<PAGE>
As filed with the Securities and Exchange Commission on November 19, 1999
Registration No. 333-89069
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 2
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.
Hale and Dorr LLP Richard G. Costello, Esq.
60 State Street Foley, Hoag & Eliot LLP
Boston, Massachusetts 02109 One Post Office Square
Telephone: (617) 526-6000 Boston, Massachusetts 02109
Telecopy: (617) 526-5000 Telephone: (617) 832-1000
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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed Maximum Proposed Maximum Amount of
securities to be Amount to be Offering Price Aggregate Offering Registration
registered Registered(1) Per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... 4,600,000 $10.00 $46,000,000 $12,788.00
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</TABLE>
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(1) Includes 600,000 shares of Common Stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) A fee of $13,900.00 was previously paid in connection with the initial
filing of the Registration Statement.
--------------------
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.
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<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 NOVEMBER 19, 1999
[C-BRIDGE LOGO APPEARS HERE]
4,000,000 Shares
Common Stock
C-bridge Internet Solutions, Inc. is offering 4,000,000 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 $8.00 and $10.00 per
share.
--------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 8.
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<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 600,000 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 , 2000 (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..................................................... 53
Principal Stockholders................................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Where You Can Find More Information...................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
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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.
It contains a summary of the most significant aspects of the offering that you
should consider before investing in our common stock. This summary may not
contain all of the information that is important to you. You should read the
entire prospectus carefully.
C-bridge Internet Solutions
Our Business
We are a full service provider of Internet-based solutions designed to help
companies conduct business over the Internet, commonly known as eBusiness. 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 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 companies on the Business
Week Global 1000 index 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........ 4,000,000 shares
Common stock to be outstanding after
this offering......................... 17,813,242 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, gives effect to our sale
of 1,645,555 shares of series A convertible preferred stock in October 1999 and
the conversion of those shares into 1,645,555 shares of common stock that will
occur upon the completion of this offering, 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 $9.9 million and the conversion of all of our outstanding
preferred stock into common stock that will occur upon the completion of this
offering, and on a pro forma as adjusted basis to give effect to the sale by us
of 4,000,000 shares of common stock in this offering at an assumed initial
public offering price of $9.00 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 $39,102
Total assets..................................... 5,858 14,407 46,887
Line of credit................................... 1,449 189 189
Capital lease obligations........................ 317 317 317
Total stockholders' (deficit) equity ............ (671) 9,137 41,617
</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. 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;
. 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.
Our operating expenses are relatively fixed
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.
8
<PAGE>
Period-to-period comparisons may be unreliable
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 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.
9
<PAGE>
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;
. Donald W. Amaya, our Executive Vice President, Human Resources; and
. Richard O. Wester, our Vice President, Finance and Administration and
Chief Financial Officer.
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.
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.
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
10
<PAGE>
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, which 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.
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
11
<PAGE>
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, many
of which 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.
There are many competitors in the market for Internet professional services
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 hurt 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. If we are unsuccessful in any future intellectual property litigation
we may be forced to do one or more of the following:
. cease selling or using technology or services that incorporate the
challenged intellectual property;
12
<PAGE>
. obtain a license, which may not be available on reasonable terms or at
all, to use the relevant technology;
. configure services to avoid infringement; and
. refund license fees or other payments that we have previously
received.
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.
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."
13
<PAGE>
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, 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.
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;
14
<PAGE>
. 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.
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.
15
<PAGE>
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. For a more
detailed description of the number of shares that may be sold following this
offering, see "Shares Eligible for Future Sale" on page 60.
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;
. 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.
16
<PAGE>
Our directors, executive officers and principal stockholders will have
substantial control over our affairs.
Our directors and executive officers will beneficially own approximately
17.9% of our common stock following this offering. In addition, our three
largest stockholders will own approximately 48.2% 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 $9.00 per share, if you purchase shares of
common stock in this offering, you will suffer immediate and substantial
dilution of $6.66 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.
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 4,000,000 shares of
common stock offered by us are estimated to be $32.5 million, assuming an
initial public offering price of $9.00 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 $37.5 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. There are no pending negotiations or arrangements relating to any
acquisitions. 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 prevent us from paying any
dividend or making any other distribution or payment with respect to our
capital stock.
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 $9.9 million and the conversion of all of our
outstanding preferred stock into common stock that will occur upon the
completion of this offering, and on a pro forma as adjusted basis to give
effect to the sale by us of 4,000,000 shares of common stock offered at an
assumed initial public offering price of $9.00 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 $ 189
Current portion of capital lease obligation..... 191 191 191
------- ------- -------
Total short-term debt......................... 1,640 380 380
------- ------- -------
Capital lease obligation, less current portion.. 126 126 126
Stockholders' deficit/equity:
Preferred Stock, $0.01 par value, 5,000,000
shares authorized,
actual, pro forma and pro forma as adjusted;
none issued and
outstanding, actual, pro forma and pro forma
as adjusted................................ -- -- --
Common stock, $0.01 par value, 30,000,000
shares authorized,
12,167,687 issued and outstanding, actual;
50,000,000
authorized, 13,813,242 issued and
outstanding, pro forma; 17,813,242 issued
and outstanding, pro forma as adjusted....... 122 138 178
Additional paid-in capital...................... 14,275 24,067 56,507
Notes receivable for issuance of common stock... (84) (84) (84)
Deferred compensation........................... (6,524) (6,524) (6,524)
Accumulated deficit............................. (8,307) (8,307) (8,307)
Treasury stock, at cost--510,000 shares......... (153) (153) (153)
------- ------- -------
Total stockholders' (deficit) equity.......... (671) 9,137 41,617
------- ------- -------
Total capitalization....................... $ (545) $ 9,263 $41,743
======= ======= =======
</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 the conversion of all of our outstanding
preferred stock into 1,645,555 shares of common stock that will occur upon the
completion of this offering, was $9.1 million, or $0.66 per share of common
stock. Pro forma net tangible book value per share is determined by dividing
our pro forma tangible net worth 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 4,000,000 shares of common stock, and after
deducting 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 $41.6 million, or $2.34 per share. This represents an
immediate increase in pro forma net tangible book value of $1.68 per share to
existing stockholders and an immediate dilution of $6.66 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.................... $9.00
Pro forma net tangible book value per share as of September 30,
1999.............................................................. $0.66
Increase per share attributable to this offering.................. 1.68
-----
Pro forma net tangible book value per share after this offering.... 2.34
-----
Dilution per share to new investors................................ $6.66
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, 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 77.5% $12,207,143 25.3% $0.88
New investors............. 4,000,000 22.5 36,000,000 74.7 9.00
---------- ----- ----------- -----
Total................... 17,813,242 100.0% $48,207,143 100.0%
========== ===== =========== =====
</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, the
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 3,528 6,457
Direct costs of educational
services................. -- -- -- -- 1,142
Selling and marketing...... 3 328 1,530 1,224 1,884
General and
administrative........... 140 1,797 2,109 1,655 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 Internet-based solutions designed to help
companies conduct eBusiness. 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,
CEE, to provide the operational aspects of their executive education seminars.
Under this contract, we generate revenues of approximately $1.4 million a
quarter. Further discussion of our relationship with CEE can be found in
footnote 10 to our audited consolidated financial statements included elsewhere
in this prospectus.
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. Assuming this offering is completed
in 1999, the balance will be recognized based on vesting of these stock options
at $1.4 million for the quarter ended December 31, 1999, including $1.1 million
related to certain options whose vesting accelerates upon this offering, and
$512,000 per quarter thereafter.
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 98.6 110.0 46.7
Direct costs of educational
services........................... -- -- -- 8.3
Selling and marketing................ 10.3 30.3 38.1 13.6
General and administrative........... 56.7 41.8 51.6 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 83% from $3.5 million for the nine months ended September
30, 1998 to $6.5 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
54% 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.
25
<PAGE>
General and administrative expenses. General and administrative expenses
increased 185% from $1.7 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 headcount
for the nine months ended September 30, 1999. General and administrative
expenses represented 52% 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.
26
<PAGE>
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.
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, Sept. 30, Dec. 31, March 31, June 30, Sept. 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 $9.9 million from the private placement, after
deducting our
28
<PAGE>
expenses. Based on our current business plan, 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 at least through
the year 2000. 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.
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 Internet-based solutions designed to help
companies conduct eBusiness. 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 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.
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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
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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.
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. 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.
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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
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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
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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.
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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.
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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 ability to process 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.
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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 has
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:
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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 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.
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<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees, and their respective
ages 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
Donald W. Amaya........... 53 Executive Vice President, Human Resources
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.
Donald W. Amaya joined C-bridge in November 1999 as Executive Vice
President, Human Resources. Prior to joining C-bridge, Mr. Amaya was Vice
President, Staffing and Education, for EMC Corporation from September 1997
through October 1999. From January 1996 to September 1997, Mr. Amaya was a
consultant providing human resources services to a number of mid-size IT
professional services and software companies. From May 1984 through December
1995, Mr. Amaya was the Vice President, Human Resources at Keane, Inc. Mr.
Amaya received a B.A. from Wheaton College, Wheaton, Illinois.
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.
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<PAGE>
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. From April 1996 to March 1999, 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.
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 September 1996 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.
Pursuant to a stockholders voting agreement that we entered into in
connection with our sale of our series A convertible preferred stock in October
1999, Ramanan Raghavendran was elected to our board of directors. This
agreement will terminate by its terms upon completion of this offering.
46
<PAGE>
Committees of the Board of Directors
The board of directors has a compensation committee composed of Messrs.
Charron, Lane and Raghavendran, 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. Badaracco, Charron and Raghavendran, which
reviews the results and scope of the audit and other services provided by our
independent public auditors.
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.
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<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 $9.00 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 $ 1,530,992 $ 3,879,833
139,909(2) 4.5 0.30 10/31/08 765,496 1,939,917
Marco M. Farsheed....... 300,000(2) 9.7 0.30 05/20/08 1,641,415 4,159,668
Gerard F. King, II...... 100,000 3.2 0.30 02/06/08 547,138 1,386,556
27,850 0.9 0.30 03/25/08 152,378 386,156
200,000(2) 6.4 0.30 09/30/08 1,094,277 2,773,112
Richard O. Wester....... 300,000 9.7 0.30 09/30/08 1,641,415 4,159,668
</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.
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<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. 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 $9.00
per share.
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Sundar Subramaniam.. -- -- -- --
R. Jeffrey
Spurrier.......... 34,977 384,750 $ 304,300 $3,347,325
Marco M. Farsheed... 43,750 256,250 380,625 2,229,375
Gerald F. King, II.. 164,595 413,255 1,431,977 3,595,319
Richard O. Wester... -- 300,000 -- 2,610,000
</TABLE>
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
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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.
1999 Director Stock Option Plan
Our 1999 Director Stock Option Plan was adopted by our board of directors
on November 9, 1999, subject to the approval of our stockholders. Under the
director stock option plan, directors who are not our employees will be
eligible to receive non-statutory options to purchase shares of our common
stock. A total of 200,000 shares of our common stock may be issued upon the
exercise of options granted under the director stock option plan.
Under the terms of the director stock option plan, each person who becomes
a non-employee director after the closing of this offering will be granted an
option to purchase 30,000 shares of our common stock on the date of his or her
initial election to the board of directors. These options vest in three equal
annual installments beginning on the first anniversary of the option grant
date. In addition, each non-employee director will receive an option to
purchase 15,000 shares of our common stock on the date of each annual meeting
of our stockholders commencing with the 2000 annual meeting of stockholders,
other than a director who was initially elected to the board of directors at
any such annual meeting or, if previously, at any time after the prior year's
annual meeting. These options vest immediately in full upon the option grant
date. The exercise price per share of all options will equal the fair market
value per share of our common stock on the option grant date. Each grant under
the director stock option plan will have a maximum term of ten years, subject
to earlier termination following the optionee's cessation of service.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
on November 9, 1999, subject to the approval of our stockholders. The purchase
plan will become effective upon the completion of this offering and authorizes
the issuance of up to a total of 750,000 shares of our common stock to
participating employees.
All of our employees, including our directors who are employees and all
employees of any participating subsidiaries, whose customary employment is more
than 20 hours per week for more than five months in any
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calendar year, are eligible to participate in the purchase plan. Employees who
would immediately after an option grant own 5% or more of the total combined
voting power or value of our stock or any subsidiary are not eligible to
participate in the purchase plan.
We will make one or more offerings to our employees to purchase stock under
the purchase plan. Offerings will begin on dates established by our board of
directors, provided that our first offering commencement date will be the date
on which trading of our common stock commences on the Nasdaq National Market in
connection with this offering. Each offering commencement date will begin a
six-month period during which payroll deductions will be made and held for the
purchase of our common stock at the end of the purchase plan period.
On the first day of a designated payroll deduction period, or offering
period, we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase shares of our common stock as
follows: the employee may authorize between 1% to 10% of his or her base pay to
be deducted by us during the offering period. On the last day of the offering
period, the employee is deemed to have exercised the option, at the option
exercise price, to the extent of accumulated payroll deductions. Under the
terms of the purchase plan, the option price is an amount equal to 85% of the
closing price (as defined) per share of our common stock on either the first
day or the last day of the offering period, whichever is lower. In no event may
an employee purchase in any one offering period a number of shares which
exceeds the number of shares determined by dividing (a) the product of $2,083
and the number or fraction of months in the offering period by (b) the closing
price of a share of our common stock on the commencement date of the offering
period. Our board of directors may, in its discretion, choose an offering
period of 12 months or less for each offering and may choose a different
offering period for each offering.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated
payroll deductions in the employee's account would purchase at the date of
death.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
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.
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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, Steven Jaworski. 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. We repaid
this note in full on October 27, 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
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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.
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 Harrington Trust
Limited, as Trustee of the Appleby Trust, the beneficiaries of which include
various relatives 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
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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 and technical development
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. Invenio makes payments from time to
time, and we expect that the amount will be paid in full in the foreseeable
future.
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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 30, 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 13,939,907 shares of common stock outstanding
as of October 30, 1999, which assumes the conversion of the outstanding shares
of series A convertible preferred stock as of October 30, 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 30, 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............... 782,500 5.3% 4.2%
R. Jeffrey Spurrier............. 209,863 1.5 1.2
Richard O. Wester............... 75,000 * *
Sundar Subramaniam(1)........... 4,049,055 29.0 22.6
Marco M. Farsheed............... 300,000 2.1 1.7
Joseph L. Badaracco, Jr.(2)..... 125 * *
Paul R. Charron(3).............. -- * *
Gerald F. King, II.............. 275,725 2.0 1.5
Raymond J. Lane(4).............. 791,666 5.7 4.4
Ramanan Raghavendran(5)......... 2,000,000 14.3 11.1
Entities affiliated with InSight
Capital Partners(6)........... 2,000,000 14.3 11.1
Hamilton Trust Company Limited,
as Trustee of the Willingdon
Trust(7)...................... 4,049,055 29.0 22.6
Butterfield Trust (Bermuda)
Limited, as Trustee of the
Winsor Trust(8)............... 2,290,750 16.4 12.8
Internet Business Capital
Corporation Limited(9)........ 2,290,750 16.4 12.8
Oracle Corporation(10).......... 458,333 3.3 2.6
All directors and executive
officers as a group
(10 persons).................. 3,918,550 21.9 17.9
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of our common stock.
(footnotes follow on next page)
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--------
(1) Consists of 4,049,055 shares owned by the Willingdon Trust, of which Mr.
Subramaniam, his sister, Subitha Subramaniam, 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, and neither he nor his sister exercise
sole or shared investment power with respect to the shares listed. 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.
(2) The address of Professor Badaracco is c/o Harvard Business School,
Soldier's Field Road, Morgan 475, Boston, Massachusetts 02163.
(3) The address of Mr. Charron is c/o Liz Claiborne, Inc., 1441 Broadway, New
York, New York 10018.
(4) Includes 305,555 shares of series A convertible preferred stock and
152,778 shares of common stock held by Oracle Corporation. Mr. Lane is
President and Chief Operating Officer of Oracle Corporation. Mr. Lane
disclaims beneficial ownership of the shares held by Oracle Corporation
except as to the extent of his pecuniary interest, if any. The address of
Mr. Lane is c/o Oracle Corporation, 500 Oracle Parkway, Redwood Shores,
California 94065.
(5) 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.
(6) 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.
(7) Consists of 4,049,055 shares held by the Willingdon Trust, the
beneficiaries of which are Sundar Subramaniam, his sister, Subitha
Subramaniam, 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.
(8) Consists of 2,290,750 shares held by the Winsor Trust, the beneficiaries
of which include a child of Professor John J. Donovan, and his respective
issue. The address of the Winsor Trust is Butterfield Trust (Bermuda)
Limited, 65 Front Street, Hamilton HM AX, Bermuda.
(9) Consists of 2,290,750 shares held by Internet Business Capital
Corporation Limited, the stockholders of which include trusts for the
benefit of the children of Professor John J. Donovan, and their
respective issue. The address of Internet Business Capital Corporation
Limited is c/o ASK Services Ltd., Cedar House, 41 Cedar Avenue, Hamilton
HM EX, Bermuda.
(10) Consists of 305,555 shares of series A convertible preferred stock and
152,778 shares of common stock. The address of Oracle Corporation is 500
Oracle Parkway, Redwood Shores, California 94065.
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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 Our Charter and By-law Provisions; Anti-Takeover Effects
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.
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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 our chairman of the
board, our president, our board of directors or, on or before October 7, 2000,
stockholders holding a majority of our capital stock issued and outstanding and
entitled to vote, 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.
59
<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 17,813,242 shares of common
stock outstanding based upon the number of shares outstanding as of September
30, 1999. Of these shares, the 4,000,000 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 13,813,242 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. The table below sets forth information regarding
potential sales of restricted securities.
. 171,665 shares which are not subject to the 180-day lock-up period may
be sold immediately after completion of this offering;
. 3,365,467 additional shares may be sold upon expiration of the 180-day
lock-up period;
. 4,315,278 additional shares may be sold upon expiration of the one-
year lock-up period described in "Underwriting" for three of our
principal stockholders;
. 2,157,639 additional shares may be sold upon expiration of the two-
year lock-up period described in "Underwriting" for three of our
principal stockholders; and
. 2,157,638 additional shares may be sold upon expiration of the three-
year lock-up period described in "Underwriting" for three of our
principal stockholders.
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
approximately 11,000,000 shares of common stock, which may be issued under our
1997 Stock Incentive Plan, 1999 Stock Incentive Plan, 1999 Director Stock
Option Plan and 1999 Employee Stock Purchase 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. Upon the expiration of the lock-
up agreements, an additional 2,901,031 shares may be sold as a result of the
exercise of options.
Registration Rights
Upon completion of this offering, holders of approximately 8,700,000 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.
60
<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........................................................ 4,000,000
=========
</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 600,000 additional shares of common stock to cover over-
allotments, if any, at the same price per share as we will receive for the
4,000,000 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 4,000,000 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 4,000,000 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 4,000,000
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>
61
<PAGE>
The expenses of the offering, other than underwriting discounts and
commissions, payable by us are estimated at $1,000,000. BancBoston Robertson
Stephens Inc. expects to deliver the shares of common stock to purchasers on
, 1999.
Directed Share Program. The underwriters have reserved up to five 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. The holders of a total of 13,641,577 shares of
common stock, including our executive officers and directors, the principal
stockholders described above 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."
Internet Distribution. E*TRADE will make the preliminary prospectus
available on its web site when it becomes available. E*TRADE will not solicit
conditional offers until two business days before the expected effective date
of an offering. If the effective date of the offering is delayed beyond two
business days, E*TRADE would allow, consistent with the Wit Capital no-action
letter, that any conditional offer received from a customer remain valid for
five business days from the date it was submitted.
62
<PAGE>
E*TRADE will provide customers a period after effectiveness and pricing
during which they will continue to have the right to cancel their conditional
offers. This period will be until 8 p.m. e.s.t. (but in no event less than two
hours after E*TRADE notifies its customers of effectiveness and pricing) in the
usual situation where the offering becomes effective and prices after the close
of trading. If the offering becomes effective and prices prior to or during the
trading day, the period will be one hour after E*TRADE notifies its customers
of effectiveness and pricing.
If an offering prices outside the expected price range indicated in the
preliminary prospectus or the price range for an offering changes, E*TRADE will
either (i) cancel its existing book of conditional offers and re-solicit new
conditional offers or (ii) require customers to reconfirm their existing
conditional offers as a condition to participating in the offering.
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.
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. 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.
63
<PAGE>
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, contains all of the
material information relating to this offering. 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.
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.
64
<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.
/s/ Arthur Andersen LLP
-------------------------------------
Boston, Massachusetts
October 28, 1999 (except for the matters discussed in Note 13, as to which the
date is November 9, 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))................. $ (0.02) $ (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 a five-year outsourcing agreement with a
third party. In accordance with the outsourcing agreement, the Company manages
and performs executive education in exchange for a monthly fee of approximately
$479,000 per month. The Company records such fee as revenue ratably over the
contract term. Costs incurred in performing such services are expensed as
incurred. 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 (APB 25),
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.
On May 1, 1999, the Company granted to designees of CEE, options to
purchase 189,500 shares of common stock at an exercise price of $1.00 per
share. In accordance with SFAS No. 123 and Emerging Issues Task Force Issue 98-
16, the Company recorded a charge to operations of $199,000 related to this
grant. As a result of the outsourcing agreement, certain employees of CEE
became employees of C-bridge on May 1, 1999. These employees represent the
remaining CEE designees. The Company granted these employees options to
purchase 118,000 shares of common stock at an exercise price of $1.00 per
share, which was deemed to be less than fair market value on the date of grant.
In accordance with APB 25, the Company recorded deferred compensation of
$590,000 which is being amortized to operations over the vesting period of the
employees' options.
F-18
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
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. In September 1998,
CTG made an assignment for the benefit of creditors. The sole stockholder,
director and officer of CTG is an employee of CEE, and members of his family
are beneficiaries of a trust 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 $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.
F-19
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
(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 $9.9
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.
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.
F-20
<PAGE>
C-BRIDGE INTERNET SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(including data applicable to unaudited period)
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>
(13) Subsequent Event
On November 9, 1999, the Company's board of Directors approved an increase
in the Company's authorized common stock to 50,000,000 shares, approved the
1999 Employee Stock Purchase Plan pursuant to which 750,000 shares will be
authorized for issuance and approved the 1999 Director Stock Option Plan,
pursuant to which 200,000 shares are authorized for issuance. The increase in
authorized common stock and the 1999 Employee Stock Purchase Plan are subject
to completion of an Initial Public Offering.
F-21
<PAGE>
<PAGE>
[C-BRIDGE LOGO APPEARS HERE]
<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............................ 95,000
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................................................. 140,600
----------
Total....................................................... $1,000,000
==========
</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. On October 30, 1996, the Registrant issued 10,000,000 shares of common
stock to four founders for an aggregate purchase price of $1,000.
2. On September 9, 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. On May 1, 1998, the Registrant issued warrants to one accredited
investor to purchase 333,334 shares of common stock at an exercise
price of $.30 per share in connection with short-term financing.
4. On May 20, 1998, the Registrant issued 280,000 shares of common stock
to one accredited investor in exchange for a note receivable in the
amount of $84,000.
5. On May 22, 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. On June 1, 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.
II-2
<PAGE>
7. On July 31, 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. On August 3, 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 accredited
investors.
9. On September 29, 1998, the Registrant issued a warrant to a bank to
purchase 65,000 shares of common stock at an exercise price of $1.00
per share in connection with a line of credit.
10. On October 27, 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. On May 20, 1998, and September 28, 1998, the Registrant issued 5,000
and 45,000 shares respectively, of common stock in the form of stock
bonuses to employees.
12. On June 9, 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.
The Registrant began negotiations with potential investors in early
August 1999, and a term sheet was executed by InSight Capital Partners
and the Registrant on September 10, 1999. The investment in the
Registrant by H&D Investments 97 and entities affiliated with Insight
Capital Partners was closed on October 7, 1999, and all funds for the
investment by Oracle Corporation were received by October 14, 1999.
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 Second 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.
10.13 1999 Director Stock Option Plan.
10.14 1999 Employee Stock Purchase Plan.
10.15 Loan Security Agreement dated as of September 29, 1998, and as
amended by a Loan Modification Agreement dated as of January 27,
1999, a Second Loan Modification Agreement dated as of April 7,
1999 and a Third Loan Modification Agreement dated as of September
29, 1999 by and between Silicon Valley Bank and the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
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.
(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. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Cambridge,
Massachusetts, on this 19th day of November, 1999.
C-BRIDGE INTERNET SOLUTIONS, INC.
/s/ Joseph M. Bellini
By: _________________________________
Joseph M. Bellini,
President and Chief Executive
Officer
POWER OF ATTORNEY
We the undersigned officers and directors of C-bridge Internet Solutions,
Inc., hereby severally constitute and appoint Joseph M. Bellini, Richard O.
Wester, Joseph E. Mullaney III, Esq. and John A. Burgess, Esq., and each of
them singly (with full power to each of them to act alone), our true and lawful
attorneys-in-fact and agents, with full power and substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement (or any other Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or their or his substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 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 November 19, 1999
______________________________________ Officer and Director
Joseph M. Bellini (Principal Executive
Officer)
/s/ Richard O. Wester Vice President, Finance, November 19, 1999
______________________________________ Chief Financial Officer
Richard O. Wester and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Joseph L. Badaracco, Jr.* Director November 19, 1999
______________________________________
Joseph L. Badaracco, Jr.
/s/ Paul R. Charron* Director November 19, 1999
______________________________________
Paul R. Charron
/s/ Gerard F. King, II* Director November 19, 1999
______________________________________
Gerard F. King, II
/s/ Raymond J. Lane* Director November 19, 1999
______________________________________
Raymond J. Lane
/s/ Ramanan Raghavendran* Director November 19, 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 Second 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.
10.13 1999 Director Stock Option Plan.
10.14 1999 Employee Stock Purchase Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.15 Loan Security Agreement dated as of September 29, 1998, as amended
by a Loan Modification Agreement dated as of January 27, 1999, a
Second Loan Modification Agreement dated as of April 7, 1999 and a
Third Loan Modification Agreement dated as of September 29, 1999
by and between Silicon Valley Bank and 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 3.2
SECOND 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:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware on October 31, 1996 under the
name "Cambridge Internet Solutions, Inc."
2. By vote 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 a Second Amended and Restated Certificate of
Incorporation of the Corporation and declaring the Second Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved said proposed Second Amended and Restated Certificate of
Incorporation by written consent in lieu of a meeting in accordance with
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware. The resolution setting forth the Second Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Amended and Restated Certificate of Incorporation of
the Corporation, as amended, 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.
<PAGE>
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 all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, consisting of
(i) 50,000,000 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. 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. 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.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
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 that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
3
<PAGE>
appointed for this corporation under the provisions of section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. 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.
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
---------------------------------------------------------------
the Corporation. The Corporation shall 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 (other than an action by or in the right of the Corporation), 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
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
4
<PAGE>
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 which he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 7 below, the Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation. Notwithstanding anything to the contrary in this
Article, 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.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, 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), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, 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 to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on
5
<PAGE>
appeal from any such action, suit or proceeding, he shall be indemnified against
all expenses (including attorneys' fees) actually and reasonably incurred by him
or on his behalf in connection therewith. Without limiting the foregoing, if any
action, suit or proceeding is disposed of, on the merits or otherwise (including
a disposition without prejudice), without (i) the disposition being adverse to
the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the
Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee,
---- ----------
(iv) an adjudication 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 (v) with respect to any criminal proceeding, an
adjudication that the Indemnitee had reasonable cause to believe his conduct was
unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
4. Notification and Defense of Claim. 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 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. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation
6
<PAGE>
receives notice under this Article, any expenses (including attorneys' fees)
incurred by an Indemnitee in defending a civil or criminal action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the
Corporation in advance of the final disposition of such matter; 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.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination 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 committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) 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, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the
7
<PAGE>
circumstances because the Indemnitee has met the applicable standard of conduct,
nor an actual determination by the Corporation pursuant to Section 6 that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including attorneys'
fees) incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, 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 other persons serving the Corporation
and such rights may be equivalent to, or greater or less than, those set forth
in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
8
<PAGE>
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. 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.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
9
<PAGE>
1. Number of Directors. The number of directors of the Corporation shall
-------------------
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-Laws of the Corporation.
3. Term of Office. Each director shall hold office until the next annual
--------------
meeting; provided that the term of each director shall be subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
4. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Certificate of Incorporation.
5. Removal. Directors of the Corporation may be removed only for cause
-------
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
6. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected to hold office until the
next election of directors, subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
7. Stockholder Nominations and Introduction of Business, Etc. Advance
---------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10
<PAGE>
8. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time by
only (i) the Chairman of the Board of Directors; (ii) the President; (iii) the
Board of Directors; or (iv) on or before October 7, 2000, at the request in
writing of stockholders holding at least fifty percent (50%) of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least seventy-five percent (75%) of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
THIRTEENTH; provided, however, that the affirmative vote of the holders of one
hundred percent (100%) of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with this Article THIRTEENTH to
the extent that such action pertains to the right of the stockholders to call a
special meeting of stockholders on or before October 7, 2000.
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Second Amended and Restated Certificate of Incorporation
to be signed by its President and Chief Executive Officer this ____ day of
______________, 1999.
C-BRIDGE INTERNET SOLUTIONS, INC.
By: ________________________________________
Joseph M. Bellini
President and Chief Executive Officer
<PAGE>
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
C-BRIDGE INTERNET SOLUTIONS, INC.
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 -- Stockholders..................................................... 1
1.1 Place of Meetings....................................................... 1
1.2 Annual Meeting.......................................................... 1
1.3 Special Meetings........................................................ 1
1.4 Notice of Meetings...................................................... 1
1.5 Voting List............................................................. 2
1.6 Quorum.................................................................. 2
1.7 Adjournments............................................................ 2
1.8 Voting and Proxies...................................................... 2
1.9 Action at Meeting....................................................... 3
1.10 Nomination of Directors................................................. 3
1.11 Notice of Business at Annual Meetings................................... 4
1.12 No Action without Meeting............................................... 5
1.13 Organization............................................................ 5
ARTICLE 2 -- Directors........................................................ 5
2.1 General Powers.......................................................... 5
2.2 Number; Election and Qualification...................................... 5
2.3 Term of Office.......................................................... 5
2.4 Vacancies............................................................... 6
2.5 Resignation............................................................. 6
2.6 Regular Meetings........................................................ 6
2.7 Special Meetings........................................................ 6
2.8 Notice of Special Meetings.............................................. 6
2.9 Meetings by Telephone Conference Calls.................................. 6
2.10 Quorum.................................................................. 7
2.11 Action at Meeting....................................................... 7
2.12 Action by Consent....................................................... 7
2.13 Removal................................................................. 7
2.14 Committees.............................................................. 7
2.15 Compensation of Directors............................................... 8
ARTICLE 3 -- Officers......................................................... 8
3.1 Enumeration............................................................. 8
3.2 Election................................................................ 8
3.3 Qualification........................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.4 Tenure................................................................ 8
3.5 Resignation and Removal............................................... 8
3.6 Vacancies............................................................. 9
3.7 Chairman of the Board and Vice Chairman of the Board.................. 9
3.8 President............................................................. 9
3.9 Vice Presidents....................................................... 9
3.10 Secretary and Assistant Secretaries...................................10
3.11 Treasurer and Assistant Treasurers....................................10
3.12 Salaries..............................................................11
ARTICLE 4 -- Capital Stock..................................................11
4.1 Issuance of Stock.....................................................11
4.2 Certificates of Stock.................................................11
4.3 Transfers.............................................................11
4.4 Lost, Stolen or Destroyed Certificates................................12
4.5 Record Date...........................................................12
ARTICLE 5 -- General Provisions.............................................12
5.1 Fiscal Year...........................................................12
5.2 Corporate Seal........................................................13
5.3 Waiver of Notice......................................................13
5.4 Voting of Securities..................................................13
5.5 Evidence of Authority.................................................13
5.6 Certificate of Incorporation..........................................13
5.7 Transactions with Interested Parties..................................13
5.8 Severability..........................................................14
5.9 Pronouns..............................................................14
ARTICLE 6 -- Amendments.....................................................14
6.1 By the Board of Directors.............................................14
6.2 By the Stockholders...................................................14
6.3 Certain Provisions....................................................14
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
C-BRIDGE INTERNET SOLUTIONS, INC.
ARTICLE 1 -- Stockholders
-------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of 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.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time by only (i) the Chairman of the Board of Directors; (ii) the President;
(iii) the Board of Directors; or (iv) on or before October 7, 2000, at the
request in writing of stockholders holding at least fifty percent (50%) of the
shares of the 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 of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of
1
<PAGE>
the meeting. The notice of a special eeting shall state, in addition, the
purpose or purposes for which the meeting is called. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 10 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
10 days prior to the meeting, at a place within the city 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 of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at
a meeting of stockholders, or to express consent or dissent to corporate action
in writing without a meeting, may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his
2
<PAGE>
authorized agent and delivered to the Secretary of the corporation. No such
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election of directors by stockholders shall
be determined by a plurality of the votes cast by the stockholders entitled to
vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in
-----------------------
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
3
<PAGE>
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of
-------------------------------------
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a stockholder. For business to be properly brought before an annual meeting
by a stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with. If such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 1.11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman
4
<PAGE>
shall so declare to the meeting that any such business not properly brought
before the meeting shall not be transacted.
1.12 No Action without Meeting. Stockholders may not take any action
-------------------------
by written consent in lieu of a meeting.
1.13 Organization. The Chairman of the Board, or in his absence the
------------
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall
act as secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 -- Directors
----------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Term of Office. Each director (other than a director elected to fill
--------------
a vacancy in accordance with Section 2.4) shall hold office until the next
annual meeting; provided that the term of each director shall be subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
5
<PAGE>
2.4 Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of directors, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
2.5 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President 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.
2.6 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the 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.
2.7 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.8 Notice of Special Meetings. Notice of any special meeting of
--------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.9 Meetings by Telephone Conference Calls. Directors or any members of
--------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
6
<PAGE>
2.10 Quorum. A majority of the total number of the whole Board of
------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.11 Action at Meeting. At any meeting of the Board of Directors at
-----------------
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.12 Action by Consent. Any action required or permitted to be taken
-----------------
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.13 Removal. Directors of the corporation may be removed only for
-------
cause by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.14 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. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, 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 which may require it. Each
such
7
<PAGE>
committee shall keep minutes and make such reports as the Board of Directors may
from time to time 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 Board of Directors.
2.15 Compensation of Directors. Directors may be paid such
-------------------------
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 -- Officers
----------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President 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.
8
<PAGE>
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the corporation.
The President shall perform such other duties and shall have such other powers
as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title
9
<PAGE>
of Executive Vice President, Senior Vice President or any other title selected
by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
-----------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
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 secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
----------------------------------
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer
shall perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order
10
<PAGE>
determined by the Board of Directors) shall perform the duties and exercise the
powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
--------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 -- Capital Stock
---------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice Chairman, if any, 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. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, these By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law,
11
<PAGE>
by the Certificate of Incorporation or by these By-Laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect to such stock, regardless of any transfer, pledge or
other disposition of such stock until the shares have been transferred on the
books of the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
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 day 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. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 -- General Provisions
--------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
12
<PAGE>
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and/or restated and in effect from
time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the 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 of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his 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;
13
<PAGE>
(2) The material facts as to his 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
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
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 which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 -- Amendments
------------------------
6.1 By the Board of Directors. These By-Laws may be altered, amended or
-------------------------
repealed or new by-Laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
-------------------
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
------------------
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least
14
<PAGE>
seventy-five percent (75%) of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote shall be required to amend or
repeal, or to adopt any provision inconsistent with Section 1.3, Section 1.10,
Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6 of these By-
Laws; provided, however, that the affirmative vote of the holders of one hundred
--------
percent (100%) of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with Section 1.3 of these By-Laws to the extent
that such action pertains to the right of the stockholders to call a special
meeting of stockholders on or before October 7, 2000.
15
<PAGE>
[Front] C Exhibit 4.1
BRIDGE
NUMBER C-BRIDGE INTERNET SOLUTIONS, INC. SHARES
C INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERRABLE IN
BOSTON, MA OR NEW YORK, NY
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 12500B 10 5
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
$.01 EACH OF
===================== C-BRIDGE INTERNET SOLUTIONS, INC. ======================
transferable upon the books of the Company in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of The State of Delaware
and to the Certificate of Incorporation and By-laws of the Company as from time
to time amended.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, C-bridge Internet Solutions, Inc. has caused its
facsimile corporate seal and the facsimile signatures of its duly authorized
officers to be hereunto affixed.
Dated:
[Seal]
------------------------------------- -----------------------------
VP-Finance and Administration, President and
Chief Financial Officer and Treasurer Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
[Reverse Side]
C-BRIDGE INTERNET SOLUTIONS, INC.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE THE
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- _________Custodian ________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------shares of the capital stock represented
by the within Certificate, and do hereby irrevocably constitute and appoint
- ----------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------
---------------------------------------------------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
--------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCK-BROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.13
C-BRIDGE INTERNET SOLUTIONS, INC.
1999 DIRECTOR STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this 1999 Director Stock Option Plan (the "Plan") of C-
bridge Internet Solutions, Inc., a Delaware corporation (the "Company"), is to
encourage ownership in the Company by non-employee directors of the Company
whose continued services are considered essential to the Company's future
progress, to provide them with a further incentive to remain as directors of the
Company and to align the interests of such persons with those of the Company's
stockholders.
2. Administration.
--------------
The Board of Directors (the "Board") shall supervise and administer the
Plan. All questions concerning interpretation of the Plan or any options granted
under it shall be resolved by the Board and such resolution shall be final and
binding upon all persons having an interest in the Plan. The Board may, to the
full extent permitted by or consistent with applicable laws or regulations,
delegate any or all of its powers under the Plan to a committee appointed by the
Board, and if a committee is so appointed, all references to the Board in the
Plan shall mean and relate to such committee.
3. Participation in the Plan.
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("non-employee directors") shall be eligible to
receive options under the Plan.
4. Stock Subject to the Plan.
-------------------------
(a) The maximum number of shares of the Company's common stock, $0.01 par
value per share ("Common Stock"), which may be issued under the Plan shall be
200,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
<PAGE>
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. Terms, Conditions and Form of Options.
-------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a)(i) Automatic Option Grant Dates. Options shall automatically be
----------------------------
granted to all non-employee directors as follows:
(x) each person who first becomes a non-employee director after the
closing date (the "Closing Date") of the Company's initial public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, shall be granted an option to purchase
30,000 shares of Common Stock on the date of his or her initial election to the
Board; and
(y) each non-employee director shall be granted an option to purchase
15,000 shares of Common Stock on the date of each Annual Meeting of Stockholders
of the Company following the Closing Date commencing with the 2000 Annual
Meeting of Stockholders (other than a director who was initially elected to the
Board at any such Annual Meeting or, if previously, at any time after the prior
year's Annual Meeting of Stockholders), provided that he or she is serving as a
director immediately following the date of such Annual Meeting.
(ii) Periodic Grants of Options. Subject to execution by the non-employee
--------------------------
director of an appropriate option agreement, the Board may grant additional
options to purchase a number of shares to be determined by the Board in
recognition of services provided by a non-employee director in his or her
capacity as a director, provided that such grants are in compliance with the
requirements of Rule 16b-3, as promulgated under the Securities Exchange Act of
1934, as amended ("Rule 16b-3").
Each date of grant of an option pursuant to this Section 5(a) is hereinafter
referred to as an "Option Grant Date."
-2-
<PAGE>
(b) Option Exercise Price. The option exercise price per share for each
---------------------
option granted under the Plan shall equal (i) the closing price on any national
securities exchange on which the Common Stock is listed, (ii) the closing price
of the Common Stock on the Nasdaq National Market or (iii) the average of the
closing bid and asked prices in the over-the-counter market, whichever is
applicable, as published in The Wall Street Journal, on the Option Grant Date.
-----------------------
If no sales of Common Stock were made on the Option Grant Date, the price of the
Common Stock for purposes of clauses (i) and (ii) above shall be the reported
price for the next preceding day on which sales were made.
(c) Transferability of Options. Except as the Board may otherwise
--------------------------
determine or provide in an option granted under the Plan, any option granted
under the Plan to an optionee shall not be transferable by the optionee other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, and shall be
exercisable during the optionee's lifetime only by the optionee or the
optionee's guardian or legal representative. References to an optionee, to the
extent relevant in the context, shall include references to authorized
transferees.
(d) Vesting Period.
--------------
(i) General. Each option granted under the Plan pursuant to Section
-------
5(a)(i)(x) above shall become exercisable (vest) in three equal annual
installments beginning on the first anniversary of the Option Grant Date. Each
option granted under the Plan pursuant to Section 5(a)(i)(y) above shall become
immediately exercisable (vest) in full on the Option Grant Date. No further
vesting shall occur with respect to an option granted pursuant to Section
5(a)(i)(x) after the optionee ceases to be a non-employee director of the
Company. Each option granted under the Plan pursuant to Section 5(a)(ii) above
shall become exercisable on such terms as shall be determined by the Board and
set forth in the option agreement with the respective optionee.
(ii) Acceleration Upon Acquisition Event. Notwithstanding the
-----------------------------------
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable in full upon the occurrence of an Acquisition Event (as
defined in Section 8) with respect to the Company.
(iii) Right to Receive Restricted Stock. The Board shall have the
---------------------------------
authority to grant options (including options granted pursuant to Section
5(a)(i) above) which are immediately exercisable subject to the Company's right
to repurchase any
-3-
<PAGE>
unvested shares of stock acquired by the optionee on exercise of an option in
the event such optionee's service as a director terminates for any reason.
(e) Termination. Each option shall terminate, and may no longer be
-----------
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such option or (ii) the first anniversary of the date on which the optionee
ceases to serve as a director of the Company.
(f) Exercise Procedure. An option may be exercised only by written notice
------------------
to the Company at its principal office accompanied by (i) payment in cash or by
certified or bank check of the full consideration for the shares as to which
they are exercised, (ii) delivery of outstanding shares of Common Stock (which
have been outstanding for at least six months) having a fair market value on the
last business day preceding the date of exercise equal to the option exercise
price, or (iii) an irrevocable undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the exercise price or delivery
of irrevocable instructions to a creditworthy broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price.
(g) Exercise by Representative Following Death of Director. An optionee,
------------------------------------------------------
by written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Limitation of Rights.
--------------------
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
----------------------------------
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
-----------------------------------
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
(c) Compliance with Securities Laws. Each option shall be subject to the
-------------------------------
requirement that if, at any time, counsel to the Company shall determine that
the
-4-
<PAGE>
listing, registration or qualification of the shares subject to such option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification, or to satisfy such
condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
----------------------------------------------------------------
Transactions.
- ------------
If, through or as a result of any merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company or of another entity are distributed with respect to
such shares of Common Stock, the Board shall make an appropriate and
proportionate adjustment in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to then outstanding options under the Plan, and (z) the price
for each share subject to any then outstanding options under the Plan (without
changing the aggregate purchase price for such options), to the end that each
option shall be exercisable, for the same aggregate exercise price, for such
securities as such optionholder would have held immediately following such event
if he had exercised such option immediately prior to such event. No fractional
shares will be issued under the Plan on account of any such adjustments.
8. Acquisition Event.
-----------------
For purposes of the Plan, an "Acquisition Event" shall be deemed to have
occurred only if any of the following events occurs: (i) 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; (ii) any sale of all
or substantially all of the assets of the Company; or (iii) the complete
liquidation of the Company.
-5-
<PAGE>
9. Termination and Amendment of the Plan.
-------------------------------------
The Board may suspend or terminate the Plan or amend it in any respect
whatsoever.
10. Notice.
------
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. Governing Law.
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the internal laws of the State of Delaware (without regard
to any applicable conflicts of laws or principles).
12. Effective Date.
--------------
The Plan shall take effect upon the closing of the Company's initial public
offering of Common Stock.
Adopted by the Board of Directors on November 9, 1999
Approved by the Stockholders on _____________________
-6-
<PAGE>
Exhibit 10.14
-------------
C-BRIDGE INTERNET SOLUTIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of C-bridge
Internet Solutions, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $0.01 par value
(the "Common Stock"). Seven Hundred Fifty Thousand (750,000) shares of Common
Stock in the aggregate have been approved for this purpose. This Plan is
intended to qualify as an "employee stock purchase plan" as defined in Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder, and shall be interpreted consistent
therewith.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. All employees of the Company, including Board members
-----------
who are employees, and all employees of any subsidiary of the Company (as
defined in Section 424(f) of the Code) designated by the Board or the Committee
from time to time (a "Designated Subsidiary"), are eligible to participate in
any one or more of the offerings of Options (as defined in Section 9) to
purchase Common Stock under the Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the
<PAGE>
preceding sentence, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. Offerings. The Company will make one or more offerings ("Offerings")
---------
to employees to purchase stock under this Plan. Offerings will begin on such
date or dates as may be established by the Board from time to time (the
"Offering Commencement Dates"), provided that the first Offering Commencement
Date shall be the date on which the trading of the Common Stock commences on the
Nasdaq National Market in connection with the initial public offering (the
"IPO") of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"). Each Offering
Commencement Date will begin a six (6) month period (a "Plan Period") during
which payroll deductions will be made and held for the purchase of Common Stock
at the end of the Plan Period. The Board or the Committee may, at its
discretion, choose a different Plan Period of twelve (12) months or less for
subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement Date
-------------
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least fourteen (14) days prior to the applicable Offering Commencement
Date. The form will authorize a regular payroll deduction from the Compensation
received by the employee during the Plan Period. Unless an employee files a new
form or withdraws from the Plan, his deductions and purchases will continue at
the same rate for future Offerings under the Plan as long as the Plan remains in
effect. The term "Compensation" means the amount of money reportable on the
employee's Federal Income Tax Withholding Statement, excluding overtime, shift
premium, incentive or bonus awards, allowances and reimbursements for expenses
such as relocation allowances for travel expenses, income or gains on the
exercise of Company stock options or stock appreciation rights, and similar
items, whether or not shown on the employee's Federal Income Tax Withholding
Statement, but including, in the case of salespersons, sales commissions to the
extent determined by the Board or the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
----------
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction equal to any whole number
percentage (up to a maximum of 10%) of the Compensation he or she receives
during the Plan Period or such shorter period during which deductions from
payroll are made.
-2-
<PAGE>
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his
-----------------
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except
--------
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close
-------------------
of business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
------------------
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the
-3-
<PAGE>
closing price of the Common Stock on the Nasdaq National Market or (c) the
average of the closing bid and asked prices in the over-the-counter-market,
whichever is applicable, as published in The Wall Street Journal; provided that,
with respect to the first Plan Period, the closing price on the Offering
Commencement Date shall be the initial public offering price provided for in the
underwriting agreement entered into by the Company in connection with the IPO.
If no sales of Common Stock were made on such a day, the price of the Common
Stock for purposes of clauses (a) and (b) above shall be the reported price for
the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for, but not in excess of the maximum
number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the
-4-
<PAGE>
Company may, in its discretion, designate. If, prior to the last business day of
the Plan Period, the Designated Subsidiary by which an employee is employed
shall cease to be a subsidiary of the Company, or if the employee is transferred
to a subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him. Notwithstanding the
foregoing, in the event the Company effects a split of the Common Stock by means
of a stock dividend and the exercise price of and the number of shares subject
to such Option are adjusted as of the date of the distribution of the dividend
(rather than as of the record date for such dividend), then an optionee who is
deemed to have exercised an Option between the record date and the distribution
date for such stock dividend shall be entitled to receive, on the distribution
date, the stock dividend with respect to the shares of Common Stock acquired
upon such Option exercise, notwithstanding the fact that such shares were not
outstanding as of the close of business on the record date for such stock
dividend.
13. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting 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 of capitalization or event, or any distribution to holders of
Common Stock other than a normal cash dividend, the number of shares approved
for this Plan, the number of shares subject to any outstanding Option and the
purchase price thereof shall be adjusted proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
-5-
<PAGE>
16. Merger. If the Company shall at any time merge or consolidate with
------
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 50%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, all outstanding Options shall be
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
---------------------
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
-------------------
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
-6-
<PAGE>
19. Termination of the Plan. This Plan may be terminated at any time by
-----------------------
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under this Plan is subject to listing on a national stock
exchange or quotation on the Nasdaq National Market and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
-------------
the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the date of exercise of the Option.
24. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect upon the effectiveness of the Company's registration statement under the
Securities Act relating to the IPO, subject to approval by the stockholders of
the Company as required by Section 423 of the Code, which approval must occur
within twelve months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on November 9, 1999
Approved by the stockholders on
_______________, 1999
-7-
<PAGE>
Exhibit 10.15
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of September 29, 1998,
by and between SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02481, doing business under the name
"Silicon Valley East" ("Bank") and C-BRIDGE INTERNET SOLUTIONS, INC. a
Delaware corporation with its chief executive office located at 219 Vassar
Street, Cambridge, Massachusetts 02142 ("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower and
Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under either the
Committed Revolving Line or the Working Capital Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to seventy five percent (75%)
of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrower.
-1-
<PAGE>
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Revolving Line" means a credit extension of up to Two
Million Five Hundred Thousand Dollars ($2,500,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement.
"Credit Extension" means each Advance, or any other extension of
credit by Bank for the benefit of Borrower hereunder.
"Devon Property" means the real property and improvements thereon
owned by Devon Glen, L.P. located at 484 Bay Road, Hamilton,
Massachusetts and also know as The Devon Glen Farm.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 54. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include
the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed thirty-five
percent (35%) of all Accounts to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department,
agency, or instrumentality thereof, except for those Accounts of the
United States or any department, agency or instrumentality thereof as
to which the payee has
-2-
<PAGE>
assigned its rights to payment thereof to Bank and the assignment has
been acknowledged, pursuant to the Assignment of Claims Act of 1940,
as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts etc.) against
amounts owed to Borrower;
(g) Accounts generated by demonstration or promotional equipment,
or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute
or claim), or is subject to any Insolvency Proceeding, or becomes
insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Guarantor" means any present or future guarantor of the Obligations
arising under the Committed Revolving Line, including, without limitation,
Sundar Subramaniam and Devon Glen, L.P.
"Guarantor Obligations" means, from time to time, the outstanding
liability of the applicable Guarantor under its Guaranty.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive, of Borrower, including
such inventory as is temporarily out of its custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above.
-3-
<PAGE>
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the date which is one year from the Closing
Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt,
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the first (1st) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank.
-4-
<PAGE>
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the
--------
same have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on such
equipment at the time of its acquisition, provided that the Lien is
--------
confined solely to the property so acquired and improvements thereon,
and the proceeds of such equipment;
(d) Leases or subleases and licenses or sublicenses granted to
others in the ordinary course of Borrower's business not interfering
in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor,
licensor or under any lease or license provided that such leases,
--------
subleases, licenses and sublicenses do not prohibit the grant of the
security interest granted hereunder; and
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (a) through (c) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrower, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
-5-
<PAGE>
"Working Capital Line" means a credit extension of up to One Million
Five Dollars ($1,000,000.00).
1.2 Accounting and Other Terms. All accounting terms not specifically
--------------------------
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances. Borrower promises to pay to the order of Bank, in lawful
--------
money of the United States of America, the aggregate unpaid principal amount of
all Advances made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Advances at rates in accordance
with the terms hereof.
2.1 (a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make (i) Advances to Borrower:(i) under the Committed Revolving
Line, in an aggregate outstanding amount not to exceed the Committed Revolving
Line, plus (ii) under the Working Capital Line, in an aggregate outstanding
----
amount not to exceed the lesser of: (A) the Working Capital Line, or (B) the
Borrowing Base, provided however, that aggregate Advances made to Borrower under
-------- -------
the Working Capital Line shall not exceed the sum of Five Hundred Thousand
Dollars ($500,000.00) unless and until the Borrower has achieved a net profit
for two (2) consecutive fiscal quarters. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section 21 may be repaid and
reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
- ---------
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 21 to Borrower's deposit account.
(c) The Committed Revolving Line and Working Capital Line shall each
terminate on the Maturity Date, at which time all Advances under this Section 21
and other amounts due under this Agreement (except as otherwise expressly
specified herein) shall be immediately due and payable.
2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations owed by Borrower to Bank pursuant to Section 211, of this Agreement
is greater than (i) with respect to the Committed Revolving Line, the amount of
the Committed Revolving Line, and/or (ii) with respect to the Working Capital
Line, the lesser of (A) the Working Capital Line (subject to the profitability
requirement set forth in Section 2.1.1), or (B) the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 23(b), any Advances
-------------
shall bear interest, on the average daily balance thereof, at a per annum rate
equal to one (1.0%) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and after
------------
the occurrence of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
-6-
<PAGE>
(c) Payments. Interest hereunder shall be due and payable on each
--------
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number _____________________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
-----------
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an
amount equal to such change in the Prime Rate. All interest chargeable under
the Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
------------------
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fees. Facility Fees equal to (i) Ten Thousand Dollars
-------------
($10,000.00 with respect to the Committed Revolving Line, and (ii) Two
Thousand Five Hundred Dollars with respect to the Working Capital Line,
which fees shall be due on the Closing Date and shall be fully earned and
non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees
----------------------------------------
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents, provided
however, that unless an Event of Default has occurred, the Borrower shall
not be obligated to pay fees for any single audit of Borrower's Accounts in
excess of Seven Hundred Fifty Dollars ($750.00);
(c) Bank Expenses. Upon demand from Bank, including, without
-------------
limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
----------------
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
-7-
<PAGE>
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
----
become effective on the Closing Date and, subject to Section 127, shall continue
in full force and effect for a term ending on the Maturity Date. Notwithstanding
the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance. The obligation of Bank to
---------------------------------------
make the initial Advance is subject to the condition precedent that Bank shall
have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a negative pledge agreement covering intellectual property;
(d) an opinion of Borrower's counsel;
(e) limited guaranties by each Guarantor of the Committed Revolving
Line only;
(f) financing statements (Forms UCC-1);
(g) insurance certificate;
(h) payment of the fees and Bank Expenses then due specified in
Section 25 hereof;
(i) Certificate of Foreign Qualification (if applicable);
(j) Agreement to Provide Warrant;
(k) Anti-Dilution Agreement;
(l) Registration Rights Agreement; and
(m) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
-8-
<PAGE>
3.2 Conditions Precedent to all Advances. The obligation of Bank to make
------------------------------------
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 21; and
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making
of each Advance shall be deemed to be a representation and warranty by
Borrower on the date of such Advance as to the accuracy of the facts
referred to in this Section 32(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
--------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding, whether under the Committed Revolving Line,
Working Capital Line, or otherwise.
4.2 Delivery of Additional Documentation Required. Borrower shall from
---------------------------------------------
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
----------------
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
----------------------------------
corporation duly existing and in good standing under the laws of the State of
Delaware and is qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound. Borrower
is not in default under any agreement to which it is a party or by which it is
bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
---------------------
the Collateral, free and clear of Liens, except for Permitted Liens.
-9-
<PAGE>
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
----------------------
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
----------------------------------------
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
----------
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
--------------------------------------------------
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not
been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 Solvency. The fair saleable value of Borrower's assets (including
--------
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and upon execution of this Agreement, Borrower
shall be able to pay its debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
-10-
<PAGE>
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
-----
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein, except
those being contested in good faith by proper proceedings with adequate reserves
under GAAP.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest
------------
or other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
-------------------
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 Full Disclosure. No representation, warranty or other statement made
---------------
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
-------------------------------------------
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet and
income statement covering Borrower's consolidated operations during such period,
in a form and certified by an officer of Borrower reasonably acceptable to Bank;
(b) as soon as available, but in any event within one hundred fifty (150) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
within five (5) days of filing, copies of all statements, reports and notices
sent or made available generally by Borrower to its security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower or
any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
-11-
<PAGE>
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable.
Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
---------
Within (30) days after the last day of each quarter, the Borrower shall
cause (i) Sundar Subramaniam to deliver a Compliance Certificate in a form
acceptable to the Bank together with copies of brokerage statements, mortgages
statements and such other additional documentation as may be necessary or
requested by the Bank to demonstrate the liquidity required under Section 6.10
of this Agreement, and (ii) Devon Glen, L.P. to deliver a Compliance Certificate
in a form acceptable to the Bank together with copies of mortgage statements
verifying the balances due under its existing loans with Merrill Lynch, or any
other Person, secured by the Devon Property, together with such other additional
documentation as may be necessary or requested by the Bank to demonstrate the
required value of the Devon Property as set forth in Section 6.10.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that (i) such audits will be conducted
no more often than every six (6) months unless an Event of Default has occurred
and is continuing, and (ii) the amount the Borrower shall be obligated to pay
for such audits prior to the occurrence of an Event of Default shall be limited
to Seven Hundred Fifty Dollars ($750.00) for each such audit.
The Borrower shall cause Devon Glen, L.P. to assist the Bank in obtaining
a current appraisal (the "Appraisal") of the Devon Property within sixty (60)
days of the Closing Date by an appraiser satisfactory to the Bank. The
Appraisal shall be in form and substance satisfactory to the Bank and the costs
of the Appraisal shall be borne by the Borrower.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
------------------
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
-----
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
(i) the amount or validity of such payment is contested in good faith by
appropriate proceedings, (ii) Borrower or Subsidiary, as the case may be, has
established proper reserves (to the extent required by GAAP) and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
-12-
<PAGE>
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Revenues. Borrower shall have minimum quarterly gross revenues of (i)
--------
One Million Dollars ($1,000,000.00), for the first quarter of 1999, (ii) One
Million Two Hundred Thousand Dollars ($1,200,000.00), for the second quarter of
1999, (iii) One Million Four Hundred Thousand Dollars ($1,400,000.00), for the
third quarter of 1999, and (iv) Two Million Dollars ($2,000,000.00), for the
fourth quarter of 1999.
6.9 Profitability. Borrower shall not have quarterly net losses in excess
-------------
of (i) Seven Hundred Thousand Dollars ($700,000.00), for the first quarter
ending of 1999, (ii) Six Hundred Thousand Dollars ($600,000.00), for the second
quarter of 1999, and (iii) Three Hundred Thousand Dollars ($300,000.00), for the
third quarter ending of 1999. Additionally, the Borrower shall have a minimum
quarterly net profit of One Hundred Thousand Dollars ($100,000.00), for the
fourth quarter of 1999.
6.10 Guarantor Liquidity. The Borrower shall cause each Guarantor to be
-------------------
in compliance with the following:(i) Sundar Subramaniam shall maintain at all
times a minimum Liquid Net Worth Ratio equal to or greater than 2.0:1.0. The
term "Liquid Net Worth Ratio" as used in this Section 6.10 shall equal (1) (A)
the combined value of cash, bonds, and marketable securities traded on the NYSE,
NASDAQ, and/or AMEX stock exchanges owned by Sundar Subramaniam, less (B) his
----
Indebtedness to any Person, as determined in accordance with GAAP, divided by
------- --
(2) the Guarantor Obligations of Sundar Subramaniam, and (ii) the Devon Property
shall have a minimum Equity Value Ratio equal to or greater than 1.7:1.0. The
term "Equity Value Ratio" as used in this Section 6.10 shall equal (1) the sum
of (A) the most recent appraised fair market value of the Devon Property, less
----
(B) the outstanding balance owed with respect to any liens, mortgages, or other
encumbrances recorded or filed against the Devon Property divided by (2) the
------- --
Guarantor Obligations of Devon Glen, L.P.
6.11 Further Assurances. At any time and from time to time Borrower shall
------------------
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
------------
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses and similar
arrangements for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business; (iii) that constitute payment of normal and usual
operating expenses in the ordinary course of business; or (iv) of worn-out or
obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
-----------------------------------------------------------------
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's
-13-
<PAGE>
ownership or management. Borrower will not, without at least thirty (30) days
prior written notification to Bank, relocate its chief executive office or add
any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
-----------------------
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
------------
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
-------------
payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
----------------------------
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
-----------------
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or a company controlled
----------
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
---------------
Obligations.
-14-
<PAGE>
8.2 Covenant Default.
----------------
(a) If Borrower fails to perform any obligation under Sections 63,
6.5, 66, 67, 68, 69, or 6.10, or violates any of the covenants contained in
Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained in
this Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof; provided,
however, that if the default cannot by its nature be cured within the ten (10)
day period or cannot after diligent attempts by Borrower be cured within such
ten (10) day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
-----------------------
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
----------
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
---------
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of forty (40) days (provided that no Credit Extensions
will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
------------------
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
-15-
<PAGE>
8.10 Guaranty. Any guaranty of all or a portion of the Obligations ceases
--------
for any reason to be in full force and effect, or any Guarantor fails to perform
any obligation under any guaranty of all or a portion of the Obligations, or any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth in any guaranty of all or a portion of
the Obligations or in any certificate delivered to Bank in connection with such
guaranty, or any of the circumstances described in Sections 84, 85 or 88 occur
with respect to any Guarantor, or the Guarantor fails to comply with the
covenants pertaining to the applicable Guarantor set forth in Section 6.
8.11 Notwithstanding Section 8.2(a) of this Article, in the event the
Borrower (or Guarantor) fails to perform its obligations under any one or more
of Sections 6.8, 6.9, or 6.10 only, such failure shall not constitute an Event
of Default only with respect to the Committed Revolving Line provided each
Guarantor delivers or provides within fourteen (14) days of notice of non-
compliance, collateral to secure each guaranty, which collateral shall be in
form and substance satisfactory to the Bank in its sole discretion and may
include, without limitation, (i) marketable securities or other cash collateral
from Sundar Subramaniam, and (ii) a mortgage granted to the Bank on the Devon
Property.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the continuance
-------------------
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 85 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
91, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 91, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
-16-
<PAGE>
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(h) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
-----------------
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 42
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance
-------------------
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
-------------
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line and/or Working Capital Line as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain and
maintain insurance policies of the type discussed in Section 66 of this
Agreement, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Bank shall not constitute an agreement by Bank
to make similar payments in the future or a waiver by Bank of any Event of
Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
-------------------
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right or
remedy shall be deemed an
-17-
<PAGE>
election, and no waiver by Bank of any Event of Default on Borrower's part shall
be deemed a continuing waiver. No delay by Bank shall constitute a waiver,
election, or acquiescence by it. No waiver by Bank shall be effective unless
made in a written document signed on behalf of Bank and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
---------------
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower C-Bridge Internet Solutions, Inc.
219 Vassar Street
Cambridge, Massachusetts 02142
Attn: Richard Wester, Vice President, Finance
FAX: (617) 528-1777
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02481
Attn: Mr. Mark J. Pasculano, Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
------------------------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES
-18-
<PAGE>
AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-----------------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
---------------
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall
--------------------------
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
----------------------------------
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
--------
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 Countersignature. This Agreement shall become effective only when it
----------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
C-BRIDGE INTERNET SOLUTIONS, INC.
By: /s/ Sundar Subramaniam
________________________________________
Title: President and CEO
_____________________________________
-19-
<PAGE>
By: /s/ Richard O. Wester
________________________________________
Title: VP Finance
_____________________________________
SILICON VALLEY BANK, d/b/a SILICON VALLEY
EAST
By: /s/ Nancy E. Funkhouser
Name: Nancy E. Funkhouser
Title: Assistant Vice President
SILICON VALLEY BANK
By: /s/ Michael Jordan
Name: Michael Jordan
Title: Loan Documentation Officer
(Signed in Santa Clara County, California)
-20-
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above,
and Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, claims, literature, reports, catalogs, income
tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned
by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ______________________________
FAX#: (408) __________________________ TIME: _______________________
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:__________________________________________________________________________
FROM ACCOUNT #______________________________
TO ACCOUNT#_________________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
</TABLE>
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
_________________________
Authorized Requester
___________________________________
Authorized Signature (Bank)
Phone #____________________________
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: C-Bridge Internet Solutions, Inc. Bank: Silicon Valley Bank
Commitment Amount: $1,000,000.00*
* provided Borrower has met consecutive quarterly profitability requirements set
forth in Section 2.1.1 of the Loan and Security Agreement, otherwise,
$500,000.00
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1. Accounts Receivable Book Value as of ________ $_____________________
2. Additions (please explain on reverse) $_____________________
3. TOTAL ACCOUNTS RECEIVABLE $_____________________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_____________________
5. Balance of 50% over 90 day accounts $_____________________
6. Concentration Limits $_____________________
7. Foreign Accounts $_____________________
8. Governmental Accounts $_____________________
9. Contra Accounts $_____________________
10. Promotion or Demo Accounts $_____________________
11. Intercompany/Employee Accounts $_____________________
12. Other (please explain on reverse) $_____________________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____________________
14. Eligible Accounts (#3 minus #13) $_____________________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $_____________________
BALANCES
16. Maximum Loan Amount $_____________________
17. Total Funds Available (Lesser of #16 or #15) $_____________________
18. Present balance owing on Line of Credit $_____________________
19. Outstanding under Sublimits ( ) $_____________________
20. RESERVE POSITION (#17 minus #18 and #19) $_____________________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
C-Bridge Internet Solutions, Inc. REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
By: _______________________
Authorized Signer
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: C-BRIDGE INTERNET SOLUTIONS, INC.
The undersigned authorized officer of C-BRIDGE INTERNET SOLUTIONS, INC.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 150 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
A/R Agings Monthly within 20 days Yes No
Guarantor liquidity Quarterly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Revenues
Q199 $1,000,000.00 $________ Yes No
Q299 $1,200,000.00 $________ Yes No
Q399 $1,400,000.00 $________ Yes No
Q499 $2,000,000.00 $________ Yes No
Maximum Losses/Profitability:
Q199 $ (700,000.00) $________ Yes No
Q299 $ (600,000.00) $________ Yes No
Q399 $ (300,000.00) $________ Yes No
Q499 $ 100,000.00 $________ Yes No
Guarantor Liquidity*
Sundar Subramaniam 2.0:1.0 _____:1.0 Yes No
Devon Property 1.7:1.0 _____:1.0 Yes No
</TABLE>
*See Section 6.10 to Loan and Security Agreement
BANK USE ONLY
RECEIVED BY:____________________
COMMENTS REGARDING EXCEPTIONS: DATE:________________
Sincerely, REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
_______________________ Date:_____________
Signature
________________________
Title
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of January 27, 1999, by
and between C-BRIDGE INTERNET SOLUTIONS, INC., a Delaware corporation with its
principal place of business at 219 Vassar Street, Cambridge, Massachusetts 02139
(the "Borrower") and SILICON VALLEY BANK, a California-chartered bank ("Bank"),
with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, MA 02181, doing business under the name "Silicon
Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a Loan and
Security Agreement dated September 29, 1998 (as amended, the "Loan Agreement")
which established in favor of the Borrower a (i) a working capital line of
credit in the maximum principal amount of One Million Dollars ($1,000,000.00),
and (ii) a revolving line of credit in the maximum principal amount of Two
Million Five Hundred Thousand Dollars ($2,500,000.00). Capitalized terms used
but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
-------------------------
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents"). Additionally,
Borrower has agreed not to further encumber its Intellectual Property pursuant
to a Negative Pledge Agreement dated September 29, 1998.
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
Modification(s) to Loan Agreement.
---------------------------------
The Loan Agreement shall be amended by the deletion in its entirety of
Section 6.3 and the insertion in its stead of the following:
"6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
-------------------------------------------
to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance
sheet and income statement covering Borrower's (unconsolidated) operations
during such period, in a form and certified by an officer of Borrower
reasonably acceptable to Bank; (b) as soon as available, but in any event
no later than January 31, 1999, the preliminary consolidated fiscal year
end financial statements of Borrower prepared in accordance with GAAP by an
independent certified public accounting firm reasonably acceptable to Bank,
together with a letter from such accounting firm stating that the final
financial statements are not anticipated to change; (c) within five (5)
days of filing, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders
of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with
the Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or
more; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
<PAGE>
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with aged
listings of accounts receivable.
Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
---------
Within (30) days after the last day of each quarter, the Borrower shall
cause (i) Sundar Subramaniam to deliver a Compliance Certificate in a form
acceptable to the Bank together with copies of brokerage statements,
mortgages statements and such other additional documentation as may be
necessary or requested by the Bank to demonstrate the liquidity required
under Section 6.10 of this Agreement, and (ii) Devon Glen, L.P. to deliver
a Compliance Certificate in a form acceptable to the Bank together with
copies of mortgage statements verifying the balances due under its existing
loans with Merrill Lynch, or any other Person, secured by the Devon
Property, together with such other additional documentation as may be
necessary or requested by the Bank to demonstrate the required value of the
Devon Property as set forth in Section 6.10.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that (i) such audits will be
conducted no more often than every six (6) months unless an Event of
Default has occurred and is continuing, and (ii) the amount the Borrower
shall be obligated to pay for such audits prior to the occurrence of an
Event of Default shall be limited to Seven Hundred Fifty Dollars ($750.00)
for each such audit.
The Borrower shall cause Devon Glen, L.P. to assist the Bank in obtaining
a current appraisal (the "Appraisal") of the Devon Property to be completed
no later than March 31, 1999 by an appraiser satis factory to the Bank.
The Appraisal shall be in form and substance satisfactory to the Bank and
the costs of the Appraisal shall be borne by the Borrower."
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
5. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
------------------------------
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
-----------------------
defenses against the obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
-------------------
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of
Bank and Borrower to retain as liable parties all makers and endorsers of
Existing Loan Documents, unless the party is expressly released by Bank in
writing. No maker, endorser, or guarantor will be released by virtue of this
Loan Modification Agreement.
-2-
<PAGE>
8. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
------------------
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
----------------
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
C-BRIDGE INTERNET SOLUTIONS, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Sundar Subramaniam By:
----------------------------- -----------------------------
Name: Sundar Subramaniam Name:
--------------------------- ---------------------------
Title: CEO Title:
-------------------------- --------------------------
Each of the undersigned, limited guarantors of the Indebtedness of the Borrower
to the Bank, hereby acknowledges and consents to the foregoing modification to
the Loan Agreement and ratifies, confirms, and reaffirms that each of their
respective limited guaranties remain in full force and effect.
DEVON GLEN LIMITED PARTNERSHIP
By Devon Glen Corporation, its General Partner
By: /s/ John J. Donovan
----------------------------------
John J. Donovan, Jr., President
/s/ Sundar Subramaniam
--------------------------------------
Sundar Subramaniam, Individually
-3-
<PAGE>
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
Name: Michelle D. Giannini
Title: Assistant Vice President
(signed in Santa Clara County, California)
-4-
<PAGE>
SECOND LOAN MODIFICATION AGREEMENT
This Second Loan Modification Agreement is entered into as of April 7,
1999, by and between C-BRIDGE INTERNET SOLUTIONS, INC., a Delaware corporation
with its principal place of business at 219 Vassar Street, Cambridge,
Massachusetts 02139 ("Borrower") and SILICON VALLEY BANK, a California-chartered
bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of September 29, 1998, evidenced by, among other documents,
a certain Loan and Security Agreement dated as of September 29, 1998, as amended
by a Loan Modification Agreement dated as of January 27, 1999 (as amended, the
"Loan Agreement"). The Loan Agreement established in favor of the Borrower: (i)
a working capital line of credit in the maximum principal amount of One Million
Dollars ($1,000,000.00) (the "Working Capital Line"), and (ii) a revolving line
of credit in the maximum principal amount of Two Million Five Hundred Thousand
Dollars ($2,500,000.00) (the "Committed Revolving Line"). Capitalized terms
used but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
-------------------------
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents"). Additionally,
Borrower has agreed not to further encumber its Intellectual Property pursuant
to a Negative Pledge Agreement dated as of September 29, 1998.
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Borrowing Base" means an amount equal to seventy five
percent (75%) of Eligible Accounts, as determined by Bank
with reference to the most recent Borrowing Base Certificate
delivered by Borrower."
and inserting in lieu thereof the following:
""Borrowing Base" means an amount equal to: (i) seventy five
percent (75.0%) of Eligible Accounts, as determined by Bank
with reference to the most recent Borrowing Base Certificate
delivered by Borrower, MINUS (ii) at any time prior to the
Debt Service Coverage Event, the Obligations outstanding
under the Committed Equipment Line."
2. The Loan Agreement shall be amended by inserting immediately
after the definition of "Committed Revolving Line" appearing in
Section 1.1 thereof the following definition:
""Committed Equipment Line" means a credit extension of up
to Two Hundred Thousand Dollars ($200,000.00)."
<PAGE>
3. The Loan Agreement shall be amended by inserting immediately
after the definition of "Current Liabilities" appearing in
Section 1.1 thereof the following definitions:
""Debt Service Coverage Event" means the first day of the
calendar month immediately following the achievement by the
Borrower of a Debt Service Coverage Ratio of at least 1.5 to
1.0 for the two prior consecutive fiscal quarters of the
Borrower, as confirmed by Bank with reference to the most
recent Compliance Certificate delivered by Borrower.
"Debt Service Coverage Ratio" means the Borrower's earnings
after tax plus interest and non-cash expenses (depreciation
and amortization) divided by the current portion of its long
term debt, plus interest."
4. The Loan Agreement shall be amended by inserting immediately
after the definition of "Equipment" appearing in Section 1.1
thereof the following definitions:
""Equipment Advance" has the meaning set forth in Section
2.1.2.
"Equipment Availability End Date No. 1" means June 30, 1999.
"Equipment Availability End Date No. 2" means December 31,
1999.
"Equipment Maturity Date No. 1" means June 5, 2002.
"Equipment Maturity Date No. 2" means December 5, 2002."
5. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
"Maturity Date" means the date which is one year from the
Closing Date."
and inserting in lieu thereof the following:
""Maturity Date" means, as applicable, (i) the Revolving
Maturity Date with respect to Advances under the Committed
Revolving Line and the Working Capital Line pursuant to
Section 2.1.1, and (ii) the Equipment Maturity Date No. 1
and the Equipment Maturity Date No. 2, as applicable, with
respect to Equipment Advances pursuant to Section 2.1.2."
6. The Loan Agreement shall be amended by inserting immediately
after the definition of "Responsible Officer" appearing in
Section 1.1 thereof the following definition:
""Revolving Maturity Date" means September 29, 1999."
7. The Loan Agreement shall be amended by deleting the following
text appearing as paragraph (c) of Section 2.1.1 thereof:
"(c) The Committed Revolving Line and Working Capital Line
shall each terminate on the Maturity Date, at which time all
Advances under this Section 21 and other amounts due under
this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable."
and inserting in lieu thereof the following:
-2-
<PAGE>
"(c) The Committed Revolving Line and Working Capital Line
shall each terminate on the Revolving Maturity Date, at
which time all Advances under this Section 21 and other
amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and
payable."
8. The Loan Agreement shall be amended by inserting immediately
after Section 2.1.1 thereof the following new section entitled
"Equipment Advances":
"2.1.2 Equipment Advances.
------------------
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make advances (each an "Equipment
Advance" and collectively, the "Equipment Advances") to
Borrower in an aggregate amount not to exceed the Committed
Equipment Line in the following manner: (i) at any time
through the Equipment Availability End Date No. 1 (the
"Equipment Line No. 1"), and (ii) at any time from July 1,
1999 through the Equipment Availability End Date No. 2, in
an aggregate amount no greater than the Committed Equipment
Line, less the outstanding principal amounts advanced
pursuant to Equipment Line No. 1 (the "Equipment Line No.
2"). To evidence the Equipment Advance or Equipment
Advances, Borrower shall deliver to Bank, at the time of
each Equipment Advance request, an invoice for the equipment
to be purchased or refinanced. Equipment Advance requests
under Equipment Line No. 1 shall only be permitted for
Equipment purchased between January 1, 1999 and June 30,
1999. Equipment Advance requests under Equipment Line No. 2
shall only be permitted for Equipment purchased between June
1, 1999 and after December 31, 1999. Each invoice submitted
at the time of each Equipment Advance request may not be
more than sixty (60) days past the invoice date in order to
be eligible for an Equipment Advance. Notwithstanding the
foregoing, the initial Equipment Advance request by the
Borrower may include Equipment invoices purchased on or
after January 1, 1999 which are greater than sixty (60) days
past the invoice date, provided that such initial Equipment
Advance request is received by Bank on or before May 7,
1999. The Equipment Advances shall be used only to purchase
or refinance Equipment and shall not exceed One Hundred
Percent (100%) of the invoice amount of such equipment
approved from time to time by Bank, excluding taxes,
shipping, warranty charges, freight discounts and
installation expense. Software shall not constitute greater
than twenty-five percent (25.0%) of aggregate Equipment
Advances.
(b) Interest shall accrue from the date of each Equipment
Advance at the per annum rate equal to the aggregate of the
Prime Rate, plus One and One-Half percent (1.50%), and shall
be payable monthly on the fifth calendar day of each month.
Any Equipment Advances made pursuant to the Equipment Line
No. 1 that are outstanding on the Equipment Availability End
Date No. 1 will be payable in Thirty-Six (36) equal monthly
installments of principal, plus all accrued interest,
beginning on the fifth day of the month following the
Equipment Availability End Date No. 1 and ending on the
Equipment Maturity Date No. 1. Any Equipment Advances made
pursuant to the Equipment Line No. 2 that are outstanding on
the Equipment Availability End Date No. 2 will be payable in
Thirty-Six (36) equal monthly installments of principal,
plus all accrued interest, beginning on the fifth day of the
month following the Equipment Availability End Date No. 2
-3-
<PAGE>
and ending on the Equipment Maturity Date No. 2. Equipment
Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no
later than 3:00 p.m. Eastern time one (1) Business Day
before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of Exhibit B.
The notice shall be signed by a Responsible Officer or its
designee and include a copy of the invoice for the Equipment
to be financed."
9. The Loan Agreement shall be amended by deleting the following
text appearing in Section 6.3 entitled "Financial Statements,
Reports, Certificates":
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided
that (i) such audits will be conducted no more often than
every six (6) months unless an Event of Default has occurred
and is continuing, and (ii) the amount the Borrower shall be
obligated to pay for such audits prior to the occurrence of
an Event of Default shall be limited to Seven Hundred Fifty
Dollars ($750.00) for each such audit.
The Borrower shall cause Devon Glen, L.P. to assist the
Bank in obtaining a current appraisal (the "Appraisal") of
the Devon Property to be completed no later than March 31,
1999 by an appraiser satisfactory to the Bank. The
Appraisal shall be in form and substance satisfactory to the
Bank and the costs of the Appraisal shall be borne by the
Borrower."
and inserting in lieu thereof the following:
"Bank shall have a right from time to time hereafter to
audit Borrower's Accounts at Borrower's expense, provided
that such audits will be conducted no more often than every
six (6) months unless an Event of Default has occurred and
is continuing. The Borrower shall provide the Bank with
access to all of its records and financial information so
that the next such audit of Borrower's Accounts shall be
completed on or before August 31, 1999."
10. The Loan Agreement shall be amended by deleting the following
text appearing as Section 6.9 thereof:
"6.9 Profitability. Borrower shall not have quarterly net
-------------
losses in excess of (i) Seven Hundred Thousand Dollars
($700,000.00), for the first quarter ending of 1999, (ii)
Six Hundred Thousand Dollars ($600,000.00), for the second
quarter of 1999, and (iii) Three Hundred Thousand Dollars
($300,000.00), for the third quarter ending of 1999.
Additionally, the Borrower shall have a minimum quarterly
net profit of One Hundred Thousand Dollars ($100,000.00),
for the fourth quarter of 1999."
and inserting in lieu thereof the following:
"6.9 Profitability. Borrower shall maintain, as of the
-------------
last day of each quarter: (i) a maximum net loss of Seven
-4-
<PAGE>
Hundred Thousand Dollars ($700,000.00) for the first quarter
of 1999, (ii) a maximum net loss of Six Hundred Thousand
Dollars ($600,000.00) for the second quarter of 1999, (iii)
a maximum net loss of Three Hundred Thousand Dollars
($300,000.00) for the third quarter of 1999, (iv) a minimum
net profit of One Hundred Thousand Dollars ($100,000.00) for
the fourth quarter of 1999, and (v) a minimum net profit of
One Dollar ($1.00) for each quarter thereafter."
11. The Borrower hereby ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Negative Pledge
Agreement dated as of September 29, 1998, between Borrower and
Bank, and acknowledges, confirms and agrees that said Negative
Pledge Agreement shall remain in full force and effect.
12. The Borrowing Base Certificate appearing as EXHIBIT C to the Loan
---------
Agreement is hereby replaced with the Compliance Certificate
attached as EXHIBIT A hereto.
---------
13. The Compliance Certificate appearing as EXHIBIT D to the Loan
---------
Agreement is hereby replaced with the Compliance Certificate
attached as EXHIBIT B hereto.
---------
4. FEE. Borrower shall pay to Bank a modification fee equal to Two Thousand
---
Dollars ($2,000.00), which fee shall be due on the date hereof and shall be
deemed fully earned as of the date hereof. The Borrower shall also reimburse
Bank for all legal fees and expenses incurred in connection with this amendment
to the Existing Loan Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
------------------------------
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
-----------------------
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
-------------------
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of
Bank and Borrower to retain as liable parties all makers of Existing Loan
Documents, unless the party is expressly released by Bank in writing. No maker
will be released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
------------------
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
----------------
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-5-
<PAGE>
This Loan Modification Agreement is executed as a sealed instrument under
the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
C-BRIDGE INTERNET SOLUTIONS, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST SILICON VALLEY EAST
By: /s/ Richard Wester By: /s/ Mark Pasculano
Name: Richard Wester Name: Mark Pasculano
Title: V.P. Finance and Administration Title: Senior Vice President
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
Name: Michelle D. Giannini
Title: Assistant Vice President
(signed in Santa Clara County, California)
Each of the undersigned, limited guarantors of the Indebtedness of the Borrower
to the Bank, hereby acknowledges and consents to the foregoing modification to
the Loan Agreement and ratifies, confirms, and reaffirms that each of their
respective limited guaranties remain in full force and effect.
DEVON GLEN LIMITED PARTNERSHIP
By Devon Glen Corporation, its General Partner
By: /s/ John J. Donovan, Jr.
-------------------------------------------
John J. Donovan, Jr., President
/s/ Sundar Subramaniam
----------------------------------
SUNDAR SUBRAMANIAM, Individually
-6-
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: C-BRIDGE INTERNET SOLUTIONS, INC. Bank: Silicon Valley Bank
Commitment Amount: $1,000,000.00*
* provided Borrower has met consecutive quarterly profitability requirements set
forth in Section 2.1.1 of the Loan and Security Agreement, otherwise,
$500,000.00
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1) Accounts Receivable Book Value as of $
----------
2) Additions (please explain on reverse) $
----------
3) TOTAL ACCOUNTS RECEIVABLE $
----------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4) Amounts over 90 days due $
----------
5) Balance of 50% over 90 day accounts $
----------
6) Concentration Limits $
----------
7) Ineligible Foreign Accounts $
----------
8) Governmental Accounts $
----------
9) Contra Accounts $
----------
10) Promotion or Demo Accounts $
----------
11) Intercompany/Employee Accounts $
----------
12) Other (please explain on reverse) $
----------
13) TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
----------
14) Eligible Accounts (#3 minus #13) $
----------
15) LOAN VALUE OF ACCOUNTS (75.0% of #14) $
----------
BALANCES
16) Maximum Loan Amount $
----------
17) Total Funds Available [Lesser of #16 or #15] $
----------
18) Present balance owing on Line of Credit $
----------
19) Outstanding under Committed Equipment Line $
----------
(only prior to Debt Service Coverage Event)
20) RESERVE POSITION (#17 minus #18 and #19) $
----------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: BANK USE ONLY
RECEIVED BY:
- --------------------------- ---------------------
DATE:
----------------
By: REVIEWED BY:
------------------------ ---------------------
Authorized Signature COMPLIANCE STATUS: YES / NO
-7-
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: C-BRIDGE INTERNET SOLUTIONS, INC.
The undersigned authorized officer of C-BRIDGE INTERNET SOLUTIONS, INC.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending with all required
--------------
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
Please indicate compliance status by circling yes/no under "complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------------------------------ -------------------------- ------------
<S> <C> <C> <C> <C>
Monthly financial statements and CC Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 150 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
BBC & A/R Agings Monthly within 20 days Yes No
Guarantor liquidity Quarterly within 30 days Yes No
Financial Covenant Required Actual Complies
- ------------------------------------------ ------------------------- ------------ --------
Maintain on a Quarterly Basis:
Minimum Revenues:
Q199 $1,000,000.00 $ Yes No
-----------
Q299 $1,200,000.00 $ Yes No
-----------
Q399 $1,400,000.00 $ Yes No
-----------
Q499 $2,000,000.00 $ Yes No
-----------
Maximum Losses/Profitability:
Q199 ($700,000.00) $ Yes No
----------
Q299 ($600,000.00) $ Yes No
----------
Q399 ($300,000.00) $ Yes No
----------
Q499 $ 100,000.00 $ Yes No
----------
Each Quarter thereafter $ 1.00 $ Yes No
----------
Guarantor Liquidity*
Sundar Subramaniam 2.0:1.0 :1.0 Yes No
-----
Devon Property 1.7:1.0 :1.0 Yes No
-----
</TABLE>
*See Section 6.10 of the Loan and Security Agreement
Comments Regarding Exceptions:
Sincerely, BANK USE ONLY
RECEIVED BY:
---------------------
- --------------------------- DATE:
Signature ----------------
REVIEWED BY:
- --------------------------- ---------------------
Title COMPLIANCE STATUS: YES / NO
-8-
<PAGE>
THIRD LOAN MODIFICATION AGREEMENT
This Third Loan Modification Agreement is entered into as of September 29,
1999, by and between C-BRIDGE INTERNET SOLUTIONS, INC., a Delaware corporation
with its principal place of business at 219 Vassar Street, Cambridge,
Massachusetts 02139 ("Borrower") and SILICON VALLEY BANK, a California-chartered
bank ("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
------------------------------------
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan
arrangement dated as of September 29, 1998, evidenced by, among other documents,
a certain Loan and Security Agreement dated as of September 29, 1998, as amended
by a Loan Modification Agreement dated as of January 27, 1999, as amended by a
Second Loan Modification Agreement dated as of April 7, 1999 (as amended, the
"Loan Agreement"). The Loan Agreement established in favor of the Borrower:
(i) a working capital line of credit in the maximum principal amount of One
Million Dollars ($1,000,000.00) (the "Working Capital Line"), (ii) a revolving
line of credit in the maximum principal amount of Two Million Five Hundred
Thousand Dollars ($2,500,000.00) (the "Committed Revolving Line"), and (iii) an
equipment line of credit in the maximum principal amount of Two Hundred Thousand
Dollars ($200,000.00) (the "Committed Equipment Line"). Capitalized terms used
but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by the
-------------------------
Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
------------------------------
A. Modification(s) to Loan Agreement.
---------------------------------
1. The Loan Agreement shall be amended by deleting the following
definition appearing in Section 1.1 thereof:
""Revolving Maturity Date" means September 29, 1999."
and inserting in lieu thereof the following:
""Revolving Maturity Date" means December 29, 1999."
2. The Loan Agreement shall be amended by deleting the following
text appearing as Section 6.9 thereof:
"6.9 Profitability. Borrower shall maintain, as of the
-------------
last day of each quarter: (i) a maximum net loss of Seven
Hundred Thousand Dollars ($700,000.00) for the first quarter
of 1999, (ii) a maximum net loss of Six Hundred Thousand
Dollars ($600,000.00) for the second quarter of 1999, (iii)
a maximum net loss of Three Hundred Thousand Dollars
($300,000.00) for the third quarter of 1999, (iv) a minimum
net profit of One Hundred Thousand Dollars ($100,000.00) for
the fourth quarter of 1999, and (v) a minimum net profit of
One Dollar ($1.00) for each quarter thereafter."
<PAGE>
and inserting in lieu thereof the following:
"6.9 Profitability. Borrower shall maintain, as of the
-------------
last day of each of the following quarters: (i) a maximum
net loss of Seven Hundred Thousand Dollars ($700,000.00) for
the first quarter of 1999, and (ii) a maximum net loss of
Six Hundred Thousand Dollars ($600,000.00) for the second
quarter of 1999."
3. The Borrower hereby ratifies, confirms and reaffirms, all and
singular, the terms and conditions of a certain Negative Pledge
Agreement dated as of September 29, 1998, between Borrower and
Bank, and acknowledges, confirms and agrees that said Negative
Pledge Agreement shall remain in full force and effect.
4. FEE. Borrower shall pay to Bank a modification fee equal to Five Hundred
---
Dollars ($500.00), which fee shall be due on the date hereof and shall be deemed
fully earned as of the date hereof. The Borrower shall also reimburse Bank for
all legal fees and expenses incurred in connection with this amendment to the
Existing Loan Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
------------------------------
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
-----------------------
defenses against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
-------------------
existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of
Bank and Borrower to retain as liable parties all makers of Existing Loan
Documents, unless the party is expressly released by Bank in writing. No maker
will be released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
------------------
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
----------------
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
-2-
<PAGE>
This Loan Modification Agreement is executed as a sealed instrument under
the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
C-BRIDGE INTERNET SOLUTIONS, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Richard Wester By: /s/ Pamela Aldsworth
------------------------------ ------------------------------
Name: Richard Wester Name: Pamela Aldsworth
---------------------------- ----------------------------
Title: V.P. of Finance and Title: SVP
Administration ---------------------------
---------------------------
SILICON VALLEY BANK
By:_________________________________________
Name:_______________________________________
Title:______________________________________
(signed in Santa Clara County, California)
Each of the undersigned, limited guarantors of the Indebtedness of the Borrower
to the Bank, hereby acknowledges and consents to the foregoing modification to
the Loan Agreement and ratifies, confirms, and reaffirms that each of their
respective limited guaranties remain in full force and effect.
DEVON GLEN LIMITED PARTNERSHIP
By Devon Glen Corporation, its General Partner
By: /s/ John J. Donovan, Jr.
-----------------------------------------
Name: John J. Donovan, Jr.
--------------------------------------
Title: President
-------------------------------------
/s/ Sundar Subramaniam
--------------------------------
SUNDAR SUBRAMANIAM, Individually
-3-
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: C-BRIDGE INTERNET SOLUTIONS, INC. Bank: Silicon Valley Bank
Commitment Amount: $1,000,000.00*
* provided Borrower has met consecutive quarterly profitability requirements set
forth in Section 2.1.1 of the Loan and Security Agreement, otherwise,
$500,000.00
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1) Accounts Receivable Book Value as of _________ $______________
2) Additions (please explain on reverse) $______________
3) TOTAL ACCOUNTS RECEIVABLE $______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4) Amounts over 90 days due $______________
5) Balance of 50% over 90 day accounts $______________
6) Concentration Limits $______________
7) Ineligible Foreign Accounts $______________
8) Governmental Accounts $______________
9) Contra Accounts $______________
10) Promotion or Demo Accounts $______________
11) Intercompany/Employee Accounts $______________
12) Other (please explain on reverse) $______________
13) TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______________
14) Eligible Accounts (#3 minus #13) $______________
15) LOAN VALUE OF ACCOUNTS (75.0% of #14) $______________
BALANCES
16) Maximum Loan Amount $______________
17) Total Funds Available [Lesser of #16 or #15] $______________
18) Present balance owing on Line of Credit $______________
19) Outstanding under Committed Equipment Line $______________
(only prior to Debt Service Coverage Event)
20) RESERVE POSITION (#17 minus #18 and #19) $______________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: BANK USE ONLY
RECEIVED BY:__________________
DATE:________________
___________________________ REVIEWED BY:__________________
COMPLIANCE STATUS: YES / NO
By: _______________________
Authorized Signer
-4-
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: C-BRIDGE INTERNET SOLUTIONS, INC.
The undersigned authorized officer of C-BRIDGE INTERNET SOLUTIONS, INC.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that such compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements and CC Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 150 days Yes No
10Q and 10K Within 5 days after filing with the SEC Yes No
BBC & A/R Agings Monthly within 20 days Yes No
Guarantor liquidity Quarterly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Revenues:
Q199 $1,000,000.00 $________ Yes No
Q299 $1,200,000.00 $________ Yes No
Q399 $1,400,000.00 $________ Yes No
Q499 $2,000,000.00 $________ Yes No
Maximum Losses/Profitability:
Q199 ($700,000.00) $________ Yes No
Q299 ($600,000.00) $________ Yes No
Each Quarter thereafter $ 1.00 $________ Yes No
Guarantor Liquidity*
Sundar Subramaniam 2.0:1.0 _____:1.0 Yes No
Devon Property 1.7:1.0 _____:1.0 Yes No
</TABLE>
*SEE SECTION 6.10 OF THE LOAN AND SECURITY AGREEMENT
COMMENTS REGARDING EXCEPTIONS: BANK USE ONLY
RECEIVED BY:___________________
Sincerely, DATE:__________________________
REVIEWED BY:___________________
_______________________ Date:_______________ COMPLIANCE STATUS: YES / NO
Signature
____________________________
Title 522790.5 (56120/112)
-5-
<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
November 17, 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>
