on the terms set
forth in the Notice, and the number of Shares it wishes to sell.
-3-
<PAGE>
5.2 In the event options to purchase have been exercised by the
Purchasers or Founders with respect to some but not all of the Remaining Shares,
those Purchasers or Founders who have exercised their options within the 15-day
period specified in Section 5.1 shall have an additional option, for a period of
five days next succeeding the expiration of such 15-day period, to purchase all
or any part of the balance of such Remaining Shares on the terms and conditions
set forth in the Notice, which option shall be exercised by the delivery of
written notice to the Secretary of the Company. In the event there are two or
more such Purchasers or Founders that choose to exercise the last-mentioned
option for a total number of Remaining Shares in excess of the number available,
the Remaining Shares available for each such Purchaser's or Founder's option
shall be allocated to such Purchaser or Founder pro rata based on the number of
Shares owned by the Purchasers or Founders so electing.
5.3 If the options to purchase the Remaining Shares are exercised in
full by the Purchasers or Founders, the Company shall immediately notify all of
the exercising Purchasers of that fact. The closing of the purchase of the
Remaining Shares shall take place at the offices of the Company no later than
five days after the date of such notice to the Purchasers.
6. Failure to Fully Exercise Options; Co-Sale.
------------------------------------------
6.1 If the Company and the Purchasers or Founders do not exercise
their options to purchase all of the Offered Shares within the periods described
in this Agreement (the "Option Period"), then all options of the Company and the
Purchasers or Founders to purchase the Offered Shares, whether exercised or not,
shall terminate, but each Purchaser or Founder which has, pursuant to Section 5,
expressed a desire to sell Shares in the transaction (a "Participating
Purchaser"), shall be entitled to do so pursuant to this Section. The Company
shall promptly, on expiration of the Option Period, notify the Selling Party of
the aggregate number of Shares the Participating Purchasers or Founders wish to
sell. The Selling Party shall use his best efforts to interest the party to
which the Selling Party proposes to sell or otherwise dispose of the Shares or
an interest in the Shares (the "Prospective Buyer") in purchasing, in addition
to the Offered Shares, the Shares the Participating Purchasers or Founders wish
to sell. If the Prospective Buyer does not wish to purchase all of the Shares
made available by the Selling Party and the Participating Purchasers or
Founders, then (i) if the Selling Party is a Founder, then each Participating
Purchaser and the Selling Party shall be entitled to sell, at the price and on
the terms and conditions set forth in the Notice, a portion of the Shares being
sold to the Prospective Buyer, in the same proportion as such Selling Party or
Participating Purchaser's ownership of Shares bears to the aggregate number of
Shares owned by the Selling Party and the Participating Purchasers or (ii) if
the Selling Party is a Participating Purchaser, then each Founder
-4-
<PAGE>
and the Selling Party shall be entitled to sell, at the price and on the terms
and conditions set forth in the Notice, an equal number of Shares to the
Prospective Buyer. The transaction contemplated by the Notice shall be
consummated not later than 60 days after the expiration of the Option Period.
6.2 If the Participating Purchasers or Founders do not elect to sell
the full number of Shares which they are entitled to sell pursuant to Section
6.1, the Selling Party shall be entitled to sell to the Prospective Buyer,
according to the terms set forth in the Notice, that number of his own Shares
which equals the difference between the number of Shares desired to be purchased
by the Prospective Buyer and the number of Shares the Participating Purchasers
or Founders are entitled to sell pursuant to Section 6.1. If the Selling Party
wishes to Transfer any such Shares at a price per Share which differs from that
set forth in the Notice, upon terms different from those previously offered to
the Company and the Purchasers or Founders, or more than 60 days after the
expiration of the Option Period, then, as a condition precedent to such
transaction, such Shares must first be offered to the Company and the Purchasers
or Founders on the same terms and conditions as given the Prospective Buyer, and
in accordance with the procedures and time periods set forth above.
6.3 The proceeds of any sale made by the Selling Party without
compliance with the provisions of this Section 6 shall be deemed to be held in
constructive trust in such amount as would have been due the Participating
Purchasers or Founders if the Selling Party had complied with this Agreement.
7. Termination of Agreement.
------------------------
7.1 This Agreement shall terminate upon the earlier of the following
events:
(a) The sale of all or substantially all of the assets or business of
the Company, by merger, sale of assets or otherwise (except a merger or
consolidation in which the holders of capital stock of the Company immediately
prior to such merger or consolidation continue to hold immediately following
such merger or consolidation at least 75% by voting power of the capital stock
of the surviving corporation); or
(b) The closing of the Company's initial public offering of shares of
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), resulting in at least
$15,000,000 of gross proceeds to the Company at a price to the public of at
least $10.00 per share (subject to appropriate adjustment for stock splits,
stock dividends, recapitalizations and other similar events); or
-5-
<PAGE>
(c) With respect only to Cambridge Technology Enterprises, Limited and
Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor Trust, three years
from the date of this Agreement.
7.2 The provisions of Sections 3, 4, 5 and 6 hereof shall not apply
to any sale of Shares pursuant to a transaction referred to in Sections 7.1(a)
or 7.1(b) above.
8. Transfers of Rights. This Agreement, and the rights and obligations
-------------------
of each Purchaser hereunder, may be assigned by such Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company and agrees
in writing to be bound hereby.
9. General.
-------
9.1 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
9.2 Specific Performance. In addition to any and all other remedies
--------------------
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company and Founders hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Delaware (without reference
to the conflicts of law provisions thereof).
9.4 Notices. All notices, requests, consents, and other
-------
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at C-bridge Internet Solutions, Inc., 219 Vassar Street,
Suite 2, Cambridge, Massachusetts 02139, Attention: President, or at such other
address or addresses as may have been furnished in writing by the Company to the
Purchasers,
-6-
<PAGE>
with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109,
Attention: John A. Burgess, Esq.;
If to a Purchaser, at his or its address set forth in Schedule A hereto, or
----------
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112, Attention: Ilan S. Nissan, Esq.;
or
If to a Founder, at Cambridge Executive Enterprises, 219 Vassar Street,
Cambridge, Massachusetts 02139, Attention: Alan H. Roth, Esq., or at such other
address or addresses as may have been furnished to the Company in writing by
such Founder.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
9.5 Complete Agreement; Amendments. This Agreement constitutes the
------------------------------
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
relating to such subject matter. No amendment, modification or termination of,
or waiver under, any provision of this Agreement shall be valid unless in
writing and signed by (i) the Company, (ii) Founders holding a majority of the
voting power of the Shares held by all of the Founders and (iii) Purchasers
holding a majority of the voting power of the Shares then held by all of the
Purchasers (giving effect to the conversion into Common Stock of all securities
convertible thereinto), and any such amendment, modification or termination
shall be binding on all parties hereto; provided that the consent of a party
shall not be required for any amendment, modification or termination of, or
waiver under, any provision of this Agreement if such party is not adversely
affected thereby.
9.6 Pronouns. Whenever the context may require, any pronouns used in
--------
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
-7-
<PAGE>
9.7 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
9.8 Section Headings. The section headings are for the convenience
----------------
of the parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
-8-
<PAGE>
Executed as of the date first written above.
COMPANY:
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
-----------------------------
PURCHASERS:
INSIGHT CAPITAL PARTNERS III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
-----------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS (CAYMAN)
III, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
-----------------------------
Name:
Title:
INSIGHT CAPITAL PARTNERS III -
CO-INVESTORS, L.P.
By: InSight Venture Associates III, L.L.C.,
its General Partner
By: /s/ Jeff Horing
-----------------------------
Name:
Title:
-9-
<PAGE>
H&D INVESTMENTS 97
By: /s/ John M. Westcott, Jr.
-----------------------------
Name: John M. Westcott, Jr.
Title: General Partner
-10-
<PAGE>
FOUNDERS:
HAMILTON TRUST COMPANY
LIMITED, AS TRUSTEE OF THE
WILLINGDON TRUST
By: /s/ D. Morrison
-----------------------------
By: /s/ R. Shaw
-----------------------------
BUTTERFIELD TRUST (BERMUDA)
LIMITED, AS TRUSTEE OF THE WINSOR
TRUST
By: /s/ J. Leonard
-----------------------------
By: /s/ D. Marwick
-----------------------------
CAMBRIDGE TECHNOLOGY
ENTERPRISES, LIMITED
By: /s/ Alan Roth
-----------------------------
President
-11-
<PAGE>
ORACLE CORPORATION
By: /s/ Matt Mosman
-----------------------------
Name: Matt Mosman
Title: Vice President, Corporate Development
-12-
<PAGE>
EXHIBIT A
---------
List of Purchasers
------------------
Name and Address
of Purchaser
- ----------------------------------
InSight Capital Partners III, L.P.
527 Madison Avenue
10/th/ Floor
New York, New York 10022
InSight Capital Partners
(Cayman) III, L.P.
c/o W.S. Walker & Company
Walker House
P.O. Box 265GT
Mary Street
George Town
Grand Cayman, Cayman Islands
InSight Capital Partners III -
Co-Investors, L.P.
527 Madison Avenue
10/th/ Floor
New York, New York 10022
H&D Investments 97
Attn: Paul P. Brountas, Esq.
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
-13-
<PAGE>
Oracle Corporation
500 Oracle Parkway
Redwood Shores, California
94065
-14-
<PAGE>
Exhibit 10.12
[ON C-BRIDGE LETTERHEAD]
October 7, 1999
Hamilton Trust Company Limited,
as Trustee of the Willingdon Trust
Vallis Building
P.O. Box HM 247
Hamilton HM AX
Bermuda
Butterfield Trust (Bermuda) Limited,
as Trustee of the Winsor Trust
4th Floor, Winsor House
2 Queen Street
Hamilton HM 11
Bermuda
Cambridge Technology Enterprises Limited
c/o ASK Services Ltd.
Cedar House
41 Cedar Avenue
Hamilton HM EX
Bermuda
Ladies and Gentlemen:
In consideration of and as a condition to your entering into those certain
Right of First Offer and Co-Sale and Stockholders' Voting Agreements of even
date made by and among you, C-bridge Internet Solutions, Inc. (the "Company")
and the other persons and entities named therein, the Company covenants with
each of you as follows:
If, after its initial public offering (as defined in section 4 of the
Stockholders' Voting Agreement) and until the third anniversary thereof, the
Company proposes to file a registration statement with the Securities and
Exchange Commission for a public offering and sale of the common stock of the
Company, $0.01 par value per share (the "Common Stock"), or a security which is
convertible into Common Stock (other than a registration statement on Form S-8
or Form S-4, or their successors) at any time and from time to time, it will,
prior to such filing, give written notice to each of you of its intention to do
so and, upon the written request of any or all of you, respectively, given
within 20 days after the Company provides such notice, the Company shall
register on your behalf up to 20 percent of the aggregate number of shares of
Common Stock held by you provided that (i) your right to sell shares shall be
subject to inclusion at the discretion of the underwriters on a one-for-one
basis (treating you, collectively, as a single Person and the Purchasers, as
listed on Exhibit A of the Stockholders' Voting Agreement, as a single Person
for such purposes), and (ii) the Company shall have the right to postpone or
withdraw any proposed registration at any time without obligation to any of you.
Very truly yours,
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Joseph M. Bellini
---------------------------------
Joseph M. Bellini
President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
_____________________________________
Boston, Massachusetts
October 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 190,409 3,892
<SECURITIES> 0 0
<RECEIVABLES> 763,267 2,906,246
<ALLOWANCES> 30,502 63,844
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,388,493 4,591,712
<PP&E> 769,286 1,629,083
<DEPRECIATION> 226,018 507,586
<TOTAL-ASSETS> 1,931,761 5,858,209
<CURRENT-LIABILITIES> 4,575,782 6,403,129
<BONDS> 0 0
0 0
0 0
<COMMON> 107,200 121,677
<OTHER-SE> (2,927,796) (792,413)
<TOTAL-LIABILITY-AND-EQUITY> 1,931,761 5,858,209
<SALES> 5,047,474 13,838,165
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 8,687,457 16,956,191
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 244,370 165,367
<INCOME-PRETAX> (3,868,956) (2,930,708)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,868,956) (2,930,708)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,868,956) (2,930,708)
<EPS-BASIC> (0.39) (0.27)
<EPS-DILUTED> (0.39) (0.27)
</TABLE>
