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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 22, 1997
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CONNECT, Inc.
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(Exact name of registrant as specified in charter)
Delaware
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(State or other jurisdiction of incorporation)
000-20873 943036611
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(Commission File Number) (IRS Employer Identification No.)
515 Ellis Street, Mountain View, California 94043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 254-4000
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N/A
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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On November 18, 1997, the Company closed the private placement (the
"Private Placement") of 250 Units, each such Unit consisting of one (1)
convertible note (a "Note") in the principal amount of $40,000 and one (1)
warrant (a "Warrant") to purchase 13,333 shares of Common Stock of the Company.
The Units were priced at $40,000 per Unit, resulting in gross proceeds of
approximately $10 million. Lehman Brothers, Inc. received a placement fee of 8%
of gross proceeds (excluding proceeds from sales of up to $2,000,000 of Units to
current stockholders of the Company) from the Private Placement for services
rendered in connection with the Private Placement, 50% of which has been paid in
cash and the balance of which has been paid in Units (consisting of 8 Units
issued to LBI Holdings, an affiliate of Lehman Brothers, Inc.). The Company
relied on Rule 506 of Regulation D under the Securities Act of 1933, as amended
(the "Act"), which, among other things, provides an exemption from the
registration requirements of the Act for sales to accredited investors (as
defined by Rule 501(a) of Regulation D under the Act). Under the terms of the
Private Placement, the Company agreed to file a Registration Statement on Form
S-3 following the closing of the transaction to cover the shares of the
Company's Common Stock issuable upon conversion of the Notes and upon exercise
of the Warrants.
Each Note accrues interest at a rate of 5% per annum and is convertible at
the option of the holder into shares of the Company's Common Stock at a price
per share equal to the lesser of (i) $2.00 or (ii) 80% of the average closing
bid price of the Company's Common Stock during the 10 trading days prior to
conversion. Interest on such Notes is payable quarterly and may be paid, at the
option of the Company, either in cash or in additional Notes with one-year
maturities and principal amounts equal to the interest then due. Each Warrant
is exercisable at any time within three years after the date of issuance to
purchase 13,333 shares of the Company's Common Stock at a price of $2.50 per
share.
In November 1997, the Company was informed by The Nasdaq Stock Market, Inc.
("Nasdaq") that it did not meet the requirements for the continued listing of
its Common Stock on The Nasdaq National Market. Specifically, Nasdaq's listing
rules require the Company to maintain net tangible assets of at least $4
million, and the Company's net tangible assets were $2.4 million as of September
30, 1997. While the Company completed the Private Placement in November 1997,
which increased the Company's cash assets by approximately $10 million, the
Notes are considered as debt and, therefore, the Company's net tangible assets
did not increase as a result of the Private Placement. In order to achieve
compliance with the foregoing listing requirements, the Company has entered into
exchange agreements with each holder of the Notes, pursuant to which such
holders have agreed to exchange all of the outstanding Notes, with an aggregate
principal amount of $10.32 million, for shares of the Company's Series A
Preferred Stock at an exchange rate equal to one share of Series A Preferred
Stock for each $2.00 of principal amount outstanding under the Notes, plus
accrued interest (the "Exchange"). If the Notes are exchanged for shares of the
Series A Preferred Stock (which is considered as equity for financial reporting
purposes), the Company's net tangible assets will increase and the Company will
be in compliance with the Nasdaq net tangible assets requirements. In addition,
Nasdaq has agreed to permit the Company to remain listed on The Nasdaq National
Market until at least February 28, 1997, pending the completion of the Exchange
and the proposed one-for-five reverse stock split.
The Exchange is subject to certain conditions, including, without
limitation, the approval of the Company's stockholders of the Exchange, a
proposed one-for-five reverse stock split and an increase in the authorized
number of shares of Common Stock from 40 million to 60 million. If the Exchange
is not consummated on or before February 28, 1998, the Exchange Agreements will
terminate and the Notes will remain outstanding. There can be no assurance that
the Exchange will be approved by the Company's stockholders or that it will be
consummated on a timely basis, or at all, and failure to consummate the Exchange
will likely result in the Company's inability to maintain the listing of its
Common Stock on The Nasdaq National Market. In addition, even if the Exchange
is completed, there can be no assurance that the Company will be able to
continue to maintain compliance with the listing requirements of The Nasdaq
National Market. For example, continued losses by the Company could cause the
Company's net tangible assets to again fall below $4 million, at which point the
Company's Common Stock would likely be removed from listing on The Nasdaq
National Market. The removal of the Company's Common Stock from listing on The
Nasdaq National Market most likely would have a material adverse effect on the
stock
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price of the Common Stock and on the ability of stockholders and investors to
buy and sell shares of the Common Stock in the public markets.
If the Exchange is consummated, each share of Series A Preferred Stock
issued in exchange for the Notes will be convertible at the option of the holder
into that number of shares of Common Stock equal to the greater of (i) the
quotient obtained by dividing $2.00, plus accumulated but unpaid dividends, by
the conversion price (which initially is $2.00 per share and shifts to $1.50 per
share on December 15, 1999) or (ii) the quotient obtained by dividing the
conversion price, plus accumulated but unpaid dividends, by 80% (or 60% if the
conversion occurs after December 15, 1999) of the average closing bid price for
the 10 trading days prior to conversion. The initial conversion price will be
subject to adjustment in the event of issuances of capital stock at a purchase
price of less than $2.00 (other than issuances of Common Stock to employees,
directors or consultants of the Company) and convertible securities with a
conversion price of less than $2.00 per share, as well as stock splits, stock
combinations and the like.
The following is a summary of the outstanding capital stock of the Company:
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, $0.001 per share, and 10,000,000 shares of Preferred Stock,
$0.001 par value per share. As of November 30, 1997, there were 19,146,743
shares of Common Stock outstanding held of record by 149 record holders of the
Company's Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of Preferred Stock, if
any, then outstanding. The Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
available to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
Series A Preferred Stock. Of the 10,000,000 authorized shares of Preferred
Stock, the Company has designated 6,500,000 shares of Series A Preferred Stock.
The following is a summary of certain of the rights, preferences and privileges
of the Series A Preferred Stock, none of which are currently outstanding.
Approximately 5,160,000 shares of Series A Preferred Stock will be issued if the
Exchange occurs. This summary is qualified by reference to the Exchange
Agreement and the Company's Certificate of Designation of Rights, Preferences
and Privileges of Series A Preferred Stock, both of which are filed as exhibits
to this Current Report on Form 8-K.
1. Conversion. Each share of Series A Preferred Stock will be
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convertible at the option of the holder into that number of shares of the
Company's Common Stock equal to the greater of (i) the quotient obtained by
dividing $2.00 (the "Preferred Cap"), plus accumulated but unpaid dividends, by
the conversion price or (ii) the quotient obtained by dividing the conversion
price, plus accumulated but unpaid dividends, by 80% (60% if the conversion
occurs after December 15, 1999) of the average closing bid price for the 10
trading days prior to conversion. The initial conversion price is $2.00, and is
subject to adjustment in the event of stock splits, stock combinations and the
like, and will be reduced to $1.50 on and after December 15, 1999. The
Preferred Cap also will be adjusted downward to the lowest price at which the
Company issues securities or, in the case of convertible securities, the lowest
conversion or exercise price of such securities (excluding issuances pursuant to
employee and director stock option plans). In addition, each share of Series A
Preferred Stock will automatically convert into Common Stock on October 1, 1999,
if the Company is listed on The Nasdaq National Market at all times during 1999,
an effective registration statement relating to the resale of the shares of
Common Stock issuable on conversion of the Series A Preferred Stock has been in
effect at all times during 1999 and the price of the
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Company's Common Stock is at least $2.00 per share (subject to adjustment in the
event of stock splits, stock combinations and the like) at all times subsequent
to August 15, 1999.
2. Voting Rights. Except as required by law and as set forth herein, the
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holders of Series A Preferred Stock will not be entitled to vote. The Series A
Preferred Stock terms include what are customarily called protective provisions.
Under these provisions, a vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock is required before the Company
can: (i) materially or adversely alter or change the rights, preferences or
privileges of the Series A Preferred Stock; (ii) authorize or issue (a) shares
of any class or series of stock having any preference or priority as to
dividends, liquidation or redemption over or pari passu with the Series A
Preferred Stock, (b) shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
rights to purchase, any shares of stock of the Company having any preference or
priority as to dividends, liquidation or redemption over or pari passu with the
Series A Preferred Stock, or (c) any bonds, debentures, notes or other
obligations for borrowed money, except in connection with equipment financing
transactions of up to $1.5 million in any twelve months commencing after the
date of initial issuance of a share of Series A Preferred Stock; (iii) effect
any merger, consolidation or sale of assets of the Company with, into or to
another Small Corporation in which the consideration to be received by the
stockholders of the Company in the merger is not entirely cash (for purposes of
this paragraph the term "Small Corporation" shall mean a corporation and its
parent corporation (if the securities of the parent corporation are being
issued) which have a market capitalization of less than $150 million; and for
purposes of this paragraph the term "market capitalization" shall mean the
product of the number of outstanding shares of the acquiring corporation's or
its parent's common stock (if the securities of the parent corporation are being
issued) multiplied by the average of the closing bid prices for the acquiring
corporation's or its parent's common stock (as quoted on a national securities
exchange or on NASDAQ or over-the-counter) during the 20 trading days prior to
the date of notice of the transaction to the holders of the Series A Preferred
Stock; (iv) effect any merger, consolidation or sale of assets of the Company
with, into or to another corporation in which the consideration to be received
by the stockholders of the Company in such transaction includes (1) securities
that have not been registered on an effective Form S-4 or other appropriate form
of registration statement or (2) property other than cash or securities; (v)
apply any of its assets to the redemption, retirement, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any shares of any
class or series of equity securities of the Company (other than repurchases of
Common Stock from employees of and consultants to the Company upon or after
termination of employment and other than redemptions of Series A Preferred Stock
permitted by their terms); or (vi) pay any dividend or make any distribution on
shares of equity securities, other than with respect to the Series A Preferred
Stock.
3. Interest and Dividends. The holders of Series A Preferred Stock will
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be entitled to receive mandatory cumulative dividends in preference to the
holders of Common Stock at an annual rate of $.10 per share (5% of the original
$2.00 exchange price per share) from legally available funds. Such dividends
are payable quarterly and may be paid in cash or in shares of Series A Preferred
Stock, at the option of the Company.
4. Redemption Rights. The Series A Preferred Stock will not be
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redeemable at the option of the holders. The Company shall have the right to
redeem the Series A Preferred Stock at any time after November 10, 1999 at $2.00
per share plus accrued dividends. In addition, the Company shall have the right
to redeem shares of Series A Preferred Stock at a price of $2.70 per share plus
accrued dividends in the event that a holder proposes to convert such shares of
Series A Preferred Stock at a conversion price of less than $1.25 (subject to
adjustment in the event of stock splits, stock combinations and the like).
5. Certain Rights upon Liquidation or Sale of the Company. The Series A
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Preferred Stock has liquidation and dividend rights superior to those of the
Common Stock. In the event of a liquidation event, including certain mergers
and sales of the Company, holders of the Series A Preferred Stock are entitled
to receive $1.00, plus accumulated but unpaid dividends, per share of Series A
Preferred Stock held by them prior to any distribution to holders of shares of
the Company's Common Stock. After receipt of the full $1.00 per share, all
remaining assets of the Company will be distributed to holders of shares of
Series A Preferred Stock (on an as-if converted to Common Stock basis, at a per
share price of the lesser of $2.00 per share or 60% of the price per share
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of Common Stock payable in the transaction) and Common Stock ratably based on
the number of shares of stock held by them.
The effect of these provisions in the context of a sale of the Company is
to distribute to the Series A Preferred Stock preferential amounts. For
example, if no shares of Series A Preferred Stock have been converted and 19
million shares of Common Stock are outstanding, for any transaction in which the
aggregate consideration is below approximately $22 million, all of the proceeds
will be payable to the holders of Series A Preferred Stock. Amounts in excess
of $22 million will be shared among the Series A Preferred Stock and the Common
Stock based on the number of shares held by each on an as-if converted basis.
6. Registration Rights. The Company is obligated to file with the
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Securities and Exchange Commission pursuant to the terms of the Private
Placement and the Exchange, a registration statement (the "Registration
Statement") with respect to the resale of the shares issuable upon conversion of
the Series A Preferred Stock and exercise of the Warrants.
"Blank-Check" Preferred Stock. As of the date of this Current Report on
Form 8-K, and assuming completion of the Exchange, the Company will have
3,500,000 authorized shares of "blank check" Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors, without any further vote or action by the stockholders;
provided, however, that approval by the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock will be required in order to
authorize or issue shares of any series of Preferred Stock having any preference
or priority as to dividends, liquidation or redemption over or pari passu with
the Series A Preferred Stock. The rights of the holders of the Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company. Furthermore, such Preferred Stock may have other rights,
including economic rights, senior to the Common Stock, and as a result, the
issuance of such Preferred Stock could have a material adverse effect on the
market value of the Common Stock. Although the Company has no present intention
to issue any additional shares of its Preferred Stock, there can be no assurance
that the Company will not do so in the future. See "Delaware Anti-Takeover Law
and Certain Charter Provisions."
CONVERTIBLE NOTES
As of the date of this Current Report on Form 8-K, the Company has
outstanding convertible notes (the "Notes") in the aggregate principal amount of
approximately $10.32 million. Upon the consummation of the Exchange, all of the
outstanding Notes will be exchanged for shares of Series A Preferred Stock;
however, in the event that the Exchange is not consummated, the Notes will
remain outstanding. The following is a summary of certain of the rights of the
Notes. This summary is qualified by reference to the Private Placement Purchase
Agreement and form of Note, both of which have been filed as exhibits to the
Company's Quarterly Report on Form 10-Q for the three-month period ended
September 30, 1997.
1. Conversion. Each Note is convertible at the option of the holder into
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the number of shares of Common Stock determined by dividing the principal amount
of the Note, plus accrued and unpaid interest, by the lesser of (i) $2.00 (the
"Note Cap") (subject to adjustment in the event of stock splits, stock
combinations and the like) or (ii) 80% of the average closing bid price for the
10 trading days prior to conversion. The Note Cap also will be adjusted
downward to the lowest price at which the Company issues securities or, in the
case of convertible securities, the lowest conversion or exercise price of such
securities (excluding issuances pursuant to employee and director stock option
plans). In addition, unless earlier converted or redeemed, the principal and
accrued but unpaid interest on each Convertible Note will automatically convert
into Common Stock on October 1, 1999 (at the then conversion price), if the
Company has been listed on The Nasdaq National Market at all times during 1999,
a registration statement relating to the resale of the shares of Common Stock
issuable upon conversion of the Convertible Notes and Warrants has been
effective at all times during 1999, and the closing bid price of the
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Company's Common Stock was not less than $2.00 per share (subject to adjustment
in the event of stock splits, stock combinations and the like) at all times from
and after August 15, 1999.
2. Voting Rights. Holders of Convertible Notes are not entitled to notice
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of any meeting of stockholders of the Corporation or to vote upon any matter
submitted to stockholders of the Corporation.
3. Interest and Dividends. The Convertible Notes accrue interest at the
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rate of 5% per annum. The interest may be paid in cash or in additional
Convertible Notes (but with a one year maturity), at the option of the Company.
4. Redemption Rights. The holders of the Convertible Notes have the
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right in certain situations to demand that the Company redeem that portion of
the Convertible Notes for which there are insufficient shares reserved for
issuance upon conversion of the portion of the Convertible Note. The redemption
price would be 135% of the portion of principal amount of the Convertible Note
being redeemed (plus accrued but unpaid interest). In addition, holders of
Convertible Notes can accelerate payment of all principal and interest due under
the Convertibles Notes upon the occurrence of an "event of a default", which
includes any breach of or failure to comply with any provision of the
Convertible Note that is not cured within 15 days after written notice, and the
institution of any bankruptcy or liquidation of the Company.
The Company has the right to redeem all or a portion the Convertible
Notes held by a holder, if the holder proposes to convert the Convertible Note
into shares of Common Stock at a conversion price of less than $1.25 (subject to
adjustment in the event of stock splits, stock combinations and the like). The
Company's right must be exercised by notice from the Company to the holder given
within two days after the notice of conversion. If the Company gives notice of
redemption, the Company must pay the holder, within 10 business days after the
date of such notice of conversion, an amount equal to 135% of the amount of
principal proposed to be converted, together with accrued and unpaid interest
thereon accrued through the date of such conversion.
5. Certain Rights upon Liquidation or Sale of the Company. A
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liquidation, bankruptcy or winding up of the Company would be an "event of
default" under the terms of the Convertible Notes and would enable the holders
of the Convertible Notes to accelerate payment of principal and interest under
the Convertible Notes to the date of such event. Each holder of Convertible
Notes would be entitled to receive the entire principal amount of such holder's
Convertible Notes, plus accrued but unpaid interest, prior and in preference to
any assets of the Company being distributed to holders of equity securities of
the Company, including the holders of the Company's Common Stock.
In the event of any consolidation or merger of the Company into
another corporation which has a market capitalization of not less than $150
million, or the sale or conveyance of all or substantially all of its assets to
any such corporation, then, at the election of the Company, the Convertible
Notes shall be deemed automatically converted immediately prior to the
consummation of such transaction at a price per share equal to 60% of the
average closing bid price for the 10 trading days prior to conversion, or $2.00
per share (subject to adjustment in the event of stock splits, stock
combinations and the like), if less. If the Company makes such election, the
holders would have the right to accelerate the Convertible Notes and require
repayment of 100% of the principal and accrued interest in cash. If any other
consolidation, merger or sale of the Company is effected, or if any capital
reorganization or reclassification of the Common Stock is effected, then, as a
condition precedent of such transaction, the conversion provisions of the
Convertible Notes would be required to be applicable to the successor
corporation and each holder of Convertible Notes will have the right to receive
upon conversion the kind of shares of capital stock or other securities or
property which each such holder would have been entitled to receive upon or as a
result of such transaction had the Convertible Notes been converted immediately
prior to such event.
6. Registration Rights. The Company is obligated to file with the
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Securities and Exchange Commission pursuant to the terms of the Private
Placement and the Exchange, a registration statement (the "Registration
Statement") with respect to the resale of the shares issuable upon conversion of
the Convertible Notes and exercise of the Warrants.
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WARRANTS
As of the date of this Prospectus, the Company has outstanding Warrants to
purchase an aggregate of up to 3,439,913 shares of Common Stock at an exercise
price of $2.50 per share. Each such Warrant is exercisable at any time prior to
November 2000.
REGISTRATION RIGHTS OF CERTAIN OTHER HOLDERS
Excluding the shares of Common Stock issuable upon conversion of the Notes
(or the Series A Preferred Stock, if the Exchange is completed) and upon
exercise of the Warrants, the holders of approximately 15,722,384 shares of
Common Stock (the "Registrable Securities") or their transferees are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of agreements between
the Company and the holders of Registrable Securities. If at any time, the
Company registers any of its Common Stock, the holders of Registrable Securities
are entitled to include their shares of Common Stock in the registration. A
holder's right to include shares in an underwritten registration is subject to
the ability of the underwriters to limit the number of shares included in the
offering. All registration expenses must be borne by the Company and all
selling expenses relating to Registrable Securities must be borne by the holders
of the securities being registered. In addition, such holders may require the
Company to use its best efforts to file a registration statement under the
Securities Act at the Company's expense with respect to their shares of Common
Stock, subject to certain limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and the Company's Restated Certificate
of Incorporation could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company believes that the benefits of increased
protection of the Company's potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
The Company is subject to the provisions of Section 203 of the Delaware
law. In general, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. These provisions may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the Company's stockholders.
Commencing at the first annual meeting of stockholders following the annual
meeting of stockholders when the Company shall have had at least 800
stockholders, the Restated Certificate of Incorporation of the Company will
provide for the Board of Directors to be divided into two classes, with
staggered two-year terms. As a result, only one class of directors will be
elected at each annual meeting of stockholders of the Company, with the other
class continuing for the remainder of its respective two-year term. Thereafter,
stockholders shall no longer have cumulative voting rights and the Company's
stockholders representing a majority of the shares of Common Stock outstanding
will be able to elect all of the directors. The classification of the Board of
Directors and elimination of cumulative voting make it more difficult for the
Company's existing stockholders to replace the Board of Directors as well as for
another party to obtain control of the Company by replacing the Board of
Directors. Since the Board of Directors has the power to retain and discharge
officers of the Company, these
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provisions could also make it more difficult for existing stockholders or
another party to effect a change in management.
The Company's Restated Certificate of Incorporation provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and may not be taken by written consent. The Bylaws provide that
special meetings of stockholders can be called only by the Board of Directors,
the Chairman of the Board, if any, the President of the Company and holders of
10% of the votes entitled to be cast at a meeting. Moreover, the business
permitted to be conducted at any special meeting of stockholders is limited to
the business brought before the meeting by the Board of Directors, the Chairman
of the Board, if any, the President of the Company or any such 10% holder. The
Bylaws set forth an advance notice procedure with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to business to be brought before a meeting
of stockholders of the Company.
The Company's Restated Certificate of Incorporation contains a provision
requiring the affirmative vote of the holders of at least two-thirds of the
voting stock of the Company to amend the foregoing provisions of the Restated
Certificate of Incorporation and Bylaws.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits.
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Exhibit 3.4 Form of Proposed Certificate of Designation of Rights,
Preferences and Privileges of Series A Preferred Stock.
Exhibit 4.3 Form of Exchange Agreement.
Exhibit 99.1 CONNECT, Inc. Press Release dated December 22, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONNECT, Inc.
(Registrant)
Dated: December 24, 1997 By: /s/ JOSEPH G. GIRATA
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Joseph G. Girata
Vice President of Finance and
Administration and Chief Financial Officer
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EXHIBIT 3.4
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PREFERRED STOCK
OF
CONNECT, INC.
(Pursuant to Section 151 of the General Corporation Law of the State of
Delaware)
We, Gordon J. Bridge and Joseph G. Girata, the President and the Secretary,
respectively, of CONNECT, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on December __, 1997 adopted the following resolution creating a
series of shares of Preferred Stock designated as Series A Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the Certificate of Incorporation, the Board of Directors
does hereby provide for the issue of a Series of Preferred Stock, $0.001 par
value, of the Corporation, to be designated "Series A Preferred Stock",
initially consisting of six million five hundred thousand (6,500,000) shares and
to the extent that the designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions of the
Series A Preferred Stock are not stated and expressed in the Certificate of
Incorporation, does hereby fix and herein state and express such designations,
powers, preferences and relative and other special rights and the
qualifications, limitations and restrictions thereof, as follows (all terms used
herein which are defined in the Certificate of Incorporation shall be deemed to
have the meanings provided therein):
A. Designation and Amount. The shares of such series shall be designated
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as "Series A Preferred Stock", par value $0.001 per share, and the number of
shares constituting such series shall be six million five hundred thousand
(6,500,000).
B. Mandatory Dividends. The holders of shares of Series A Preferred Stock
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shall be entitled to receive mandatory dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
distribution (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the Corporation) on the Common
Stock or any other series of Preferred Stock of the Corporation, at the rate of
$.10 per share per annum on each outstanding share of Series A Preferred Stock,
payable quarterly in arrears on the first day of each January,
<PAGE>
April, July and October, commencing April 1, 1998. The Corporation shall have
the option of paying all or any portion of such dividends in cash or in shares
of Series A Preferred Stock. If any of such dividends are paid in shares of
Series A Preferred Stock, the number of shares of Series A Preferred Stock
issuable shall be the quotient obtained by dividing the dollar amount of the
dividends by $2.00. Such dividends, to the extent not paid due to insufficient
assets legally available therefor, shall be cumulative, commencing on the date
of the first issuance of a share of Series A Preferred Stock.
C. Preference on Liquidation; Sale of Corporation
----------------------------------------------
1. Preferred and Common Stock. In the event of any liquidation,
--------------------------
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series A Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Corporation to
the holders of any other series of Preferred Stock and Common Stock by reason of
their ownership thereof, an amount per share equal to $1.00 per share for each
share of Series A Preferred Stock then held by them, plus accrued but unpaid
dividends, if any. If, upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the preferential amount
each such holder is otherwise entitled to receive.
Upon the completion of the distribution required above, the remaining
assets of the Corporation available for distribution to stockholders shall be
distributed among the holders of the Series A Preferred Stock (without reduction
in the number of shares of Series A Preferred Stock as a result of the payment
in the prior paragraph) and the Common Stock pro rata based on the number of
shares of Common Stock held by each, assuming, for purposes of determining the
number of shares of Common Stock held by each holder of Series A Preferred
Stock, conversion of all shares of Series A Preferred Stock (without reduction
in the number of shares of Series A Preferred Stock as a result of the payment
in the prior paragraph) as provided for in Section E, except that (i) the
Percentage (as defined in Section E.2) shall be 60%, not 80%, (ii) all cumulated
dividends shall be deemed to have been paid, (iii) the calculation of the number
of shares issuable upon conversion of the shares of Series A Preferred Stock
shall not be limited by the number of shares of Common Stock available for
issuance, and (iv) in the case of a merger or consolidation or any other
transaction involving the sale or tender of shares of capital stock (including
Series A Preferred Stock and Common Stock) of the Corporation that is deemed a
liquidation pursuant to this Section C, the Average Price (as defined in Section
E.2(ii)) shall be deemed to be the price per share of Common Stock payable in
any such transaction (the "Per Share Price") as determined in the formulae set
forth below.
-2-
<PAGE>
As an example of the operation of the distribution allocations in the
prior paragraph in the case of a merger or consolidation or other transaction
that is deemed a liquidation pursuant to this Section C, assuming 19 million
shares of Common Stock are outstanding (and no options or warrants are
outstanding) and 5,000,000 shares of Series A Preferred Stock are outstanding,
the Per Share Price (for purposes of the calculation set forth in Section
E.2.(ii) below) payable in such merger or consolidation shall be determined by
operation of the following formulae:
x = Per Share Price
y = Number of shares into which the Series A Preferred Stock converts
1. Formula One: Assets or Aggregate Consideration Available for Distribution
-----------
or payment (after payment of $1.00 liquidation preference) = (19 million * x) +
(y * x)
2. Formula Two:
-----------
$10 million
-----------
y = .6
-------------------
x
It is necessary to use these formulae to solve for x. If x is a
negative number, all of the remaining assets of the Corporation available for
distribution to stockholders shall be distributed only among the holders of the
Series A Preferred Stock.
2. Certain Events Deemed Liquidation. A reorganization, merger
---------------------------------
or consolidation of the Corporation with or into any other corporation or
corporations in which the shareholders of the Corporation immediately prior to
such transaction (or transactions, if such transactions comprise a related
series) do not own immediately after such transaction (or transactions, if such
transactions comprise a related series) more than 50% of the outstanding voting
securities of the surviving entity (or its parent), or a transaction (or
transactions, if such transactions comprise a related series) in which
shareholder(s) transfer more than 50% of the outstanding securities of the
Corporation (other than a reincorporation transaction), or a sale or other
disposition of all or substantially all of the assets of the Corporation shall
be deemed to be a liquidation within the meaning of this Section C. For this
purpose, the holders of shares of Series A Preferred Stock transferred,
surrendered or exchanged in any transaction described in the preceding sentence,
or in any other transaction involving the sale or tender of shares of capital
stock (including Series A Preferred Stock and Common Stock) of the Corporation,
shall be entitled to receive, as consideration in such transaction, the amounts
as provided pursuant to the first and second paragraphs of Section C.1 above.
Any securities to be delivered to the holders of the Series A Preferred Stock
and Common Stock upon a merger, reorganization or sale or other disposition of
substantially all of the assets of the Corporation shall be valued as follows:
-3-
<PAGE>
(a) If traded on a securities exchange, the NASDAQ National
Market or the NASDAQ Small Cap Market, the value shall be deemed to be the
average of the closing bid prices of the securities on such exchange or NASDAQ
Market over the 20-day period ending three (3) business days prior to the
closing;
(b) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 20-day period ending
three (3) business days prior to the closing; and
(c) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Corporation and holders
of two-thirds of the then outstanding shares of Series A Preferred Stock.
3. Notice. The Corporation shall give each holder of record of
------
Series A Preferred Stock written notice of an impending transaction described in
Section C.2 not later than the earlier of twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such transaction. The first of such notices shall
describe the material terms and conditions of the impending transaction and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the Corporation has given the first notice provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of the majority of the then outstanding shares of Series A
Preferred Stock which are entitled to such notice rights or similar notice
rights.
D. Voting Rights. Except as required by law and as provided in
-------------
Section G below, the holders of Series A Preferred Stock shall not be entitled
to vote.
E. Conversion Rights.
-----------------
1. Conversion of Preferred Stock; Automatic Conversion. Subject to
---------------------------------------------------
Section H, each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the issuance of such share and
on or prior to any Redemption Date contemplated by Section H below (the
"Conversion Period") into fully paid and nonassessable shares of Common Stock of
the Corporation. All outstanding shares of Series A Preferred Stock shall be
automatically converted into shares of Common Stock on October 1, 1999 if the
Corporation's Common Stock has been listed on the NASDAQ National Market at all
times subsequent to January 1, 1999, the Corporation has maintained at all times
subsequent to January 1, 1999 an effective registration statement relating to
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock and the closing bid price on each day subsequent to August 15, 1999 has
been at least $2.00 per share. The $2.00 amount referenced in the preceding
sentence shall be equitably adjusted in case the Corporation shall issue Common
Stock as a dividend upon Common Stock or in payment of a dividend thereon, shall
subdivide the number of outstanding shares of its Common Stock into a greater
number of shares or shall combine the number of outstanding shares of its Common
Stock into a lesser number of shares.
-4-
<PAGE>
2. Determination of Number of Shares of Common Stock Upon
------------------------------------------------------
Conversion.
- ----------
(a) Subject to the restrictions contained in (b) below, the
number of shares of Common Stock into which each share of Series A Preferred
Stock may be converted shall be the greater of (i) the quotient obtained by
dividing $2.00 (the "Cap"), plus cumulated but unpaid dividends with respect to
such share through the date of conversion, by the Conversion Price (as defined
in Section E.3), or (ii) the quotient obtained by dividing $2.00, plus cumulated
but unpaid dividends with respect to such share through the date of conversion,
by 80%, if the conversion occurs prior to December 15, 1999, or 60%, if the
conversion occurs thereafter, (the "Percentage") of the average closing bid
price (the "Average Price") of the Common Stock on the Nasdaq National Market
(or if not listed on the Nasdaq National Market, the Nasdaq SmallCap Market or
other national securities exchange or, if not so listed, on the over-the-counter
market) during the last 10 trading days prior to such conversion (excluding the
date of conversion); provided, however, that in no event shall a share of Series
A Preferred Stock be converted into more than the number of shares of Common
Stock determined by dividing $2.00 by the par value of a share of Common Stock
(i.e., $0.001).
(b) Prior to the initial issuance of a share of Series A
Preferred Stock, the Board of Directors of the Corporation will reserve
40,000,000 shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock, and, thereafter, shall reserve additional shares of Common
Stock, to the extent authorized and available, if necessary for issuance upon
conversion of such Series A Preferred Stock. In addition, to the extent
additional shares of Common Stock are required for conversion but are not
authorized and available, the Board of Directors of the Company shall use its
best efforts to cause such additional shares to become authorized and available.
The number of shares of Common Stock reserved for issuance upon conversion of
the Preferred Stock (the "Reserved Amount") shall be allocated pro rata among
all shares of Series A Preferred Stock. To the extent the Board of Directors of
the Corporation increases the Reserved Amount, each increase of the Reserved
Amount shall be allocated pro rata among the shares of Series A Preferred Stock.
3. Determination of Initial Conversion Price. The "Conversion
----------------------------------------- ----------
Price" for the Series A Preferred Stock initially shall be $2.00, prior to
- -----
December 15,1999, and $1.50, on and after December 15, 1999, subject to
adjustment as provided in Section F hereof.
4. Procedures for Exercise of Conversion Rights. The holders of any
--------------------------------------------
shares of Series A Preferred Stock may exercise their conversion rights during
the Conversion Period as to all such shares or any part thereof by delivering
(which delivery may be accomplished by facsimile and may be provided at any time
up until 12 midnight on any such date) to the Corporation, at the office of any
transfer agent of the Corporation for the Series A Preferred Stock, or at the
principal office of the Corporation or at such other place as may be designated
by the Corporation, written notice stating that the holder elects to convert
such shares. Conversion shall be deemed to have been effected on the
-5-
<PAGE>
date when such delivery is made, and such date is referred to herein as the
"Conversion Date." Within two business days after the Conversion Date and
---------------
the delivery to the Corporation during regular business hours, at the office of
any transfer agent of the Corporation for the Series A Preferred Stock, or at
the principal office of the Corporation or at such other place as may be
designated by the Corporation, of the certificate or certificates for the shares
to be converted, duly endorsed for transfer to the Corporation (if required by
the Corporation), the Corporation shall issue and deliver to or upon the written
order of such holder (or at holder's request, DWAC), at such office or other
place designated by the Corporation, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and a
check for cash with respect to any fractional interest in a share of Common
Stock as provided in Section E.5 below. The applicable Conversion Price shall be
the Conversion Price in effect on the Conversion Date, and the applicable
Average Price shall be the Average Price in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares of Series A Preferred Stock
represented by a certificate surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the stockholder of the
certificate so surrendered for conversion, at the expense of the Corporation, a
new certificate covering the number of shares of Series A Preferred Stock
representing the unconverted portion of the certificate so surrendered.
5. No Fractional Shares. No fractional shares of Common Stock
--------------------
shall be issued upon conversion of shares of Series A Preferred Stock. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series A Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series A Preferred Stock, the Corporation shall pay
a cash adjustment in respect of such fractional interest equal to the fair
market value of such fractional interest as determined in good faith by the
Corporation's Board of Directors.
6. Payment of Taxes for Conversions. The Corporation shall pay
--------------------------------
any and all issue and other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion pursuant hereto of Series A
Preferred Stock. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of any such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
7. Status of Common Stock Issued Upon Conversion. All shares
---------------------------------------------
of Common Stock which may be issued upon conversion of the shares of Series A
Preferred Stock will upon issuance by the Corporation be validly issued, fully
paid and non-assessable and free from all preemptive rights, taxes, liens and
charges with respect to the issuance thereof.
-6-
<PAGE>
F. Adjustment of Conversion Prices.
-------------------------------
1. General Provisions. The Conversion Price of the Series A
------------------
Preferred Stock shall be subject to adjustment from time to time as follows:
(a) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Conversion Price
for the Series A Preferred Stock shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of any shares of the
Series A Preferred Stock shall be increased in proportion to such increase of
outstanding shares.
(b) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
shares of the Series A Preferred Stock shall be decreased in proportion to such
decrease in outstanding shares.
(c) In case the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends payable out of retained earnings) or options, rights or other
commitments to acquire securities of the Corporation or other securities of the
Corporation convertible into or exchangeable for Common Stock, then, in each
such case, immediately following the record date fixed for the determination of
the holders of Common Stock entitled to receive such dividend or distribution,
the Conversion Price for the Series A Preferred Stock in effect thereafter shall
be determined by multiplying the Conversion Price for the Series A Preferred
Stock in effect immediately prior to such record date by a fraction of which the
numerator shall be an amount equal to the remainder of (x) the Average Price of
one share of Common Stock less (y) the amount of such cash dividend in respect
of one share of Common Stock or the fair market value (as determined in good
faith by the Board of Directors) of the stock, securities, evidences or
indebtedness, assets, options, rights or derivative securities so distributed in
respect of one share of Common Stock, as the case may be, and of which the
denominator shall be the Average Price of one share of Common Stock. Such
adjustment shall become effective at the opening of business on the business day
next following the record date for the determination of stockholders entitled to
such dividend or distribution.
(d) All calculations under this Section E shall be made to the
nearest one hundredth (1/100) of a cent or to the nearest one hundredth (1/100)
of a share, as the case may be.
-7-
<PAGE>
2. Computation of Adjustment. Upon the occurrence of each
-------------------------
adjustment or readjustment of the Conversion Price of any series of Series A
Preferred Stock pursuant to this Section F, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof, and prepare and furnish to each holder of Series A Preferred Stock
affected thereby a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment or readjustment, (B) the
Conversion Price at the time in effect for the Series A Preferred Stock, and (C)
the number of shares of Common Stock and the amount, if any, of other property
which at the time of such adjustment or readjustment would be received upon the
conversion of such holder's shares.
3. Ratchet Adjustment. Notwithstanding the terms of Section (F)
-------------------
above, the Cap shall be adjusted to equal (i) the lowest price at which the
Corporation hereafter issues any shares of Common Stock (whether in public or
private placements or otherwise, but excluding issuances pursuant to employee or
director stock options), (ii) the lowest conversion price of any convertible
debenture or other security which the Corporation issues at any time hereafter
(whether in public or private placements or otherwise, but excluding issuances
pursuant to employee or director stock options), (iii) the lowest exercise price
of any warrant or similar security which the Corporation issues at any time
hereafter (but excluding issuances pursuant to employee or director stock
options), or (iv) the lowest Cap Equivalent (as hereinafter defined) in any
convertible or exercisable security which the Corporation issues at any time
hereafter (whether in public or private placements or otherwise). A "Cap
Equivalent" means an amount, similar in concept to the Cap hereunder, which
constitutes a ceiling on the conversion or exercise price of any security.
G. Protective Provisions. In addition to any other class or series
---------------------
vote that may be required by law, for so long as any shares of Series A
Preferred Stock shall be outstanding the Corporation shall not without obtaining
the approval (by vote or written consent, as provided by law), of the holders of
two-thirds of the outstanding shares of Series A Preferred Stock:
(i) materially or adversely alter or change the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) authorize or issue (a) shares of any class or series of stock having any
preference or priority as to dividends, liquidation or redemption over or pari
passu with the Series A Preferred Stock, (b) shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having rights to purchase, any shares of stock of this Corporation
having any preference or priority as to dividends, liquidation or redemption
over or pari passu with the Series A Preferred Stock, or (c) any bonds,
debentures, notes or other obligations for borrowed money, except in connection
with
-8-
<PAGE>
equipment financing transactions of up to $1.5 million in any twelve months
commencing after the date of initial issuance of a share of Series A Preferred
Stock;
(iii) effect any merger, consolidation or sale of assets of the Corporation
with, into or to a Small Corporation in which the consideration to be received
by the stockholders of the Corporation in such transaction is not entirely cash
(for purposes of this paragraph the term "Small Corporation" shall mean a
corporation and its parent corporation (if the securities of the parent
corporation are being issued) which have a market capitalization of less than
$150 million; and for purposes of this paragraph the term "market
capitalization" shall mean the product of the number of outstanding shares of
the acquiring corporation's or its parent's common stock (if the securities of
the parent corporation are being issued) multiplied by the average of the
closing bid prices for the acquiring corporation's or its parent's common stock
(as quoted on a national securities exchange or on NASDAQ or over-the counter)
during the 20 trading days prior to the date notice of the proposed transaction
is provided to the holders of the Series A Preferred Stock;
(iv) effect any merger, consolidation or sale of assets of the Corporation
with, into or to another corporation in which the consideration to be received
by the stockholders of the Corporation in such transaction includes (1)
securities that have not been registered on an effective Form S-4 or other
appropriate form or (2) property other than cash or securities;
(vi) apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, through subsidiaries or otherwise, of any
shares of any class or series of equity securities of the Corporation (other
than repurchases of Common Stock from employees of and consultants to the
Corporation upon or after termination of employment and other than redemptions
of Series A Preferred Stock in accordance with Section H); or
(vii) pay any dividend or make any distribution on shares of equity securities,
other than with respect to the Series A Preferred Stock.
H. Certain Redemptions of the Series A Preferred Stock.
---------------------------------------------------
1. In the event that a holder of Series A Preferred Stock proposes
to convert any shares of Series A Preferred Stock (other than in connection with
a transaction under Section C. above) at a time when the Average Price (as
defined in Section E.2) is less than $1.25, the Corporation shall at its option
be entitled to redeem all or any portion of the shares of Series A Preferred
Stock proposed to be converted. Such option shall be exercisable by notice from
the Corporation to the Holder(s) given within two days after the notice of
conversion. If the Corporation shall give such notice of redemption, the
Corporation shall be obligated to pay to the Holder, on the 10th business day
after the date of such notice, an amount equal to $2.70 per share of Series A
Preferred Stock proposed to be converted, together with any accrued and unpaid
dividends thereon accrued through the date of such conversion. The $1.25 amount
referred in this paragraph shall be equitably adjusted in case the Corporation
shall issue Common Stock as a dividend
-9-
<PAGE>
upon Common Stock or in payment of a dividend thereon, shall subdivide the
number of outstanding shares of its Common Stock into a greater number of shares
or shall combine the number of outstanding shares of its common stock into a
lesser number of shares.
2. At any time after November 10, 1999, the Corporation shall at its
option be entitled to redeem all or any portion of the shares of Series A
Preferred Stock, exercisable by notice from the Corporation to the Holder(s). If
the Corporation shall give such notice of redemption, the Corporation shall be
obligated to pay to the Holder(s), on the 30th day after the date of such notice
(the "Redemption Date"), an amount equal to $2.00 per share of Series A
Preferred Stock, together with any accrued and unpaid dividends thereon accrued
through the date of redemption.
3. On or after the Redemption Date, each holder of Series A
Preferred Stock shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the notice of redemption, and thereupon the redemption price of such shares
shall be payable to the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.
4. From and after the Redemption Date, unless there shall have been
a default in payment of the redemption price, all rights of the holders of
Series A Preferred Stock as holders of Series A Preferred Stock (except the
right to receive the redemption price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of Series A Preferred Stock on any
Redemption Date are insufficient to redeem all outstanding shares of Series A
Preferred Stock then being redeemed, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably among
the holders of the Series A Preferred Stock, based on the amount of the
redemption price payable to each holder. The shares not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein (with
the dividend rate increasing from $.10 per share per annum to $.22 per share per
annum on the Redemption Date until the Corporation has deposited the funds (as
contemplated in paragraph 5 below) to effect redemption of these remaining
shares), and a certificate representing the shares that have not been redeemed
shall be returned to each holder. At any time thereafter when additional funds
of the Corporation are legally available for the redemption of Series A
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares of Series A Preferred Stock that have not been redeemed.
5. Three days prior to the Redemption Date, the Corporation
shall deposit the redemption price of all outstanding shares designated for
redemption in the notice of redemption, and not yet redeemed or converted, with
a bank or trust company having aggregate capital and surplus in excess of
$50,000,000 as a trust fund for the
-10-
<PAGE>
benefit of the respective holders of the shares designated for redemption and
not yet redeemed. Simultaneously, the Corporation shall deposit irrevocable
instruction and authority to such bank or trust company to pay, on and after the
date fixed for redemption or prior thereto, the redemption price of the Series A
Preferred Stock to the holders thereof upon surrender of their certificates. Any
monies deposited by the Corporation pursuant to this paragraph 5 for the
redemption of shares that are thereafter converted into shares of Common Stock
pursuant to Section E no later than the close of business on the Redemption Date
shall be returned to the Corporation forthwith upon such conversion. The balance
of any monies deposited by the Corporation pursuant to this paragraph 5
remaining unclaimed at the expiration of one year following the Redemption Date
shall thereafter be returned to the Corporation, provided that the stockholder
to which such monies would be payable hereunder shall be entitled, upon proof of
its ownership of Series A Preferred Stock and payment of any bond requested by
the corporation, to receive such monies without interest from the Redemption
Date.
6. Except as set forth in this Section H, the Series A Preferred
Stock is not redeemable.
I. Sinking Fund. The shares of Series A Preferred Stock are not
------------
subject or entitled to the operation of a retirement or sinking fund.
J. Specific Performance. The Company agrees that, in addition to
--------------------
any other remedies which the holders of the Series A Preferred Stock may have,
the holders of the Series A Preferred Stock shall be entitled to obtain specific
performance of the terms of the Series A Preferred Stock included within this
Certificate."
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this ___th day of
December, 1997.
CONNECT, INC.
__________________________________________
Gordon J. Bridge, Chief Executive Officer
ATTEST:
__________________________________________
Joseph G. Girata, Secretary
-11-
<PAGE>
EXHIBIT 4.3
EXCHANGE AGREEMENT
This Agreement is being entered into as of the date set forth on the
signature page hereto by and between CONNECT, Inc. (the "Company") and the
undersigned ("Subscriber").
Background
----------
On November 18, 1997, the Company issued to Subscriber, and Subscriber
purchased from the Company, convertible notes of the Company (the "Notes")
pursuant to a Subscription Agreement between the Company and Subscriber (the
"Original Subscription Agreement"). The Company and Subscriber desire to
exchange that principal amount of Notes held by Subscriber as is set forth under
Subscriber's name on the signature page hereto for the number of shares of
Series A Preferred Stock of the Company (the "Preferred Stock") set forth under
Subscriber's name on the signature page hereto.
For good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Company and Subscriber hereby agree as follows:
1. Certain Representations.
(a) The Company represents and warrants to Subscriber as follows:
(i) all filings which the Company has made with the Securities
Exchange Commission ("SEC") are correct and accurate in all
material respects and in all material respects state all facts
necessary to make such filings not misleading, and during the
last 12 months all such filings required to be made were timely
made;
(ii) there has been no material adverse change in the business,
assets or financial condition of the Company since the most
recent such filing, except for adverse changes in the Company's
financial condition and results of operations since June 30,
1997;
(iii) except as set forth in Sections 2 and 4(b), the Company has the
full power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby, all proceedings
required to be taken by it or its stockholders to authorize and
to execute, deliver and perform this Agreement and the
agreements relating hereto have been properly taken, and this
Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms;
(iv) neither the execution, delivery nor performance of this
Agreement by the Company will, with or without the giving of
notice or the passage of time, or both, conflict with, result in
a default, right to accelerate or loss of rights under, or
result in the creation of any lien, charge or encumbrance
pursuant to, any provision of the Company's certificate of
incorporation or by-laws or any franchise, mortgage, deed of
trust, lease, license, agreement, understanding, law, rule or
regulation or any order, judgment or decree to which the Company
is a party or by which it may be bound or affected;
(v) the Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its
obligations hereunder; the execution, delivery and performance
of this Agreement and the consummation of the transactions
contemplated hereby have duly authorized and, except as set
forth in Sections 2 and 4(b), all corporate actions and all
other approvals, consents, authorizations and filings have been
taken or made; and, this Agreement, the Preferred Stock and the
Warrants each constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms;
<PAGE>
(vi) the Common Stock (as defined below) is listed on the NASDAQ
National Market and trading in the common stock has not been
suspended; NASDAQ has provided to the Company a letter dated
December 19, 1997, relating to the Exchange, a copy of which
has been provided to Subscriber;
(vii) there is no action, suit, proceeding or investigation pending
or, to the Company's knowledge, currently threatened against
the Company that questions the validity of this Agreement or
the issuance of the Preferred Stock or the Company's Common
Stock (the "Common Stock") issuable upon conversion of the
Preferred Stock or exercise of the Warrants, or the right of
the Company to enter into this Agreement or to consummate the
transactions contemplated hereby; and
(viii) the Company has filed the Certificate of Designation (as
defined below) with the Secretary of State of the State of
Delaware.
2. Exchange of Notes for Shares of Preferred Stock.
(a) The Company hereby agrees to issue to Subscriber in exchange for all
Notes held by Subscriber a number of shares of Preferred Stock equal
to the total principal amount of the Notes held by such Subscriber
divided by $2.00 (the "Exchange"). The Preferred Stock shall have the
rights, preferences and privileges as set forth in a Certificate of
Designation, the form of which is attached as Exhibit A hereto (the
"Certificate of Designation"). Subscriber hereby agrees to the
Exchange, subject to the terms hereof.
(b) The Exchange shall take place upon satisfaction of each of the
following closing conditions: (i) the receipt of the approval of the
issuance of the Preferred Stock in the Exchange (and issuance of
Common Stock upon conversion thereof) from holders of a majority of
the Company's outstanding shares of Common Stock; (ii) the receipt of
the approval of the Certificate Amendment as defined below and Reverse
Split from holders of a majority of the Company's outstanding shares
of Common Stock; (iii) the simultaneous exchange of all of the
outstanding $10.32 million principal amount of Notes due October 1,
1999, for shares of Preferred Stock as contemplated by exchange
agreements substantially in the form of this Exchange Agreement
entered into with each holder of Notes; (iv) all of the
representations and warranties set forth in Section 1 of this
Agreement shall be true as of the Exchange Date (as defined below);
(v) on the Exchange Date and giving effect to the Exchange and the
Reverse Split, the Company shall be in compliance with the listing
requirements of the NASDAQ National Market and (vi) counsel to the
Company shall have delivered to each Subscriber a legal opinion
substantially consistent with the legal opinion delivered in
connection with the Original Subscription Agreement.
(c) The closing of the Exchange shall occur within five days after receipt
by Subscriber of notice from the Company as to the satisfaction of the
closing conditions set forth in Section 2(b) above (the "Exchange
Date"); provided, however, that neither party shall be obligated to
close the Exchange after February 28, 1998. Upon the occurrence of the
Exchange, the Company shall pay to each Subscriber in cash or, if
indicated on the signature page hereto by the Subscriber, in shares of
Series A Preferred Stock at the rate of one share for each two dollars
of accrued interest, the amount of any accrued but unpaid interest on
the Notes through the date of the Exchange.
(d) Upon delivery to Subscriber of all shares of Preferred Stock and
payments, in cash or shares of Preferred Stock, for accrued interest
on the Notes pursuant to the Exchange, the Notes will be canceled and
the Original Subscription Agreement will be superseded by this
Agreement. All Warrants issued pursuant to such Original Subscription
Agreement (the "Warrants") will remain outstanding and in full force
and effect. After the Exchange occurs, this Exchange Agreement
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<PAGE>
will govern the treatment of the Warrants to the extent applicable and
all references in the Warrants to the Original Subscription Agreement
shall instead be interpreted to be references to this Exchange
Agreement. Prior to the Exchange Date, the Notes, the Original
Subscription Agreement and the Warrants shall remain in full force and
effect in accordance with the terms thereof; provided, that the
Company and Subscriber hereby amend Section 2(g)(iii) of all
Convertible Notes held by Subscriber to replace the reference to
"January 31, 1998" in the second sentence thereof with "February 28,
1998." If the Exchange does not occur by February 28, 1998, the Notes
and Warrants shall remain outstanding and the Original Subscription
Agreement shall remain in full force and effect.
3. Registration.
(a) The Company will file, on or before the 2nd business day after the
date hereof, a shelf registration statement on Form S-3 or, if not
available, on such other appropriate Form as is then available (the
"Initial Registration Statement") for the public sale by Subscriber of
9,000,000 shares of Common Stock which are issuable on conversion of
the Notes, including shares of Common Stock issued in payment of
accrued interest (or issuable on conversion of the Preferred Stock
assuming the Exchange), and on exercise of the Warrants. The Company
will file a second registration statement on or before the 2nd
business day after the Exchange Date, on a shelf registration
statement on Form S-3 or, if not available, on such other appropriate
Form as is then available (the "Second Registration Statement") for
the public sale by Subscriber of the number of additional shares of
Common Stock which is equal to 150% of the number of shares of Common
Stock issuable on conversion of the Preferred Stock as of the Exchange
Date minus 9,000,000. In addition, the Company will file, on or before
the 2nd business day after each date on which the Company issues
shares of Preferred Stock in payment of its dividend obligations on
the Preferred Stock, an additional shelf registration statement on
Form S-3 or, if not available, on such other appropriate Form as is
then available (the "Additional Registration Statements," and together
with the Initial Registration Statement and the Second Registration
Statement (the "Registration Statements") for the public sale by
Subscriber of the additional shares of Common Stock which are issuable
on conversion of such Preferred Stock as of the date of the payment of
such dividends. The Company also shall prepare and file such
amendments and supplements to the Registration Statement (or such
additional Registration Statements) as may be necessary to cover
additional shares of Common Stock which, from time to time, may be
issuable upon conversion of the Preferred Stock and the Warrants, such
that a number of shares of Common Stock at least equal to 125% of the
shares of Common Stock that could be issued upon conversion of the
Preferred Stock and exercise Warrants at any given time shall at all
times be registered. The shares to be covered by the Registration
Statements are collectively referred to as the "registered shares."
The Company and Subscriber agree that the Company's obligations to
file and cause to become effective a registration statement under
Sections 3(a) and (b) of the Original Subscription Agreement shall be
satisfied if the Exchange occurs and the Company complies with this
Section 3.
(b) The Company shall use its best efforts to cause the Initial
Registration Statement to become effective not later than the Exchange
Date. The Company shall use its best efforts to cause the Second
Registration Statement, if required to be filed, and each Additional
Registration Statement to become effective not later than 45 days
after each date of filing. The Company shall use its best efforts to
cause the Registration Statements to remain effective for three years;
provided, however, that such three-year period shall be extended for
any amount of time during which such a Registration Statement is not
currently in effect, a stop order is in effect or the common stock is
not listed and trading on the NASDAQ National Market. The registration
shall be accompanied by blue sky clearances in such states as
Subscriber may reasonably request.
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<PAGE>
(c) The Company shall pay all expenses of the registrations hereunder,
other than Subscriber's underwriting discounts and counsel or other
fees.
(d) The Company shall supply to Subscriber a reasonable number of copies
of all registration materials and prospectuses. The Company shall file
with the SEC such amendments and supplements to the Registration
Statements and the prospectus included therein as may be necessary to
keep the registration statements effective and in compliance with the
provisions of the Securities Act. The Company and Subscriber shall
execute and deliver to each other indemnity agreements which are
conventional in registered offerings of this type with provisions
substantially as set forth in Exhibit B hereto. The Subscriber shall
reasonably cooperate with the Company in the preparation and filing of
the Registration Statements and appropriate amendments thereto.
(e) Subscriber may transfer all or any part of its registration rights to
"permitted transferees" of the Preferred Stock or Warrants. A
"permitted transferee" is a person to whom a transfer of more than
20,000 shares of Preferred Stock or Warrants to purchase more than
13,333 shares (2,666 shares, post Reverse Split) is made at one time
in accordance with the terms of this Agreement and who in a written
notice addressed to the transferor and to the Company (i) agrees to
comply with all covenants and agreements set forth in this Agreement,
the Preferred Stock and the Warrants, and (ii) can and does make each
of the representations and warranties set forth in Section 12 of this
Agreement.
(f) Once each Registration Statement is effective, the Company will issue
UNLEGENDED shares of common stock (in form which can be transmitted
electronically if desired by Subscriber):
(i) on conversion of the shares of Preferred Stock and exercise of
the Warrants, whether or not such shares are sold simultaneously
with such conversion or exercise; or
(ii) in exchange for any legended shares of common stock which were
issued on prior conversion of the shares of Preferred Stock or
exercise of the Warrants or payment of dividends.
(g) Should Subscriber from time to time or times give to the Company
notice that it has assigned the shares of Preferred Stock or Warrants
or any portion thereof, the Company shall, within ten business days
after receipt of such notice as provided below, file a supplement to
the appropriate Registration Statement to reflect the name(s) of the
transferee(s) as a selling stockholder. Each notice given to the
Company pursuant to this Section 3 shall be made in writing to the
Company at the address set forth above (or such other address of the
Company as is provided to Subscriber in writing or by public
announcement), Attention: Chief Financial Officer, shall be made by
overnight courier and shall be deemed made upon the date submitted to
such overnight courier.
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<PAGE>
4. Reservation of Shares; Limitation on Conversion.
(a) The Company shall at all times after the Exchange reserve for issuance
on conversion of the Preferred Stock and exercise of the Warrants, 40
million shares (post Reverse-Split) of Common Stock. If the Preferred
Stock and Warrants are convertible or exercisable for more than 40
million shares of Common Stock, the Company shall reserve additional
shares of Common Stock for issuance on conversion of the Preferred
Stock and exercise of the Warrants to the extent such additional
shares of Common Stock are authorized and available. In addition, to
the extent additional shares of Common Stock are required for
conversion but are not authorized and available, the Board of
Directors of the Company shall use its best efforts to cause such
additional shares to become authorized and available.
(b) The number of shares of Common Stock reserved for issuance upon
conversion of the Preferred Stock (the "Reserved Amount") shall be
allocated pro rata among all holders of Preferred Stock based on the
aggregate number of shares of Preferred Stock held by such holders.
Each increase of the Reserved Amount shall be allocated pro rata among
the holders of such Preferred Stock based on the aggregate number of
shares of Preferred Stock held by each holder at the time of the
increase in the Reserved Amount. In the event that a holder shall sell
or otherwise transfer shares of Preferred Stock, each transferee shall
be allocated a pro rata portion of such transferor's Reserved Amount.
(c) The Company agrees to seek the approval of its stockholders as soon as
practicable after the date hereof to increase the number of shares of
Common Stock authorized under the Company's Certificate of
Incorporation from 40,000,000 to 60,000,000 (the "Certificate
Amendment"), and to effect a one for five reverse split of the Common
Stock (the "Reverse Split").
(d) In no event shall a holder of Preferred Stock in any Month (as
hereinafter defined) convert more than the lesser of : (i) 15% of such
holder's Aggregate Series A Holdings (as hereinafter defined) plus any
portion of such holder's Notes or Aggregate Series A Holdings which
could have been, but were not, converted in prior Months after
November 18, 1997; or (ii) 30% of such holder's Aggregate Series A
Holdings. A "Month" as used herein means each of the consecutive 30-
day periods which began on November 18, 1997. The "Aggregate Series A
Holdings" for a holder of Preferred Stock is the original aggregate
number of shares of Preferred Stock obtained by such holder.
Notwithstanding the foregoing, this Section 4(d) shall not limit any
conversion of Preferred Stock which occurs when the Average Price (as
defined in Section E.2 of the Certificate of Designation) during the
last ten trading days prior to conversion exceeds $4.00. The $4.00
amount aforesaid shall be equitably adjusted in case the Company shall
issue common stock as a dividend upon common stock or in payment of a
dividend thereon, shall subdivide the number of outstanding shares of
its common stock into a greater number of shares or shall contract the
number of outstanding shares of its common stock into a lesser number
of shares.
(e) The shares of Preferred Stock shall be convertible at any time only to
the extent that Subscriber would not as a result of such exercise
beneficially own more than 4.99% of the then outstanding Common Stock.
Beneficial ownership shall be defined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended, provided,
however, that the restrictions contained in this sentence shall not
apply to a holder of Preferred Stock (and its permitted transferees,
if any) to the extent such holder indicates its intent to not be
subject to this restriction on the signature page to this Agreement or
upon at least 61 days prior written notice to the Company. The opinion
of counsel to Subscriber shall prevail in the event of any dispute on
the calculation of Subscriber's beneficial ownership.
5. The Company shall use its best efforts promptly after the Exchange Date and
from time to time thereafter,
-5-
<PAGE>
as necessary, to list on NASDAQ all shares of Common Stock which are issuable
upon conversion of the Preferred Stock or on exercise of the Warrant.
6. In the event the Company fails timely to deliver to the holder or to DWAC a
certificate for shares of Common Stock upon conversion of shares of Preferred
Stock, then, without limiting Holder's other rights and remedies, the Company
shall forthwith pay to the Holder an amount accruing at the rate of $1000.00 per
day for each day of such breach for each 50,000 shares of Preferred Stock for
which the timely delivery of a certificate was required, with pro rata payments
for a number of shares more or less than 50,000.
7. The Company covenants and agrees that all shares of Common Stock which may
be issued upon conversion of the Preferred Stock will, upon issuance, be duly
and validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof.
8. If the Exchange occurs, the Company agrees that until the 270th day after
the effective date of the Registration Statement relating to the shares issuable
upon conversion of the Preferred Stock the Company shall not issue any
securities pursuant to a private placement exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"); provided, however,
that nothing in this paragraph shall restrict the Company from offering
securities for the purpose of raising funds to redeem the Preferred Stock
pursuant to its terms as set forth in the Certificate of Designation.
9. The Company represents that neither the issuance of the Preferred Stock (on
the Exchange Date) and the Warrants, nor the conversion or exercise of the
Preferred Stock or the Warrants, will trigger any rights or obligations under
any outstanding securities of the Company.
10. Subscriber represents, warrants and agrees that Subscriber shall not, for
so long as any shares of Preferred Stock owned by Subscriber remain outstanding:
(a) offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any of the Company's Common Stock (each, a
"Sale") that Subscriber does not own as of such date, provided,
however, that no such restriction shall apply to any Common Stock to
be issued to Subscriber upon the conversion of any shares of Preferred
Stock which are converted within ten business days after such Sale or
upon the exercise of any Warrants which are exercised within ten
business days after such Sale; or
(b) directly or indirectly take any action that constitutes illegal
manipulation of the Common Stock of the Company.
11. The Company's obligations under this Agreement and under the Preferred
Stock and Warrants shall not be subject to defense, offset or counterclaim for
any matter or thing, including, without limitation, that Subscriber violated any
provision of Section 10. All claims by the Company against Subscriber shall be
brought by the Company in separate actions for monetary damages only, and
injunctive relief shall not be available.
12. Securities Representations.
(a) Subscriber represents and warrants that it is purchasing the shares of
Preferred Stock solely for investment, solely for its own account and
not with a view to or for the resale or distribution thereof except as
permitted under the Registration Statement or as otherwise permitted
under the Securities Act.
(b) Subscriber understands that it may sell or otherwise transfer the
shares of Preferred Stock or Warrants or the shares issuable on
conversion of the Preferred Stock or exercise of the Warrants only if
such transaction is duly registered under the Securities Act, under
the Registration
-6-
<PAGE>
Statement or otherwise, or if Subscriber shall have received the
favorable opinion of counsel to Subscriber, which opinion shall be
reasonably satisfactory to counsel to the Company, to the effect that
such sale or other transfer may be made in the absence of registration
under the Securities Act, and registration or qualification in every
applicable state. The certificates representing the aforesaid
securities will be legended to reflect these restrictions, and stop
transfer instructions will apply. Subscriber realizes that the
Preferred Stock and Warrants are not a liquid investment.
(c) Subscriber has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the Securities Act) in
evaluating the risks and merits of this investment. Subscriber has the
knowledge and experience to evaluate the Company and the risks and
merits relating thereto.
(d) Subscriber represents and warrants that Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D
promulgated pursuant to the Securities Act, and shall be such on the
date any Preferred Stock is issued to Subscriber; Subscriber
acknowledges that Subscriber is able to bear the economic risk of
losing Subscriber's entire investment in the shares and understands
that an investment in the Company involves substantial risks;
Subscriber has the power and authority to enter into this agreement,
and the execution and delivery of, and performance under this
agreement shall not conflict with any rule, regulation, judgment or
agreement applicable to the Subscriber; and Subscriber has invested in
previous transactions involving restricted securities. Subscriber has
had the opportunity to discuss the Company's affairs with the
Company's officers.
13. ACKNOWLEDGMENT.
THE COMPANY HAS RECEIVED A NOTICE OF DELISTING FROM NASDAQ DUE TO A FAILURE
TO MEET ITS NET TANGIBLE ASSETS REQUIREMENT BASED ON THE COMPANY'S FORM 10-Q FOR
THE QUARTER ENDED SEPTEMBER 30, 1997. THE EXCHANGE WILL ENABLE THE COMPANY TO
MEET THE NET TANGIBLE ASSETS REQUIREMENT. SUBSCRIBER ACKNOWLEDGES RECEIPT OF A
LETTER FROM GORDON BRIDGE, CHIEF EXECUTIVE OFFICER OF THE COMPANY, WHICH SETS
FORTH A SUMMARY OF THE COMPANY'S CORRESPONDENCE WITH NASDAQ.
14. Certain Remedies.
(a) If the effective date of the Initial Registration Statement (the
"Effective Date") has not occurred by February 28, 1998, then, in
addition to the Subscriber's other remedies, the Company shall pay to
Subscriber an amount equal to 1% per month of the principal amount of
the Notes proposed to be converted in the Exchange (or, if less, the
highest rate permitted by law) for the period from February 28, 1998
until the Effective Date.
(b) If the Effective Date has not occurred by April 30, 1998, then, in
addition to the Subscriber's other remedies, the amount stated in (i)
above shall be increased to 2% per month (or, if less, the highest
rate permitted by law) for the period from April 30, 1998 until the
Effective Date.
(c) If the Effective Date has not occurred by June 30, 1998, then, in
addition to the Subscriber's other remedies, the amount stated in (i)
above shall be increased to 3% per month (or, if less, the highest
rate permitted by law) for the period from June 30, 1998 until the
Effective Date.
15. Miscellaneous
This Agreement may not be changed or terminated except by written
agreement. It shall be binding on the parties and on their personal
representatives and permitted assigns. It sets forth all agreements of the
parties, and
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<PAGE>
may be signed in counterparts. It shall be enforceable by decrees of specific
performance (without posting bond or other security) as well as by other
available remedies. This Agreement shall be governed by, and construed in
accordance with, the laws of Delaware. The federal and state courts sitting in
New York, New York shall have exclusive jurisdiction over all matters relating
to this Agreement. Trial by jury is expressly waived.
All notices, requests, service of process, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered (i) on the date personally delivered or (ii) one day after
properly sent by recognized overnight courier, addressed to the respective
parties at their address set forth in this Agreement or (iii) on the day
transmitted by facsimile so long as a confirmation copy is simultaneously
forwarded by recognized overnight courier, in each case addressed to the
respective parties at their address set forth in this Agreement. Either party
hereto may designate a different address by providing written notice of such new
address to the other party hereto as provided above.
1. Expenses.
Except as otherwise set forth herein, each party hereto shall be
responsible for its own expenses with regard to the negotiation and execution of
this Agreement.
This Agreement may be amended by written agreement signed by the Company
and the original Subscriber.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
Dated: ________________
SUBSCRIBER:
Name (print):_______________________
Signature: _________________________
Type or print name: ________________
Address: __________________________
__________________________
__________________________
Fax No.:__________________
Social Security No or EIN: _______________
Principal Amount of Notes: $______________
Shares of Preferred Stock:___________
Interest payable on the Exchange Date in shares of Preferred Stock: yes____;
no_____
Check the following box if Subscriber
desires not to be subject to the restrictions set
forth in Section 4(e): [_]
AGREED:
CONNECT, INC.:
By________________________
Its:______________________
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<PAGE>
Exhibit B
Form Indemnification Provisions
(a) The Company will indemnify each Subscriber, each of its officers
and directors and partners, and each person controlling such Subscriber within
the meaning of Section 15 of the Securities Act, on behalf of which a
registration qualification or compliance has been effected pursuant to this
Section, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Subscriber, each of its officers and directors, and each
person controlling such Subscriber, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Subscriber, controlling person or underwriter and stated
to be specifically for use therein.
(b) Each Subscriber will, if Registrable Securities held by such
Subscriber are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Subscriber, each of its officers and
directors and each person controlling such Subscriber within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Subscribers, such directors,
officers, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Subscriber and stated to be specifically for use therein;
provided, however, that the liability of a Subscriber for indemnification under
this Section shall not exceed the gross proceeds from the offering received by
such Subscriber.
(c) Each party entitled to indemnification under Section (a) or (b)
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section unless
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<PAGE>
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
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<PAGE>
EXHIBIT 99.1
PRESS RELEASE
-------------
MOUNTAIN VIEW, CALIF., December 23, 1997 - As previously reported, in November
1997 CONNECT, Inc. (NASDAQ: CNKT) issued in a private placement $10.32 million
of convertible debt securities (the "Notes"), together with related warrants.
The Company and the holders of the Notes now have agreed to exchange (the
"Exchange") 5,160,000 shares of the Company's Series A Preferred Stock (the
"Preferred Stock") for all $10.32 million principal amount of outstanding Notes,
plus accrued interest. The exchange of the Notes for shares of Preferred Stock
is subject to various closing conditions, including among others the approval of
the Company's stockholders at a special meeting to be held in February 1998. At
the special meeting, the stockholders of the Company also will be asked to
approve a one-for-five reverse stock split and an increase in the number of
authorize shares of Common Stock from 40 million to 60 million. A summary of the
terms of the Notes and the Preferred Stock will be set forth in a Form-8k filed
by the Company with the Securities and Exchange Commission.
Similar to the Notes, each share of Preferred Stock is convertible at the
option of the holder into that number of shares of the Company's Common Stock
equal to the greater of (i) the quotient obtained by dividing $2.00, plus
accumulated but unpaid dividends, by the conversion price or (ii) the quotient
obtained by dividing $2.00, plus accumulated but unpaid dividends, by 80% (60%
after December 15, 1999) of the average closing bid price for the 10 trading
days prior to conversion. The initial conversion price is $2.00 ($1.50 after
December 15, 1999), and is subject to adjustment in the event of issuances of
capital stock at a purchase price of less than $2.00 (other than issuances of
Common Stock to employees of or consultants to the Company), and convertible
securities with a conversion price of less than $2.00 per share, and stock
splits, stock combinations and the like.
An additional term of the Preferred Stock enables holders of Preferred
Stock (in the event of a liquidation event, including certain mergers and sales
of the Company) to receive $1.00, plus accumulated but unpaid dividends, per
share of Preferred Stock held by them prior to any distribution to holders of
shares of the Company's Common Stock. After receipt of the full $1.00 per share,
all remaining assets of the Company will be distributed to holders of shares of
Preferred Stock (on an as-if converted to Common Stock basis, but using 60%,
rather than 80%, of the average closing bid price) and Common Stock ratably
based on the number of shares of stock held by them. The Company is obligated to
file with the Securities and Exchange Commission a registration statement with
respect to the resale of the shares issuable upon conversion of the Notes and
the Preferred Stock and exercise of the Warrants.
In November 1997, The Nasdaq Stock Market, Inc. ("NASDAQ") notified the
Company that the Company's net worth as of September 30, 1997 caused the Company
not to meet NASDAQ's listing requirements for inclusion on The Nasdaq National
Market. Specifically, NASDAQ requires that the Company maintain $4.0 million of
net tangible assets, and the Company's net tangible assets equaled $2.4 million
at September 30, 1997. While the Company completed the Convertible Note
financing in November which increased the Company's cash assets by approximately
$10 million, the Convertible Notes are considered as debt, and as a
<PAGE>
result the financing did not increase the Company's net tangible assets. If the
Convertible Notes are exchange for shares of Preferred Stock, which is
considered as equity for financial accounting purposes, the Company's net assets
will increase and the Company will be in compliance with the NASDAQ net tangible
assets requirements. As a result the Exchange, if approved and completed, allows
the Company to maintain the listing of its Common Stock on the NASDAQ National
Market for so long as the Company continues to comply with NASDAQ's
requirements. If the Exchange is not consummated on or before February 28, 1998,
the Exchange Agreements will terminate and the Convertible Notes will remain
outstanding. In such event, it is likely that the Company's shares of Common
Stock will be delisted from the Nasdaq National Market soon after February 28,
1998.
The securities to be issued by the Company in the Exchange will not be
registered under the Securities Act of 1933, as amended, or any state securities
laws, and may not be offered or sold in the United States absent registration or
an applicable exemption from the registration requirements.
Editor and Analyst Contact
Joe Girata
CONNECT, Inc.
415/254-4000
