<PAGE>
As filed with the Securities and Exchange Commission on March 17, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CONNECT, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0431045
(State of Incorporation) (I.R.S. Employer Identification No.)
CONNECT, INC.
515 ELLIS STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 254-4000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
--------------------
CRAIG D. NORRIS
CHIEF EXECUTIVE OFFICER
CONNECT, INC.
515 ELLIS STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 254-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies to:
ALAN C. MENDELSON
TIMOTHY J. MOORE
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CALIFORNIA 94306
(650) 843-5000
---------------------
Approximate date of commencement of proposed
sale to the public: From time to time after the
effective date of this registration statement.
---------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
Title of Class of Securities to Proposed Proposed
be Registered Amount to be Registered(1) Maximum Offering Maximum Aggregate
Price per Share (2) Offering Price(2) Amount of Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share 1,538,462 shares $4.03 $6,200,001.86 $1,724
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act of 1933, as amended, this
registration statement also covers such indeterminable additional shares as may
become issuable as a result of any future stock splits, stock dividends or
similar transaction.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the Connect, Inc.
common stock as reported on the Nasdaq National Market on March 10, 1999.
-------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this Prospectus is not complete and may be changed. We +
+ may not sell these securities until the Registration Statement filed with +
+ the Securities and Exchange Commission is effective. This Prospectus is not +
+ an offer to sell these securities and is not soliciting an offer to buy +
+ these securities in any state where the offer of sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject To Completion
Prospectus Dated ___________, 1999
[CONNECT, INC. LOGO]
1,538,462 Shares
Common Stock
The selling stockholders, Elliot Bossen and Special Situations Fund III,
L.P. and affiliated investment funds, may sell up to 1,538,462 shares of common
stock of Connect, Inc. We will not receive any proceeds from the sale of shares
by the selling stockholders.
--------------------
Our common stock is listed on the Nasdaq National Market under the symbol
CNKT.
--------------------
We will not be paying any underwriting commissions or discounts in the
offering of these shares.
--------------------
Please see "Where You Can Find More Information" on page 7 for additional
information about us on file with the United States Securities and Exchange
Commission.
We strongly urge you to read and consider this prospectus carefully and in
its entirety, including the matters referred to under "Risk Factors" beginning
at page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ______________, 1999
<PAGE>
ABOUT CONNECT, INC.
The following is a short summary of our business. You should carefully read
the "Risk Factors" section of this prospectus and our Annual Report on Form 10-K
for the year ended December 31, 1998 for more information on our business and
the risks involved in investing in our stock. In addition to the historical
information contained in this prospectus, this prospectus contains forward-
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act that involve risks and uncertainties. Our actual
results could differ materially from our expectations. Factors that could cause
or contribute to such differences are discussed in "Risk Factors" beginning at
page 2 of this prospectus and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" in our Annual
Report.
We provide integration solutions to enable our customers to engage in
Internet-based electronic commerce and help corporations leverage the Internet
to extend their businesses through the emerging network supply chain. Our
MarketStream software applications and Web time-driven professional services
enable Connected Corporations to build open, multi-vendor e-business solutions
that help them to compete effectively in the digital economy using best-of-breed
technologies. We utilize innovative methodologies and advanced technical
expertise to conceptualize, design, develop, and deploy e-business solutions.
This process is facilitated by the use of emerging Internet technologies. This
business strategy allows us to leverage our core competencies and deliver to our
customers effective applications and consulting services solutions.
We historically designed, developed, marketed and supported application
software for Internet-based interactive commerce. In October 1998, we announced
a shift in business direction and focus, to providing Internet systems
integration solution based on our technologies and the technologies of our
industry partners. We also focused on developing and concentrating our
intellectual property around a new version of our MarketStream software
application product. This combined applications, services and intellectual
property strategy is our "ServiceWare" approach to creating e-commerce. This
decision effectively unified our consulting engineering organization and our
software products group into a single consulting services organization providing
Internet systems integration. It also extended our current service business to
emphasize building cross-enterprise e-business solutions.
Our total revenues were approximately $1.4 million for the quarter ended
December 31, 1998 and approximately $6.5 million for the year ended December 31,
1998, compared to revenues of approximately $2.3 million and $9.4 million for
the same periods in the prior year. In addition, we recorded net income of
approximately $39,000 for the quarter ended December 31, 1998 and net loss of
approximately $7.9 million for the year ended December 31, 1998, compared to net
losses of approximately $3.1 million and $14.6 million for the same periods in
the prior year.
We were incorporated in 1987 under the laws of California and
reincorporated under the laws of Delaware in 1996. As used in this prospectus,
the "company" and "Connect" refer to Connect, Inc. (doing business as
ConnectInc.com), a Delaware corporation, and its subsidiaries. Our mailing
address is 515 Ellis Street, Mountain View, California 94043 and our telephone
number is (650) 254-4000.
On February 24, 1998, our stockholders approved a one-for-five reverse
stock split, pursuant to which every five shares of common stock outstanding as
of February 26, 1998 became one share of common stock. Except where otherwise
indicated, the share and per share amounts in this prospectus are adjusted to
reflect the reverse split.
1.
<PAGE>
RISK FACTORS
In evaluating our business, prospective investors should carefully consider
the following risks in addition to the other information in this prospectus or
in the documents referred to in this prospectus. Any of the following risks
could materially adversely affect our business, operating results and financial
condition and result in a complete loss of your investment.
We may Continue to Experience Net Losses. Except for the fourth quarter of
1998, we have not realized a net operating profit in any quarter since we began
our operations. In 1998, 1997 and 1996, we experienced significant negative cash
flow from our operations. If our operating expenses exceed revenues in a given
period, we may continue to experience net losses and negative cash flow from
operations. We may not be able to increase our revenue, or sustain the increase
in revenue that we achieved. In addition, if increases in operating expenses are
not accompanied by increased revenues, our business, results of operations and
financial condition could be negatively impacted.
Our Net Revenues and Operating Results may Fluctuate. Our net revenues and
operating results may fluctuate significantly because of a number of factors,
many of which are outside our control. These factors include:
. our ability to develop, introduce and market new and enhanced versions of
our products on a timely basis
. announcements of new and enhanced versions of products by us or our
competitors
. the length of time required to complete a sale of our products and the
demand for our products
. the pace of development of electronic commerce conducted on the Internet
. the fact that customers may defer purchasing our products in anticipation
of enhancements or new products offered by us or our competitors
. whether existing customers will renew existing service agreements
. software defects and other product quality problems
. our ability to attract and retain key personnel
. the success of our international sales efforts
. changes in the level of operating expenses
. general economic conditions
We may not be Able to Generate or Maintain Sufficient Cash to Fund our
Operations. Since we began our operations, we have incurred net losses and
experienced significant negative cash flow from operations. Based on our current
operating plan, we believe we have adequate cash to fund our operations through
at least the end of 1999. However, our actual cash requirements may exceed what
we have anticipated. We would then have to seek additional sources of cash to
fund our operations. If we issue additional shares of our stock, our
stockholders' ownership may be diluted, or the shares issued may have rights,
preferences or privileges senior to those of our common stock. Additional
financing may not be available to us, or may be available but in terms we cannot
accept. If we are unable to secure additional funds, we may be unable to
continue our operations, develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures, any of which could
have a negative effect on our business, operating results and financial
condition.
We depend on Services Revenue. Services revenue represented a majority of
our total revenue in 1998. We anticipate that services revenue will continue to
account for a substantial majority of our total revenue for the
2.
<PAGE>
foreseeable future. Because services revenue has lower gross margins than
software license revenue, an increase in the percentage of total revenue
represented by services revenue or an unexpected decrease in software license
revenue could have a detrimental impact on our overall gross margins and our
operating results. We subcontract certain product implementation, customer
support and training services to third-party service providers. Revenue from
these third-party service providers generally carries lower gross margins which
may vary from period to period, depending on the mix of revenue from third-party
service providers. Services revenue depends in part on ongoing renewals of
support contracts. If our services revenue is lower than anticipated, our
business, financial condition and results of operations could be adversely
affected. Our ability to increase services revenue will depend in large part on
our ability to increase the scale of our professional services organization. We
may not be able to do so.
We do not know if our Recently Introduced Products or our Future Products
will be Accepted. Although we were founded in 1987, in 1998 we announced a shift
in business direction and focus, to providing Internet-based systems integration
based on technologies from us and from industry partners. We also committed to
developing and concentrating our intellectual property around a new version of
our MarketStream software application product. Accordingly, you should consider
our business in light of the risks, expenses and problems frequently encountered
by companies in an early stage of development, particularly companies in new and
rapidly evolving markets such as the Internet. These risks include:
. lack of acceptance of products and services by target customers
. development of equal or superior products or services by competitors
. failure of Internet-based electronic commerce
. our inability to develop and enhance competitive products or to
successfully market these products
. our inability to identify, attract, retain and motivate qualified personnel
We expect Internet-based applications and systems integration services
to account for most of our revenues for the foreseeable future. As a result, our
net revenue and operating results may fluctuate significantly due to factors
affecting our ability to market and sell Internet-based systems integration
services to new and existing customers, many of which are beyond our control.
These factors include:
. competition
. technological change
. failure of the market for Internet-based packaged applications to develop
as we anticipate
. lack of customer acceptance of these products
. our failure to develop and introduce new and enhanced versions of these
products on a timely basis
Further, if any of our customers are not able to successfully develop and
deploy electronic commerce applications with MarketStream or are not satisfied
with our products or services, our reputation could be damaged, which could
negatively impact our business, operating results and financial condition.
We may not be able to keep Pace with Regulatory and Technological Change.
Our success may, in part, depend upon our ability to develop new products and
provide new services that meet changing customer needs. The market for our
products is characterized by:
. rapidly changing technology
. evolving industry standards and customer requirements
3.
<PAGE>
. emerging competition
. frequent new product and service introductions
As a result, we may be required to change and improve our services and
products in response to changes in operating systems, application and networking
software, computer and communications hardware, programming tools and computer
language technology. If we cannot bring to market new Internet-based services
offerings that keep pace with technology, this could negatively impact our
business, operating results and financial condition. If we cannot successfully
develop MarketStream to meet the requirements of the market, or Market Stream
does not perform as expected, this could negatively impact our business,
operating results and financial condition.
The Time required to engage a client and to Implement Internet-based
systems integration solutions may be Lengthy and Unpredictable. Our services are
complex and expensive and generally involve significant investment decisions by
prospective customers. Accordingly, the engagement of our services is often an
executive-level decision by prospective customers and usually requires us to
engage in a moderate sales cycle to educate prospective customers regarding the
use and benefits of our service and product offerings. As such, the costs
associated with Internet-based systems integration solutions can cause the sales
and implementation cycle to be delayed, whether or not such delays are within
our control, and could negatively affect our business, operating results and
financial condition.
We do not know if Third-Party Technology Licenses will continue to be
available to us. We license some of our technology from third parties, such as a
relational database management system from Oracle, a text search engine from
Fulcrum Technologies Inc., a web server from Netscape, encryption technology
from RSA Data Security, Inc. and other software that is integrated with
internally developed software and used in our software to perform key functions.
Oracle offers products that compete with our products. We do not know if the
third-party technology licenses will continue to be available to us on
commercially reasonable terms, or at all. The loss or inability to maintain any
of these technology licenses could delay the introduction of our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could negatively affect our business, operating results and
financial condition.
Our Expanding Distribution and Sales Channels creates additional risks that
may result in lower net revenue. Historically, we sold products and services
through a direct sales force. In 1998, we announced a shift in business
direction and focus, to providing Internet-based systems and system integration
services based on technologies from us and from industry partners. Our primary
sales and marketing efforts are through innovative uses of the Internet and
strategic partner programs. Our ability to achieve revenue growth in the future
depends on our ability to establish and maintain relationships with software
developers, distributors, resellers and system integrators. Any failure to
expand our direct sales force or other distribution channels could adversely
affect our performance.
Year 2000 Problems may cause an Interruption in our Business. Many existing
computer programs and systems use only two-digit fields to identify the year,
e.g. 85=1985, and they are unable to process date and time information between
the twentieth and twenty-first centuries. Accordingly, computer programs and
software may need to be modified prior to the year 2000 in order to remain
functional. Although we have invested a large amount of time and resources to
address potential Y2K problems, there is no assurance that we will be successful
in our efforts to identify and address all Y2K issues. Failure to complete the
necessary modifications could cause a disruption or failure of such program and
system. See our Annual Report on Form 10-K for the fiscal year ended 1998 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Preparedness" as filed with the SEC on March 16, 1999 for
a more detailed discussion.
We do not know if we will Effectively Compete in the Electronic Commence
Software and Software Implementation Industries. The market for electronic
commerce software and software implementation is relatively new, rapidly
changing and highly competitive. We compete with:
. vendors of prepackaged electronic commerce software
. vendors of software tools for developing electronic commerce applications
4.
<PAGE>
. system integrators
. providers of business application software.
In addition, potential customers may elect to develop their own electronic
commerce solutions. Our current competitors include:
. Viant Corporation
. Scient, Corp.
. The Extraprise Group
. Epicentric, Inc.
. Webridge, Inc.
. Click Interactive, Inc.
. Open Market, Inc.
. BroadVision, Inc.
We also expect additional competition from other companies, including
Microsoft, IBM/Lotus, Oracle Corporation, Interworld and Netscape
Communications, Inc., all of which have announced or released products for
Internet-based electronic commerce or intranet requisitioning. Our potential
competitors include a number of successful client/server applications software
companies, such as Baan Company, PeopleSoft, Inc., Vantive Corporation and SAP
AG, and electronic data interchange solution vendors, including Sterling
Commerce, Inc. and General Electric Information Services Corporation.
Many of these competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and thus
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Also, many current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to our detriment. Such
competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies and offer more attractive terms to
purchasers than us and to bundle their products in a manner that may discourage
users from purchasing products we offer. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We may not be able to compete
effectively with competitors or that the competitive pressures we face will not
negatively affect our business.
We are Dependent on the Success of the Internet. Our services and products
facilitate online commerce over the Internet. The Internet, and online commerce
over the Internet, are at an early state of development and are rapidly
evolving. While the Internet is expected to experience substantial growth in the
number of users and amount of traffic, Internet infrastructure may not continue
to support the increasing demands placed on it by this growth. Break-downs and
slow-downs in Internet traffic may slow expansion of its use. The infrastructure
or complementary services necessary to make the Internet a viable commercial
marketplace may not develop or may not develop in a timely manner.
Demand and market acceptance for online commerce over the Internet is
subject to a high level of uncertainty. This uncertainty is compounded for us
since adequate Internet infrastructure development is necessary in order to
support increased online commerce, which in turn is necessary in order for us to
succeed. If the Internet develops more slowly than expected, our operating
results could be materially adversely affected.
5.
<PAGE>
If the Internet Infrastructure is unable to support our current growth, our
performance may be negatively impacted. The use of our products and services
depends in large part upon the continued development of the infrastructure for
providing Internet access and services. The Internet has experienced, and is
expected to continue to experience, substantial growth in the number of users
and amount of traffic. The Internet infrastructure may not continue to support
the demands placed on it by this growth. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of Internet activity, or due to increased
governmental regulation. Further, the costs of use of the Internet could
increase to a degree that reduces its attraction as a platform for electronic
commerce. As a result, the infrastructure or complementary services necessary to
make the Internet a viable commercial marketplace may not develop into a viable
commercial marketplace for our products and services.
Problems relating to Security, System Disruptions And Computer
Infrastructure could Negatively Affect our Business and the Business of our
Customers. Although we have implemented in our products various security
mechanisms, our products may be vulnerable to break-ins and similar disruptive
problems caused by Internet users. The level of security provided by our
products depends upon the level of security selected by our customers and the
proper configuration and use of the products' security mechanisms. Computer
break-ins and other disruptions would jeopardize the security of information
stored in and transmitted through the computer systems of users of our products,
which may result in significant liability to us and may also deter potential
customers.
The security and privacy concerns of existing and potential customers, as
well as concerns related to computer viruses, may inhibit the growth of the
Internet marketplace generally, and our customer base and revenues in
particular. Our attempts to implement contracts which limit our liability to our
customers, including liability arising from a failure of the security feature
contained in our products, may not be enforceable. We currently do not have
product liability insurance to protect against these risks.
We operate and manage online networks for some of our customers and provide
hosting for certain customers' OneServer, OrderStream, PurchaseStream and
MarketStream applications. These services depend upon our ability to protect the
computer equipment and the information stored in our data center against damage
caused by fire, earthquakes, power loss, telecommunications failures,
unauthorized entry and other similar events. Any such damage or failure that
causes interruptions in our operations could negatively affect the businesses of
our customers, which could expose us to liability.
We may not be able to Maintain the Requirements for Listing on the Nasdaq
National Market. We believe that continued listing on The Nasdaq Stock Market
provides additional prestige for us and enhanced liquidity for our stockholders.
In 1998, The Nasdaq Stock Market informed us that we did not meet the
requirements for the continued listing of our common stock on The Nasdaq
National Market. Specifically, Nasdaq's listing rules require us to maintain net
tangible assets of at least $4 million. With the net proceeds of approximately
$4.0 million from the financing that was completed in January 1999, our net
tangible assets were approximately $6.0 million as of January 31, 1999.
Accordingly, we believe that our net tangible assets currently exceed the
minimum level required for continued listing on The Nasdaq Stock Market.
Nevertheless, in order for us to remain listed on The Nasdaq National
Market, we must continue to meet the Nasdaq continuing listing criteria on an
ongoing basis. We may not be able to maintain compliance with the listing
requirements. The removal of our common stock from listing on The Nasdaq
National Market may have a negative effect on the market price of our common
stock and on the ability of stockholders and investors to buy and sell shares of
the common stock in the public markets.
6.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Our principal executive offices are located at 515 Ellis Street, Mountain
View, California 94043. Our telephone number is (650) 254-4000 and our world
wide web website address is ConnectInc.com. We maintain an Internet home page.
However, nothing on our Internet home page should be considered as part of this
prospectus.
We have filed with the SEC a registration statement on Form S-3 to register
the common stock offered by this prospectus. However, this prospectus does not
contain all of the information contained in the registration statement and the
exhibits and schedules to the registration statement. We strongly encourage you
to carefully read the registration statement and the exhibits and schedules to
the registration statement. We also file annual, quarterly and special reports,
proxy statements and other information with the SEC.
You may inspect and copy such material at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the SEC's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You may also obtain copies of such material from the SEC
at prescribed rates by writing to the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
website at www.sec.gov.
The SEC allows us to "incorporate by reference" the information contained
in documents that we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information in this prospectus supersedes information incorporated by reference
that we filed with the SEC prior to the date of this prospectus, while
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 prior to the
termination of the offer described in this prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998, filed on March 16, 1999, including all material incorporated by reference
therein;
2. Our Current Report on Form 8-K, filed on February 26, 1999, including
all material incorporated by reference therein;
3. Our Current Report on Form 8-K, filed on February 5, 1999, including
all material incorporated by reference therein; and
4. The description of the common stock contained in our registration
statement on Form 8-A.
You may request a copy of these filings, at no cost to you, by writing or
telephoning us at:
Connect, Inc.
Attention: Investor Relations
515 Ellis Street
Mountain View , California 94043
Telephone: (650) 254-4000
Our common stock is quoted on the Nasdaq National Market under the symbol
"CNKT". The last reported sales price of the common stock on the Nasdaq National
Market on ________ ___, 1999 was $_____ per share. You may inspect reports and
other information concerning us at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
7.
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered by the
selling stockholders.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock. We currently
intend to use future earnings to finance the growth and development of our
business and do not anticipate paying any cash dividends in the foreseeable
future.
8.
<PAGE>
SELLING STOCKHOLDERS
All of the shares of our common stock offered by this prospectus are held
by the selling stockholders listed in the table below. The shares are being
registered to permit public secondary trading of the shares, and the selling
stockholders may offer the shares for resale from time to time. The selling
stockholders may sell the shares offered through this prospectus from time to
time at prevailing prices in the over-the-counter market or in privately-
negotiated transactions. We agreed to prepare and file such amendments and
supplements to the registration statement of which this prospectus is a part as
may be necessary to keep the registration statement effective until the earlier
of twenty days following the effective date of the registration statement, such
date as all shares have been resold and such time as all the shares may be
resold within a three-month period by reason of Rule 144 under the Securities
Act.
The following table sets forth the number of shares of common stock
beneficially owned by the selling stockholders as of the date of this prospectus
and the number of shares that may be offered by this prospectus. This
information is based upon information provided to us by the selling
stockholders. Applicable percentage of ownership is based on 14,796,509 shares
of common stock outstanding on March 9, 1999. There are currently no agreements,
arrangements or understanding with respect to the sale of any of the shares.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES BENEFICIALLY
BENEFICIALLY OWNED PRIOR TO THE OWNED AFTER THE
OFFERING (1) OFFERING(2)
------------------------------- SHARES ----------------------
SELLING STOCKHOLDERS SHARES PERCENT OFFERED(2) SHARES PERCENT
- --------------------------------------------- -------------- -------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Special Situations Fund III, L.P. 442,308 2.99% 442,308 --- ---
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Cayman Fund, L.P. 134,615 0.91% 134,615 --- ---
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Private Equity Fund, L.P. 288,462 1.95% 288,462 --- ---
153 East 53rd Street
51st Floor
New York, NY 10022
Special Situations Technology Fund, L.P. 96,154 .065% 96,154 --- ---
153 East 53rd Street
51st Floor
New York, NY 10022
Elliot Bossen 596,923 3.90% 576,923 20,000 0.14%
3100 Tower Boulevard
Suite 1104
Durham, NC 27707
Total 1,558,462 10.53% 1,538,462 20,000 0.14%
</TABLE>
(1) Represents the number of shares beneficially held by the selling
stockholder prior to the offering.
(2) Assumes that each selling stockholder will sell all of the shares set forth
above under "Shares Offered." The selling stockholders may offer all, some or
none of their shares.
9.
<PAGE>
PLAN OF DISTRIBUTION
Under a Common Stock Purchase Agreement between us and the selling
stockholder, dated January 15, 1999, we agreed to register the shares purchased
by the selling stockholders under that agreement. Our registration of the shares
of common stock does not necessarily mean that the selling stockholders will
sell all or any of the shares.
We will pay substantially all expenses incurred in the offering and sale of
the common stock to the public, other than any commissions, concessions and
discounts of underwriters, dealers or agents. These expenses (excluding such
commissions and discounts) are estimated to be $35,000. The Common Stock
Purchase Agreement provides for cross-indemnification of the selling
stockholders and us for losses, claims, damages, liabilities and expenses
arising, under certain circumstances, out of any registration of the common
stock.
The selling stockholders, directly or through agents, brokers, dealers or
underwriters, may sell the shares of common stock described in this prospectus:
(1) on terms to be determined at the time of a sale;
(2) in transactions on the Nasdaq National Market;
(3) in privately negotiated transactions; or
(4) in a combination of these methods of sale.
The selling stockholders may also sell the shares to or through brokers or
dealers. These brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders. We will not
receive any proceeds from the sale of shares by the selling stockholders.
The selling stockholders and any persons who participate in the
distribution of the shares offered by this prospectus may be deemed to be
underwriters within the meaning of the Securities Act. Any discounts,
commissions or concessions received by these underwriters and any provided for
the sale of the shares by them may be considered underwriting discounts and
commissions under the Securities Act. The selling stockholders will be subject
to the applicable provisions of the Exchange Act, and the rules and regulations
of the Exchange Act which provisions may limit the timing of purchases and sales
of any of the common stock by the selling stockholders.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain states the shares may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Cooley Godward LLP, Palo Alto, California, our legal counsel.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule included in our Annual Report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated in
this prospectus by reference. Our financial statements are incorporated by
reference in reliance on their report, given on their authority as experts in
accounting and auditing.
10.
<PAGE>
====================================== ========================================
We have authorized no one to give any 1,538,462 SHARES
information or to make any
representations that are not contained
in this prospectus. You should rely
only on the information incorporated
by reference or provided in this
prospectus. You must not rely on any
unauthorized information. [CONNECT, INC. LOGO]
This prospectus does not offer to sell
or buy any shares in any jurisdiction
where it is unlawful. You should not COMMON STOCK
assume that the information in this
prospectus is accurate as of any date
other than the date on the front of
this document.
_____________________
Table Of Contents
_________________
ABOUT CONNECT, INC.................1
____________
RISK FACTORS.......................2
PROSPECTUS
WHERE YOU CAN FIND MORE
INFORMATION......................7 ____________
USE OF PROCEEDS....................8
DIVIDEND POLICY....................8
SELLING STOCKHOLDERS...............9
PLAN OF DISTRIBUTION..............10
LEGAL MATTERS.....................10
EXPERTS...........................10
_____________________
_____________, 1999
====================================== ========================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will bear no expenses in connection with any sale or other
distribution by the selling stockholders of the shares being registered other
than the expenses of preparation and distribution of this registration statement
and the prospectus included in this registration statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the Securities and Exchange Commission ("SEC") registration fee.
SEC registration fee....................................$1,724
Legal fees and expenses.................................25,000
Accounting fees and expenses.............................5,000
Miscellaneous expenses...................................2,276
TOTAL..................................................$34,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Securities Act"). The registrant's
Certificate of Incorporation and Bylaws provide for indemnification of the
registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
registrant has also entered into agreements with its directors and officers that
will require the registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors to the fullest extent not prohibited by law. In addition, the
registrant carries director and officer liability insurance.
In connection with this offering, the selling stockholders have agreed to
indemnify the registrant, its directors and officers and each such person who
controls the registrant, against any and all liability arising from inaccurate
information provided to the registrant by the selling stockholders and contained
herein.
ITEM 16. EXHIBITS.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the registrant(1)
3.2 Bylaws of the registrant(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate(1)
4.3 Common Stock Purchase Agreement, dated January 15, 1999, between
the registrant and certain purchasers(2)
5.1 Opinion of Cooley Godward LLP(3)
23.1 Consent of Ernst & Young LLP, Independent Auditors(3)
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)(3)
(1) Incorporated by reference to our registration statement on Form S-1
(No. 333-05901), as amended.
(2) Incorporated by reference to our Current Report on Form 8-K filed
on February 4, 1999.
II-1
<PAGE>
(3) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of this offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Mountain View, State of California, on March 16,
1999.
CONNECT, INC.
By: /s/ Craig D. Norris
_________________________________________
Craig D. Norris, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints each of
Gordon J. Bridge and Craig D. Norris his or her true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments or supplements (including
post-effective amendments) to the registration statement on Form S-3, and to
sign any and all additional registration statements relating to the same
offering of securities as those that are covered by the registration statement
that are filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------- ---------------------------------------------- ------------------
<S> <C> <C>
/s/ Gordon J. Bridge Chairman of the Board of Directors March 16, 1999
- ----------------------------------------------
/s/ Greigory Park Vice President of Finance and Administration March 16, 1999
- ---------------------------------------------- and Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Radha R. Basu Director March 16, 1999
- ----------------------------------------------
/s/ Richard H. Lussier Director March 16, 1999
- ----------------------------------------------
/s/ Rory T. O'Driscoll Director March 16, 1999
- ----------------------------------------------
/s/ Craig D. Norris President, Chief Executive Officer and March 16, 1999
- ---------------------------------------------- Director (Principal Executive Officer)
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------
3.1 Restated Certificate of Incorporation of the registrant(1)
3.2 Bylaws of the registrant(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Specimen Stock Certificate(1)
4.3 Common Stock Purchase Agreement, dated January 15, 1999, between
the registrant and certain purchasers(2)
5.1 Opinion of Cooley Godward LLP(3)
23.1 Consent of Ernst & Young LLP, Independent Auditors(3)
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)(3)
(1) Incorporated by reference to our registration statement on Form S-1
(No. 333-05901), as amended.
(2) Incorporated by reference to our Current Report on Form 8-K filed
on February 4, 1999.
(3) Filed herewith.
<PAGE>
EXHIBIT 5.1
OPINION OF COOLEY GODWARD LLP
March 16, 1999
Connect, Inc.
515 Ellis Street
Mountain View, CA 94043
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Connect, Inc. (the "Company") of a Registration Statement on
Form S-3 (the "Registration Statement") with the Securities and Exchange
Commission covering the offering of up to 1,538,462 shares (the "Shares") of the
Company's common stock, par value $0.001 per share ("Common Stock"), in
accordance with the Common Stock Purchase Agreement dated as of January 15, 1999
(the "Agreement"), by and among the Company and the parties thereto.
In connection with this opinion, we have examined the Registration Statement and
related Prospectus, the Company's Second Amended and Restated Certificate of
Incorporation and Bylaws, each as amended to date, and such other documents,
records, certificates, memoranda and other instruments as we deem necessary as a
basis for this opinion. We have assumed the genuineness and authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies thereof, and the due execution and delivery
of all documents where due execution and delivery are a prerequisite to the
effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Cooley Godward LLP
/s/ Timothy J. Moore
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Connect, Inc. for
the registration of 1,538,462 shares of its common stock and to the
incorporation by reference therein of our report dated January 25, 1999, with
respect to the financial statements and schedule of Connect, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
San Jose, California
March 15, 1999
