<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K/A
---------------------------
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number 000-20873
CONNECT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-0431045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
515 Ellis Street, Mountain View, CA 94043-2242
(Address of principal executive offices) (Zip code)
(650) 254-4000
(Registrant's Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
common stock, $.001 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [x]
As of March 9, 1999 there were 14,796,509 shares of the registrant's common
stock outstanding (as adjusted to reflect the one-for-five reverse stock split
effected in February, 1998), and the aggregate market value of such shares held
by non-affiliates of the registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on March 9, 1999) was approximately $52.2
million. Shares of the registrant's common stock held by each executive
officer, director and holder of five percent or more of the registrant's common
stock outstanding as of March 9, 1999 have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
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<PAGE>
This filing amends and supplements the Annual Report on Form 10-K filed
with the Securities and Exchange Commission (the "SEC") on March 16, 1999 by
Connect, Inc. (the "Company") (the "Form 10-K"). The purpose of this filing is
to add information required to be included in Items 10-13 of the Form 10-K and
add an exhibit required to be included in Item 14.
PART III
Item 10. Directors and Executive Officers of the Company
IDENTIFICATION OF DIRECTORS
The names of the current directors, their ages (as of December 31,
1998) and certain information about them are set forth below:
PRINCIPAL OCCUPATION/ DIRECTOR
NAME AGE POSITION HELD WITH THE COMPANY SINCE
Radha R. Basu...............49 General Manager, Electronic Business 1999
Software Division, Hewlett
Packard Corporation
Gordon J. Bridge............56 Chairman of the Board of Directors 1995
of the Company
Richard H. Lussier..........61 Retired 1992
Craig D. Norris.............51 Chief Executive Officer and 1998
President of the Company
Rory T. O'Driscoll..........34 Principal, Bankamerica Ventures and 1995
Vice President, BA Venture
Partners I
Each director serves until his or her successor is elected,
generally at the next annual meeting of stockholders.
Radha R. Basu became a member of the Board of Directors of the
Company in March 1999. Ms. Basu joined Hewlett Packard Corporation ("HP") in
1978 as a research & development engineer in HP's laboratories. She has held a
number of positions with HP since joining the company including most recently,
General Manager of the Electronic Business Software Division. Ms. Basu
currently serves as a director of SEEC, Inc. a computer software company. Ms.
Basu holds a bachelor of engineering degree from the University of Madras and
a master's degree in Electrical Engineering and Computer Science from the
University of Southern California.
Gordon J. Bridge joined the Company in November 1995 as the Chairman
of the Board of Directors and served as President and Chief Executive Officer
of the Company from April 1997 to April 1998. Currently, he is Chairman of the
Board and, since April 1998, a consultant to the Company. Since November 1995
Mr. Bridge has also served as the chief business development officer of the
Company. Since January 1, 1998, Mr. Bridge has served as Chairman and Co-Chief
Executive Officer of Paradigm Computer Systems, a private Company
headquartered in Chalfort, Pennsylvania. From November 1995 to April 1997, Mr.
Bridge was an Executive Vice President and director of Quaestus Management
Corporation ("Quaestus"), a venture capital investment and private equity fund
management company, which funds are stockholders of the Company, although Mr.
Bridge does not hold an equity interest in the Quaestus funds. From 1988 to
1995, Mr. Bridge held executive management positions with AT&T Corporation, a
telecommunications company, including President of AT&T Computer Systems,
President of AT&T EasyLink Services, President of Consumer Interactive
Services and most recently Vice President, Corporate Strategy responsible for
Emerging Services and Products. Prior to joining AT&T Corporation in 1988, he
served for 23 years with IBM Corporation in various positions, including Vice
President of Marketing and Vice President of U.S. Sales. Mr. Bridge is a
director of ARI Network Services, Inc., an electronic commerce services
provider. Mr. Bridge holds a B.S. in Mathematics from Bradley University.
Richard H. Lussier became a director of the Company in June 1992.
Until September 1996, when Mr. Lussier retired, he was President and Chief
Executive Officer of Siemens Nixdorf Information Systems Inc., a computer
company and a subsidiary of Siemens Nixdorf Informationssysteme AG ("Siemens
Nixdorf"). From November 1986 to March 1995 he was Chairman and Chief
Executive Officer of Pyramid Technology Corporation, a computer company, which
was acquired by Siemens Nixdorf in March 1995. Mr. Lussier holds a B.A. in
Economics from College of the Holy Cross and completed coursework at Boston
College Graduate School of Business.
Craig D. Norris joined the Company in January 1996 as Vice President
of Professional Services. In July 1997 he
2.
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was promoted to the position of Executive Vice President of Services and
Operations and in April 1998 to the positions of Chief Executive Officer and
President. In addition, in April 1998, Mr. Norris was appointed to the
Company's Board of Directors. Prior to joining the Company, Mr. Norris was a
management consultant with Gemini Consulting Inc., a consulting firm, from
October 1992 to December 1995. From October 1988 to October 1992, Mr. Norris
was Vice President, West Area at Cap Gemini America, a consulting firm. Mr.
Norris holds a B.A. in Economics from Macalester College and an M.B.A. from
Fairleigh Dickenson University.
Rory T. O'Driscoll became a member of the Board of Directors of the
Company in December 1995. Mr. O'Driscoll is a Principal of BankAmerica
Ventures, a venture capital firm and through its managed investment funds a
stockholder of the Company, and a General Partner of BA Venture Partners I.
Prior to joining BankAmerica Ventures in September 1993, Mr. O'Driscoll served
in the Corporate Development department of BankAmerica Corporation from March
1992 to September 1993. Before his employment with BankAmerica Corporation, he
worked as a financial advisor to a number of privately-held companies in the
United Kingdom from March 1991 to December 1991. Mr. O'Driscoll also serves as
a director of several private companies. Mr. O'Driscoll holds a B.Sc. in
Economics from the London School of Economics.
IDENTIFICATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
current executive officers of the Company, including (as of December 31, 1998)
their ages:
NAME AGE POSITION
---- --- --------
Gordon J. Bridge.......... 56 Chairman of the Board
Lucille Hoger............. 45 Chief Operating Officer
Greigory Park............. 41 Chief Financial Officer
Craig D. Norris........... 51 President, Chief Executive Officer
Gordon J. Bridge joined the Company in November 1995 as the Chairman
of the Board of Directors and served as President and Chief Executive Officer
of the Company from April 1997 to April 1998. Currently, he is Chairman of the
Board and, since April 1998, a consultant to the Company. Since November 1995
Mr. Bridge has also served as the Chief Business Development Officer of the
Company. From January 1, 1998 through March 31, 1998, Mr. Bridge served as
Chairman and Co-Chief Executive Officer of Paradigm Computer Systems, a private
company headquartered in Chalfort, Pennsylvania. From November 1995 to April
1997, Mr. Bridge was an Executive Vice President and Director of Quaestus
Management Corporation ("Quaestus"), a venture capital investment and private
equity fund management company, which funds are stockholders of the Company,
although Mr. Bridge does not hold an equity interest in the Quaestus funds. From
1988 to 1995, Mr. Bridge held executive management positions with AT&T
Corporation, a telecommunications company, including President of AT&T Computer
Systems, President of AT&T EasyLink Services, President of Consumer Interactive
Services and most recently Vice President, Corporate Strategy responsible for
Emerging Services and Products. Prior to joining AT&T Corporation in 1988, he
served for 23 years with IBM Corporation in various positions, including Vice
President of Marketing and Vice President of U.S. Sales. Mr. Bridge is a
director of ARI Network Services, Inc., an electronic commerce services
provider. Mr. Bridge holds a B.S. in Mathematics from Bradley University.
Lucille Hoger joined the Company in January 1996 as Director of
Professional Services. In October 1998 she was promoted to Chief Operating
Officer of the Company. Prior to joining the Company, from 1993 to 1996, Ms.
Hoger was a principal with Gemini Consulting. Ms. Hoger's industry experience
includes consumer products, higher education, government, technology, and
oil/gas/chemicals. Ms. Hoger holds a BA in Accounting from Southwest Texas
State University.
Greigory Park joined the Company in April 1998 as Vice President of
Finance. In September 1998 he was promoted to Chief Financial Officer of the
Company. Prior to joining the Company, from 1994 through 1998, Mr. Park was
Corporate Controller for International Microcomputer Software, Inc., a leading
developer and publisher of visual productivity software for businesses and
consumers, and Copart Inc., a national provider of salvage vehicle auction
services. Mr. Park holds an MBA from St. Mary's College and a BSC from Santa
Clara University.
Craig D. Norris joined the Company in January 1996 as Vice President
of Professional Services. In July 1997 he was promoted to the position of
Executive Vice President of Services and Operations and in April 1998 to the
positions of Chief Executive Officer and President. In addition, in April
1998, Mr. Norris was appointed to the Company's Board of Directors. Prior to
joining the Company, Mr. Norris was a management consultant with Gemini
Consulting Inc., a consulting firm, from October 1992 to December 1995. From
October 1988 to October 1992, Mr. Norris was Vice President, West Area at Cap
Gemini America, a consulting firm. Mr. Norris holds a B.A. in Economics from
Macalester College and an M.B.A. from Fairleigh Dickenson University.
3.
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COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of common stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company and written representations that no
other reports were required, during the fiscal year ended December 31, 1998,
all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent beneficial owners were complied with.
Item 11. Executive Compensation
COMPENSATION OF DIRECTORS
The Company's nonemployee directors are eligible to receive stock
option grants pursuant to the Company's 1996 Directors' Stock Option Plan (the
"Directors' Plan") and 1996 Stock Option Plan. Except as described below,
directors do not otherwise receive compensation for their service as
directors, except that non-employee directors are reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings of the Board of
Directors and its committees.
The Directors' Plan provides for the grant of nonstatutory stock
options to nonemployee directors of the Company. The Directors' Plan provides
that each person who first becomes a nonemployee director of the Company after
the date of effectiveness of the Company's initial public offering will be
granted an option to purchase 4,000 shares of common stock (a "First Option")
on the date on which the optionee first becomes a nonemployee director of the
Company. Thereafter, on the date of each annual meeting of the Company's
stockholders following which a nonemployee director is serving on the Board of
Directors, each such nonemployee director will be granted an option to
purchase 1,000 shares of common stock, provided that on such date, he or she
shall have served on the Company's Board of Directors for at least three
months prior to the date of such annual meeting.
Mr. Bridge, Chairman of the Company's Board of Directors, entered
into a consulting relationship with the Company in April 1998 pursuant to
which he receives cash compensation of $18,750 per month. Upon the
termination of this arrangement at the end of March 1999, Mr. Bridge was
retained as a consultant to the Company for an additional six months and will
receive cash compensation of $8,000 per month. For a full description of the
terms of Mr. Bridge's consulting arrangement with the Company, see "Employment
Contracts, Termination of Employment and Change-in-Control Arrangements --
Employment Agreements."
4.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation
The following table shows for the fiscal years ended December 31,
1998, 1997 and 1996, compensation awarded or paid to, or earned by, (i) all
individuals who have served as the Company's Chief Executive Officer during
1998 (Mr. Bridge and Mr. Norris), (ii) the Company's other most highly
compensated executive officers at December 31, 1998 (Ms. Hoger), and (iii) the
two individuals that would have otherwise been listed pursuant to (ii) except
that they were not executive officers at December 31, 1998 (Mr. Foster and Mr.
Girata) (collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Principal Salary Bonus(1) Compensation Awards Options/ LTIP Payouts Compensation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gordon J. Bridge (2) 1998 $ 68,366 $ 23,125 $ - $ - 85,000 $ - $ 84,127
Chairman of the 1997 $206,251 $ 45,000 $ - $ - 124,821 $ - $ -
Board, Former 1996 $150,000 $ 87,344 $ - $ - 30,000 $ - $ -
President and
Chief Executive
Officer
- --------------------------------------------------------------------------------------------------------------------------------
Barton S. Foster (3) 1998 $ 96,360 $ 51,705 $ - $ - - $ - $ 12,900
Former Executive 1997 $159,583 $ 53,266 $ - $ - 19,999 $ - $ -
Vice President of 1996 $110,981 $ 21,875 $ 15,000(4) $ - - $ - $ -
Sales and Marketing
- --------------------------------------------------------------------------------------------------------------------------------
Joseph G. Girata(5) 1998 $151,422 $ 35,892 $ - $ - 140,000 $ - $ -
Former Chief 1997 $145,000 $ 24,034 $ - $ - 50,248(6) $ - $ -
Financial Officer 1996 $ 78,526 $ 5,907 $ - $ - 35,000(7) $ - $ -
- --------------------------------------------------------------------------------------------------------------------------------
Craig D. Norris (8) 1998 $208,750 $ 42,891 $ - $ - 842,000(9) $ - $ -
President and Chief 1997 $150,000 $ 16,250 $ 8,522(10) $ - 15,000 $ - $ -
Executive Officer 1996 $140,000 $ 46,020 $ - $ - 29,000 $ - $ -
- --------------------------------------------------------------------------------------------------------------------------------
Lucille Hoger(11) 1998 $166,320 $ 35,522 $ - $ - 158,028(12) $ - $ -
Chief Operating 1997 $119,722 $ 16,725 $ - $ - 13,828 $ - $ -
Officer 1996 $125,493 $ 15,000 $ - $ - 7,720 $ - $ -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
(1) Includes bonuses paid in January of the next year based upon the
individual's performance in the indicated years.
(2) In April 1998, Mr. Bridge resigned as President and Chief Executive
Officer of the Company. Mr. Bridge continues to serve as the
Company's Chairman of the Board, a position he has held since
November 1995.
(3) Mr. Foster resigned as an officer of the Company in April 1998.
(4) Represents amounts paid as signing bonus in 1996.
(5) In September 1998, Mr. Girata resigned as Chief Financial Officer
of the Company and is no longer an executive officer of the
Company.
(6) Includes a grant of a new option to purchase 10,000 shares and a
grant of options to purchase 40,248 shares of common stock that was
made pursuant to a repricing program whereby outstanding options
for an equal number of shares having higher exercise prices were
canceled and new options having an exercise price of $8.125 were
issued in their place. The vesting terms of such repriced options
did not change. See "Ten-Year Option Repricings" for further
details on this repricing.
(7) Represents 35,000 shares of common stock issuable upon exercise of
an option with an original purchase price of $48 per share, which
option was exchanged in September 1996 for a new option to purchase
35,000 shares with an exercise price of $30.625 per share. See
"Ten-Year Option Repricings" for further details on this repricing.
(8) Mr. Norris became Chief Executive Officer and President of the
Company in April 1998.
(9) Includes 842,000 shares subject to stock options re-granted
pursuant to option repricing in November 1998.
(10) Represents amounts paid as commissions in 1997.
(11) Ms. Hoger became Chief Operating Officer of the Company in
October 1998.
(12) Includes 158,028 shares subject to stock options re-granted
pursuant to option repricing in November 1998.
5.
<PAGE>
Mr. Norris and the other executive officers of the Company are
entitled to cash and option acceleration benefits relating to a change of
control of the Company pursuant to Change of Control Agreements between such
officers and the Company. See "Certain Relationships and Related Transactions."
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1989
Stock Option Plan and 1996 Stock Option Plan (the "Incentive Plans"). As of
March 10, 1999, options to purchase a total of 1,816,301 shares were outstanding
under the Incentive Plans and options to purchase 982,816 shares remained
available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by, and held at year
end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
--------------------------- Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Exercise Appreciation for
Options Employees Or Base Option Term(2)
Granted In Fiscal Price Expiration -----------------------
Name (#) Year(1) ($/Sh) Date 5% ($) 10% ($)
---------- ---------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Gordon J. Bridge(3) 79,999 3.18% 4.375 April 2008 130,310 207,497
5,000 0.20% 2.063 May 2008 8,144 12,969
Barton S. Foster(4) - - - - - -
Joseph G. Girata(5) - - - - - -
Craig D. Norris(6) 20,000(7) 0.79% .50 April 2008 32,578 51,875
780,000(7) 30.99% .50 May 2008 1,270,538 2,023,119
15,000(7) .60% .50 July 2007 24,433 38,906
10,000(7) .40% .50 April 2006 16,289 25,937
17,000(7) .68% .50 December 2005 27,691 44,094
Lucille Hoger(8) 10,000(7) 0.40% .50 April 2008 18,289 25,837
130,000(7) 5.16% .50 May 2008 211,756 337,187
6,000(7) .24% .50 December 2007 9,773 15,562
2,000(7) .08% .50 November 2007 3,258 5,187
4,028(7) .16% .50 April 2007 6,561 10,448
6,000(7) .24% .50 January 2006 9,773 15,562
</TABLE>
- ---------------------------------
(1) Based on options to purchase an aggregate of 2,517,339 shares granted to
employees (including employee directors) during the fiscal year ended
December 31, 1998 (including 1,122,950 options granted in November 1998
pursuant to option repricing, see "Ten-Year Option Repricing"). The
foregoing total excludes options granted to consultants and nonemployee
directors. There were no stock appreciation rights granted during 1998.
(2) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation of the market price per share from the date of grant to the end
of the option term. Actual gains, if any, on stock option exercise are
dependent upon a number of factors, including the future performance of the
Company's common stock and the timing of option exercises, as well as the
optionee's continued employment through the vesting period. There can be no
assurance that the amounts reflected in this table will be achieved.
(3) In April 1998, Mr. Bridge resigned as President and Chief Executive Officer
of the Company. Mr. Bridge continues to serve as the Company's Chairman of
the Board, a position he has held since November 1995.
(4) Mr. Foster resigned as an officer of the Company in April 1998.
6.
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(5) In September 1998, Mr. Girata resigned from his position as Chief Financial
Officer of the Company and is no longer an executive officer of the Company.
(6) Mr. Norris became Chief Executive Officer and President of the Company in
April 1998.
(7) Such stock options granted pursuant to option repricing in November 1998.
(8) Ms. Hoger became Chief Operating Officer of the Company in October 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Unexercised Unexercised In-the-
Underlying Money Options at
Shares Options at FY-End FY-End ($)
Acquired On Value Realized (#) Exercisable/ Exercisable/
Name Exercise (#) ($)(1) Unexercisable Unexercisable (2)
----------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Gordon J. Bridge(3)................... 133,395 449,974 119,622/25,803 $311/$3,435
Barton S. Foster(4)................... 0 0 0/0 $0/$0
Joseph G. Girata(5)................... 0 0 0/0 $0/$0
Craig D. Norris(6).................... 0 0 268,242/573,758(7) $603,545/$1,290,956(7)
Lucille Hoger(8)...................... 0 0 53,532/104,496(9) $ 120,447/$235,116(9)
</TABLE>
- -------------------------------
(1) This amount represents the market value of the underlying securities on the
exercise date minus the exercise price of such options.
(2) Based on the $2.75 per share closing price of the Company's common stock on
The Nasdaq National Market on December 31, 1998, less the exercise prices
(3) In April 1998, Mr. Bridge resigned as President and Chief Executive Officer
of the Company. Mr. Bridge continues to serve as the Company's Chairman of
the Board, a position he has held since November 1995.
(4) Mr. Foster resigned as an officer of the Company in April 1998.
(5) In September 1998, Mr. Girata resigned from his position as Chief Financial
Officer of the Company and is no longer an executive officer of the Company.
(6) Mr. Norris became Chief Executive Officer and President of the Company in
April 1998.
(7) Substantially all of Mr. Norris' stock options are subject to a lock-up
agreement which expires in September 1999.
(8) Ms. Hoger became Chief Operating Officer of the Company in October 1998.
(9) Substantially all of Ms. Hoger's stock options are subject to a lock-up
agreement which expires in September 1999.
7.
<PAGE>
TEN-YEAR OPTION REPRICINGS
In order to reincentivize its employees, the Board of Directors of the
Company, upon recommendation of the Compensation Committee, approved in November
1998 an option repricing program pursuant to which employees could surrender
options granted by the Company with an exercise price greater than $0.50 per
share and receive in place of the surrendered options, new options with an
exercise price of $0.50 per share, the fair market value of the Company's stock
on the date of Board approval. The new options issued pursuant to this
repricing program were subject to the same vesting provisions as the surrendered
options. Options representing 1,122,950 shares of common stock were repriced.
The following table sets forth certain information as of December 31,
1998 with respect to the repricing of certain stock options held by the
Company's executive officers since the Company's initial public offering.
<TABLE>
<CAPTION>
Number of Market Length of
Securities Price of Exercise Original
Underlying Stock at Price at Option Term
Options Time of Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Amended Amendment Amendment Price Repricing or
Name Date (#) ($) ($) ($) Amendment
---- ---- ---------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph G. Girata(1)........ 4/14/97(3) 13,060 8.125 30.625 8.125 110 mos.
Former Chief 4/14/97(3) 21,939 8.125 30.625 8.125 110 mos.
Financial Officer 4/14/97(3) 4,391 8.125 31.875 8.125 113 mos.
4/14/97(3) 858 8.125 31.875 8.125 113 mos.
9/10/96(2) 35,000 30.625 48.00 30.625 117 mos.
Craig Norris............... 11/13/98 17,000 0.500 2.500 0.500 85 mos.
President and Chief 11/13/98 10,000 0.500 2.500 0.500 89 mos.
Executive Officer 11/13/98 15,000 0.500 11.250 0.500 103 mos.
11/13/98 20,000 0.500 1.312 0.500 113 mos.
11/13/98 780,000 0.500 2.063 0.500 114 mos.
Lucille Hoger.............. 11/13/98 6,000 0.500 2.500 0.500 85 mos.
Chief Operating Officer 11/13/98 4,028 0.500 8.125 0.500 89 mos.
11/13/98 2,000 0.500 7.188 0.500 108 mos.
11/13/98 6,000 0.500 5,470 0.500 109 mos.
11/13/98 10,000 0.500 1.312 0.500 112 mos.
11/13/98 130,000 0.500 2.063 0.500 113 mos.
Victor L. Fischer(4)....... 4/14/97(3) 19,999 8.125 31.875 8.125 113 mos.
Former Vice President
of Management Information
Services
</TABLE>
(1) In September 1998, Mr. Girata resigned from his position as Chief
Financial Officer of the Company and is no longer an executive officer of
the Company.
(2) This option grant to Mr. Girata was pursuant to a repricing program
approved by the Compensation Committee of the Board of Directors in
September 1996 that allowed employees to surrender outstanding options
with exercise prices of $48.00 per share or greater and to receive in the
place of such surrendered options new options with an exercise price of
$30.625 per share, the fair market value of the Company's stock on the
date the repricing program was approved. The new options are subject to
the same vesting schedule as the surrendered options. Options
representing 163,334 shares of common stock were repriced pursuant to this
repricing program.
(3) In April 1997, the Board approved a repricing program pursuant to which
employees could surrender options granted by the Company between May 1996
and March 1997 having exercise prices greater than $15.00 per share and
receive in place of the surrendered options, new options having an
exercise price of $8.125 per share, the fair market value of the
Company's stock on the date of Board approval. The new options issued
pursuant to the 1997 repricing program were subject to the same vesting
provisions as the surrendered options. Options representing 166,708
shares of common stock were repriced.
(4) Mr. Fischer resigned from his position as an executive officer of the
Company in January 1998.
8.
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Employment Agreements
In connection with Mr. Bridge's appointment in April 1997 as the Company's
Chief Executive Officer and President, Mr. Bridge and the Company entered into
an agreement (the "1997 Letter") providing that Mr. Bridge would receive an
annual salary for fiscal 1997 of $225,000 and be eligible to receive a bonus,
based on the achievement of certain financial objectives, of up to $285,000.
Actual amounts paid to Mr. Bridge during 1997 are as reflected in the Summary
Compensation Table. In addition, pursuant to the 1997 Letter, Mr. Bridge was
granted an option to purchase 79,999 shares of the Company's common stock at an
exercise price of $6.25 per share, the fair market value of such stock on the
grant date. Pursuant to the terms of this option, 12.5% of the shares issuable
upon exercise of the option were to vest in October 1997, with the remainder of
the shares vesting in equal monthly installments thereafter through the fourth
anniversary of the grant date. In July 1997, the Compensation Committee of the
Board of Directors amended the vesting terms of this option grant to Mr. Bridge
such that 16.67% of the shares issuable on exercise became vested in October
1997, with the remainder of the shares vesting in equal monthly installments
thereafter through the third anniversary of the grant date. The 1997 Letter
also provided that the Company would loan Mr. Bridge $150,000 pursuant to a full
recourse, three-year promissory note to which interest at the then-current
minimum applicable federal rate would apply. The 1997 Letter provides that,
should the Company terminate Mr. Bridge without cause, he would be entitled to
continue working as a consultant to the Company for a period of one year
following such termination and that the option described above would continue to
vest through such consultancy period. In addition, the 1997 Letter provides that
certain performance objectives set forth in stock option agreements relating to
options to purchase an aggregate of 30,000 shares issued to Mr. Bridge in
January 1996 and April 1996 had been achieved and that, pursuant to the terms of
such option agreements, the vesting schedules for the options converted from a
72-month to a 48-month schedule.
In January 1998, the Company and Mr. Bridge entered into an agreement (the
"1998 Letter") pursuant to which Mr. Bridge would receive an annual salary for
fiscal 1998 of $225,000 and be eligible to receive a performance bonus, based
upon the Company's achievement of certain financial objectives, of up to
$200,000. In addition, Mr. Bridge would be eligible to receive a strategic
bonus, payable upon the achievement of certain strategic objectives set by the
Board of Directors, of up to $500,000 during fiscal 1998. Actual amounts paid
to Mr. Bridge during 1998 are as reflected in the Summary Compensation Table.
Mr. Bridge was granted an option to purchase 79,999 shares of the Company's
common stock in January 1998 pursuant to the 1998 Letter, which options were to
vest in equal monthly installments over a three-year period. The 1998 Letter
also provides that, in the event the Company is acquired or merges with another
corporation during 1998, the Company would forgive its loan to Mr. Bridge in the
principal amount of $150,000 plus all accrued interest.
In April 1998, Mr. Bridge resigned his positions as Company's Chief
Executive Officer and President. He continues to serve as its Chairman of the
Board. In connection with his resignation as Chief Executive Officer and
President and pursuant to the 1997 Letter, Mr. Bridge entered into an agreement
with the Company whereby he would remain as a consultant to the Company through
March 1999. Pursuant to this agreement, Mr. Bridge would receive through March
1999 an amount equal to his regular monthly salary prior to his resignation
($18,750), acceleration of the exercisability of certain options to purchase
69,000 shares of the Company's common stock, continued vesting of other unvested
options and reimbursement for certain business expenses associated with his
consulting relationship. Upon the termination of this arrangement at the end of
March 1999, Mr. Bridge was retained as a consultant to the Company for an
additional six months and will receive cash compensation of $6,770.83 per month.
In addition, the Company has agreed to forgive 50% of the total principal and
outstanding interest of the loan described above in exchange for Mr. Bridge's
remaining a consultant to the Company and, if Mr. Bridge achieves certain
specified goals, he may be entitled to forgiveness of the remainder of
outstanding principal and interest on his loan.
In April 1998, the Company entered into an employment letter with Craig
Norris in connection with his appointment as the Company's President and Chief
Executive Officer. Pursuant to the terms of this letter agreement, Mr. Norris
was to receive an annual salary of $225,000 for 1998 and was to be eligible for
a bonus, payable upon the Company's achievement of certain quarterly and annual
financial objectives, of up to $150,000. The employment letter also provides
that Mr. Norris was to be eligible to receive a strategic bonus, payable upon
the achievement of certain strategic objectives set by the Board of Directors
during fiscal 1998 in an amount to be determined by the Board. Actual amounts
paid to Mr. Norris during 1998 are as reflected in the Summary Compensation
Table. In addition, on May 28, 1998, Mr. Norris received an option to purchase
780,000 shares of common stock at an exercise price of $2.063 per share, which
vests over 24 months.
9.
<PAGE>
Change-in-Control Arrangements
In June 1997, the Company entered into Change of Control Agreements with
each of Gordon Bridge, Joseph Girata and Craig Norris. In April 1998, pursuant
to Mr. Bridge's resignation as Chief Executive Officer and President of the
Company, his Change of Control Agreement was terminated. In April 1998, Lucille
Hoger, the Company's newly appointed Vice President of Professional Services,
entered into a Change of Control Agreement and Mr. Norris's Change of Control
Agreement was amended. In September 1998, pursuant to Mr. Girata's resignation
as Chief Financial Officer of the Company, his Change of Control Agreement was
terminated. In September 1998, Greigory Park, the Company's newly appointed
Chief Financial Officer, entered into a Change of Control Agreement. Pursuant to
the terms of such Change of Control Agreements, as amended, each executive
officer will be entitled to a cash payment equal to 2.99 times such officer's
total compensation during fiscal year 1998 upon certain change of control
transactions involving the Company (generally, a merger or acquisition of the
Company). Such cash payments are subject to reduction in certain circumstances
and would be reduced to zero if the aggregate value to be received by the
Company's stockholders in connection with such change of control transaction
were equal to or less than $25 million. Each executive officer would also be
entitled to acceleration of vesting of all options held by him or her in the
event of a hostile takeover of the Company. In addition, if such officer were to
be terminated involuntarily within two years of a change of control, he or she
would be entitled for a period of twelve months following such termination to
continuation of his or her monthly salary, payment on a monthly basis of one-
twelfth of the performance bonus to which he or she would have been entitled
assuming full achievement of all performance objectives of the Company for such
year, acceleration of vesting of all stock options held at the time of
termination, certain benefits under the Company's health and other benefit
plans, and outplacement services not to exceed $15,000.
10.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers (including the Named Executive Officers) during
the fiscal year ended December 31, 1998. The Committee is responsible for
establishing and monitoring the general compensation policies and compensation
plans of the Company, as well as the specific compensation levels for executive
officers. The Committee also administers the Company's stock plans and
determines the terms and conditions of stock option grants. Executive officers
who are also directors have not participated in deliberations or decisions
involving their own compensation.
General Policies
The Company's compensation policies are designed to link the executive
officers' compensation to the annual and long-term performance of the Company
and to provide compensation that is competitive with the compensation paid to
other executives in the industry and that will attract and retain superior
talent and reward performance. The compensation mix reflects a balance of
annual cash payments, consisting of annual base salary payments and incentive
bonus payments, and long-term stock-based incentives in the form of stock
options. The emphasis in incentive compensation is placed on the more strategic
stock-based options that more closely align the financial interests of the
Company's employees with those of its stockholders.
Base Salaries
The salary component of executive compensation is based on the executive's
level of responsibility for meeting Company objectives and performance, and
comparable to similar positions in the Company and to comparable companies.
Base salaries for executives are reviewed and adjusted at least annually based
on information regarding competitive salaries, the results of industry
compensation surveys, individual experience and performance.
Cash Bonuses
The Company's incentive program for executive officers provides direct
financial incentives in the form of cash bonuses. During 1997, the Compensation
Committee re-evaluated its executive bonus structure and approved a new bonus
policy for fiscal 1998 that based executive bonuses entirely on Company
financial performance and eliminate the individual objective component of bonus
calculation.
Stock Options
The Company's 1996 Stock Option Plan and 1989 Stock Option Plan provides
for the issuance of stock options to officers and employees of the Company to
purchase shares of the Company's common stock at an exercise price equal to the
fair market value of such stock on the date of grant. The Company's stock
options typically vest over a 36-month period.
The Company's compensation policies recognize the importance of stock
ownership by senior executives and stock options are an integral part of each
executive's compensation. The Committee believes that the opportunity for stock
appreciation through stock options that vest over time promotes the relationship
between long-term interests of executive officers and stockholders. The size of
specific grants takes into account the executive officer's salary and the number
of options previously granted to the officer, as well as his or her
contributions to the Company's success.
Compensation of the Chief Executive Officer
In April 1997, Gordon J. Bridge was appointed the Company's President and
Chief Executive Officer (the "CEO"). He resigned such positions in April 1998,
at which time Craig Norris, previously the Company's Executive Vice President of
Services and Operations, was appointed as the Company's CEO and President. At
the time Mr. Bridge was appointed CEO in April 1997, he entered into the 1997
Letter with the Company, the terms of which are described in more detail in
"Employment Contracts, Termination of Employment and Change-in-Control
Arrangements" and in the Summary Compensation Table.
During fiscal 1998, Mr. Norris, the current Chief Executive Officer of the
Company received $251,642. In reviewing the compensation paid to Mr. Norris for
fiscal 1998, the Committee applied the factors discussed above in this Report
under the headings "Base Salaries," "Cash Bonuses", and "Stock Options". In
addition, in determining Mr. Norris' 1998 compensation the Committee considered
a number of other factors, including competitive market compensation packages,
Mr. Norris' past performance at the Company and the responsibilities he was
undertaking in assuming the position of CEO. Based on its survey data and
informal information reviewed by the Committee, the Committee believes that the
base salary level for the CEO is commensurate with salaries paid to chief
executive officers of comparable
11.
<PAGE>
companies engaged in similar industries.
Overall, the Committee believes that Mr. Norris is being appropriately
compensated in a manner that is consistent with the long-term interests of
stockholders.
Deductibility of Executive Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993, which
section disallows a deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for the CEO and four other
most highly compensated executive officers, unless such compensation meets the
requirements for the "performance-based" exception to the general rule. Since
the cash compensation paid by the Company to each of its executive officers is
expected to be below $1 million and the Committee believes that options granted
under the Company's 1996 Stock Option Plan and 1989 Plan will meet the
requirements for qualifying as performance-based, the Committee believes that
this section will not affect the tax deductions available to the Company. It
will be the Committee's policy to qualify, to the extent reasonable, the
executive officers' compensation for deductibility under applicable tax law.
However, the Company may from time to time pay compensation to its executive
officers that may not be deductible.
The members of the Committee submit the foregoing report.
COMPENSATION COMMITTEE:
Promod Haque
Richard Lussier
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Radhu R. Basu and Richard Lussier. From March 31, 1998 until March 10, 1999,
the Compensation Committee consisted of directors Promod Haque and Richard
Lussier. From January 1, 1998 through March 31, 1998, it consisted of directors
Promod Hague, Richard Weening and Richard Lussier.
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph compares the cumulative total stockholder return for
the Company's stock since August 15, 1996, the date the Company's common stock
began to trade on The Nasdaq Stock Market, Inc., through December 31, 1998, the
last trading date of fiscal 1998, to the cumulative return over such period of
(i) the Nasdaq Market Index and (ii) the MG Internet Software & Services Index
(provided by Media General Financial Services, Inc.). The graph assumes that
$100 was invested in the common stock of the Company and the respective indices
on August 15, 1996 (including reinvestment of dividends). The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
[EDGAR representation of data points in printed graph]
08/15/96* 12/31/96 12/31/97 12/31/98
-------- -------- -------- --------
Connect, Inc.......................... 100 102 14 9
Nasdaq Market Index................... 100 112 137 193
MG Internet Software & Services Index.. 100 123 73 192
* Assumes $100 invested at August 15, 1996 in common stock of the Company and in
each of the comparative indices.
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
12.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the ownership
of the Company's common stock as of April 1, 1999 by: (i) each director; (ii)
each of the Named Executive Officers; (iii) all current executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its common stock.
<TABLE>
<S> <C> <C>
Beneficial Ownership (2)
Number of Percent of
Beneficial Owner (1) Shares Total
Entities affiliated with Stark Investments (3) 1,831,372 12.38%
1500 W. Market Street, Suite 200
Mequon, WI 53092
RRE Connect Investors, LP 1,174,242 7.94%
126 East 56th Street, 22nd Floor
New York, NY 10022
Entities affiliated with Special Situations Fund, L.P. (4) 961,539 6.50%
133 East 53rd Street
New York, NY 10022
Craig D. Norris (5) 437,245 2.87%
Radha R. Basu (6) 2,778 *
Gordon J. Bridge (7) 148,203 *
Barton S. Foster (8) - *
Joseph G. Girata (9) - *
Lucille Hoger (10) 83,978 *
Richard H. Lussier (11) 17,536 *
Rory T. O'Driscoll (12) 8,778 *
All directors and current executive officers
As a group (7 persons) (13) 698,518 4.50%
</TABLE>
______________________
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o Connect, Inc., 515 Ellis Street, Mountain View, CA 94043.
(2) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
14,796,675 shares of common stock outstanding on April 1, 1999, adjusted as
required by rules promulgated by the SEC.
(3) Includes 915,686 shares held by Shepherd Investments International, Ltd.
and 915,686 shares held by Stark International.
(4) Includes 134,615 shares held by Special Situations Cayman Fund L.P.,
442,308 shares held by Special Situations Fund III, 288,462 shares held by
Special Situations Private Equity Fund L.P. and 96,154 shares held by
Special Situations Technology Fund L.P.
(5) Includes 436,995 shares subject to stock options held by Mr. Norris
exercisable within 60 days of the date of this table. A portion of the
shares issued or issuable upon exercise of stock options is subject to
repurchase by the Company at the original exercise price in the event of
termination of employment, which repurchase right lapses over time.
Substantially all of the shares and stock options held by Mr. Norris are
subject to a lockup agreement which expires in September 1999.
(6) Includes 2,778 shares subject to stock options held by Ms. Basu
exercisable within 60 days of the date of this table.
(7) Includes 148,203 shares subject to stock options held by Mr. Bridge
exercisable within 60 days of the date of this table. A portion of the
shares issued or issuable upon exercise of stock options is subject to
repurchase by the Company at the original exercise price in the event of
termination of employment, which repurchase right lapses over time.
(8) In April 1998, Mr. Foster resigned from the Company as its Executive Vice
President of Sales and Marketing.
(9) In September 1998, Mr. Girata resigned from the Company as its Chief
Financial Officer.
(10) Includes 83,864 shares subject to stock options held by Ms. Hoger
exercisable within 60 days of the date of this table. A portion of the
shares issued or issuable upon exercise of stock options is subject to
repurchase by the Company at the original exercise price in the event of
termination of employment, which repurchase right lapses over time.
Substantially all of the shares and stock options held by Ms. Hoger are
subject to a lockup agreement which expires in September 1999.
(11) Includes 17,536 shares subject to stock options held by Mr. Lussier
exercisable within 60 days of the date of this table. A portion of the
shares issued or issuable upon exercise of stock options is subject to
repurchase by the Company at the original exercise price upon cessation of
service as a director of the Company, which repurchase right lapses over
time.
(12) Includes 8,778 shares subject to stock options held by Mr. O'Driscoll on
behalf of BankAmerica Ventures exercisable within 60 days of the date of
this table. Mr. O'Driscoll is a Principal of BankAmerica Ventures. Mr.
O'Driscoll disclaims beneficial ownership of the shares held by such
entities except to the extent of his pro rate interest therein.
(13) Includes shares described in the notes above, as applicable. Includes
shares which certain executive officers and directors of the Company have
the right to acquire within 60 days of the date of this table pursuant to
outstanding options.
13.
<PAGE>
Item 13. Certain Relationships and Related Transactions
Certain stock option grants to directors and executive officers of the
Company are described herein under the caption "Executive Compensation." Certain
agreements between the Company and its directors are described herein under the
caption "Employment Contracts, Termination of Employment and Change-in-Control
Agreements."
In April 1998, Mr. Foster resigned his position as Executive Vice President
of Sales and Marketing. Pursuant to the terms of an agreement between Mr. Foster
and the Company in connection with his resignation, Mr. Foster remained as a
consultant to the Company through July 1998, during which time he received
compensation equal to his regular monthly salary prior to his resignation
($14,167), continued vesting of unvested options and health benefits. Actual
amounts paid to Mr. Foster during 1998 are reflected in the Summary Compensation
Table. In addition, pursuant to the terms of this agreement, the Company agreed
to forgive accrued interest on, and a portion of the principal of, a $30,000
loan to Mr. Foster, which principal amount to be forgiven was not to exceed
$10,000. The total amount forgiven was $12,900.
Mr. Bridge entered into the 1997 Letter and the 1998 Letter with the
Company, which letters governed the terms of his employment relationship with
the Company for fiscal years 1997 and 1998, respectively. The 1998 Letter has
been superseded by Mr. Bridge's consulting arrangement with the Company in April
1998. Pursuant to the 1997 Letter, the Company in April 1997 loaned Mr. Bridge
$150,000 pursuant to a three-year, full recourse promissory note which is
subject to interest, compounded annually, at the rate of 5.91%. In exchange for
Mr. Bridge's remaining a consultant to the Company for the twelve-month period
from April 1998 through March 1999, the Company agreed to forgive 50% of the
total principal and outstanding interest of this loan and, if Mr. Bridge
achieves certain specified goals prior to March 31, 1999, he may be entitled to
forgiveness of the remainder of outstanding principal and interest on his loan.
The total amount of principal and accrued interest on such note as of April 2,
1999 is approximately $84,127. Other material terms of each of the 1997 Letter,
the 1998 Letter and Mr. Bridge's consulting relationship with the Company are
described in "Employment Contracts, Termination of Employment and Change-in-
Control Arrangements--Employment Agreements."
On November 18, 1997, BankAmerica Ventures and BankAmerica Venture Partners
I (collectively "BankAmerica"), entities with which Rory T. O'Driscoll, a
director of the Company, is affiliated, were issued convertible notes by the
Company in the aggregate principal amount of $1,200,000 and warrants to purchase
an aggregate of 399,990 shares of the Company's common stock. On February 26,
1998, the notes plus the accrued interest thereon were converted into 608,219
shares of the Company's Series A Preferred Stock. On April 1, 1998, all of the
shares of Series A Preferred Stock held by BankAmerica plus accrued but unpaid
dividends thereon were converted into 1,062,555 shares of the Company's common
stock and the warrants held by BankAmerica were canceled. Mr. O'Driscoll
disclaims beneficial ownership of the securities held by BankAmerica, except to
the extent of his proportionate interest therein.
On November 18, 1997, Norwest Equity Partners V, L.L.P. ("Norwest"), an
entity with which Promod Haque, a former director of the Company, is affiliated,
was issued a $1,240,000 principal amount convertible note by the Company and a
warrant to purchase 413,323 shares of the Company's common stock. On February
26, 1998, the note plus the accrued interest thereon was converted into 628,493
shares of the Company's Series A Preferred. On April 1, 1998, all of the shares
of Series A Preferred Stock held by Norwest plus accrued but unpaid dividends
thereon were converted into 1,097,972 shares of the Company's common stock and
the warrants held by Norwest were canceled. Mr. Haque disclaims beneficial
ownership of the securities held by Norwest, except to the extent of his
proportionate interest therein.
The Company has entered into indemnification agreements with its officers
and directors containing provisions which may require the Company, among other
things, to indemnify its officers and directors against certain liabilities that
may arise by reason of their status or service as officers or directors (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
14.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following financial statements and supplemental data are included
in Item 8 of the Company's Form 10-K:
(1) Financial Statements
Page Number
Report of Ernst & Young, LLP, Independent Auditors 20
Balance Sheets at December 31, 1998 and 1997 21
Statements of Operations for each of the three years in the
period ended December 31, 1998 22
Statement of Stockholders' Equity (Deficit) for each of the
three years in the period ended December 31, 1998 23
Statement of Cash Flows for each of the three years for the
period ended December 31, 1998 24
Notes to Financial Statements 25
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, or not required, or because the required
information was filed by the Company's previously, or is
included the consolidated financial statements or notes
thereto.
(3) Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
3.1 Second Amended and Restated Certificate of Incorporation of the
Company (1)
3.2 Bylaws of the Company (2)
4.1 Form of Exchange Agreement by and among the Company and certain holders
of the Company's securities (3)
4.2 Common Stock Purchase Agreement dated as of January 15, 1999, by and
among the Company and the purchasers listed therein (4)
9.1 Amended Stockholders Agreement dated July 3, 1996, by and among the
Company and certain holders of the Company's securities (2)
10.1* Form of Indemnification Agreement (2)
10.2* 1989 Stock Option Plan, as amended, and form of stock option
agreement (2)
10.3* 1996 Stock Option Plan, as amended, and form of stock option
agreement (5)
10.4* 1996 Employee Stock Purchase Plan and form of subscription agreement (2)
10.5* 1996 Directors' Stock Option Plan and form of stock option agreement (2)
10.6 Amended and Restated Registration Rights Agreement dated July 3, 1996,
between the Company and certain holders of the Company's securities (2)
10.7 Lease Agreement dated September 19, 1994, between the Company and BRE
Properties, Inc. (2)
10.8 Master Equipment Lease dated January 19, 1995, between the Company and
Phoenix Leasing Incorporated (2)
10.9 Software License Agreement dated February 5, 1996, between the Company
and Entex Information Services Inc. (2)(6)
10.10 Software License Agreement dated March 26, 1996, between the Company and
Union Underwear Company, Inc. (2)(6)
10.11 Software License Agreement dated November 7, 1995, between the Company
and PhotoDisc, Inc. (2)(6)
10.12 Amendment to Software License Agreement dated March 29, 1996, between
the Company and PhotoDisc, Inc. (2)(6)
10.14 OEM Master License Agreement dated June 30, 1995, between the Company
and RSA Data Security, Inc. (2)(6)
10.17* Option agreement dated January 16, 1996, between the Company and Gordon
J. Bridge (2)
10.18* Option agreement dated April 24, 1996, between the Company and Gordon J.
Bridge (2)
10.19* Letter agreement dated October 19, 1995, between the Company and Gordon
J. Bridge, and related interpretive letter (2)
10.20 Consulting Agreement dated March 9, 1992, between the Company and
Quaestus Limited Partnership (2)
10.23 Agreement and Mutual Release dated May 24, 1996, between the Company and
Henry V. Morgan (2)
10.24 Development and License Agreement dated March 29, 1996, between the
Company and Time Warner Cable (2)(6)
10.26 Agreement dated January 28, 1998, between the Company and Impresso (7)
15.
<PAGE>
10.27* 1998 Employment letter Agreement dated January 29, 1998 between the
Company and Gordon J. Bridge (7)
10.28* Consulting Agreement dated April 2, 1998, between the Company and Gordon
J. Bridge (8)
10.29* Agreement dated April 1, 1998, between the Company and Craig Norris (8)
10.30* Agreement and Mutual Release dated March 27, 1998, between the Company
and Barton Foster (8)
10.31* Amended and Restated Change of Control Agreement dated as of April 30,
1998, between the Company and Kenneth M. Ross (8)
10.32* Amended and Restated Change of Control Agreement dated as of April 30,
1998, between the Company and Joseph G. Girata (8)
10.33* Amended and Restated Change of Control Agreement dated as of April 30,
1998, between the Company and Lucille Hoger (8)
10.34* Amended and Restated Change of Control Agreement dated as of April 30,
1998, between the Company and Craig D. Norris (8)
10.35* Change of Control Agreement dated as of July 22, 1998, between the
Company and Amanda Reed (1)
10.36* Change of Control Agreement dated as of July 22, 1998, between the
Company and Pia Chamberlain (1)
10.37* Change of Control Agreement dated as of September 10, 1998, between the
Company and Greigory Park.
23 Consent of Ernst & Young LLP, Independent Auditors (9)
24 Power of Attorney (9)
27.1 Financial Data Schedule (9)
- ----------------------------------------
(1) Incorporated by reference to the identically numbered exhibits to the
Company's quarterly report on Form 10-Q filed on August 14, 1998
(2) Incorporated by reference to identically numbered exhibits to the
Company's Registration Statement on Form S-1, as amended (File No. 333-
05901), that became effective on August 14, 1996
(3) Incorporated by reference to Exhibit 99.3 to the Company's current
report on Form 8-K filed on April 3, 1998
(4) Incorporated by reference to Exhibit 4.1 to the Company's current report
on Form 8-K filed on February 4, 1999
(5) Incorporated by reference to Exhibit 10.3 to the Company's quarterly
report on Form 10-Q filed on November 16, 1998
(6) Confidential treatment has been previously granted with respect to this
exhibit
(7) Incorporated by reference to the identically numbered exhibits to the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 1997
(8) Incorporated by reference to the identically numbered exhibits to the
Company's quarterly report on Form 10-Q filed on May 15, 1998
(9) Incorporated by reference to the identically numbered exhibits to the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 1998
* Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the fourth
quarter of the fiscal year 1998.
(1) Form 8-K filed on October 13, 1998, regarding the Company's October
12, 1998 announcement of its results for the third quarter ended
September 30, 1998 and its intention to focus its business on
providing Internet systems integration.
(2) Form 8-K filed on October 21, 1998, regarding the Company's
notification by Nasdaq of a concern regarding the continued listing
of the Company's common stock on the Nasdaq National Market.
16.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to the
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONNECT, INC.
Date: April 8, 1999 By: /s/ Craig D. Norris
-------------------------------
Craig D. Norris
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to the report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ Craig D. Norris Date: April 8, 1999
- --------------------------
Craig D. Norris
Chief Executive Officer
(Principal Executive Officer)
/s/ Greigory Park Date: April 8, 1999
- --------------------------
Greigory Park
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
* Date: April 8, 1999
- --------------------------
Gordon Bridge
Director
* Date: April 8, 1999
- --------------------------
Radha R. Basu
Director
* Date: April 8, 1999
- --------------------------
Richard H. Lussier
Director
* Date: April 8, 1999
- --------------------------
Rory T. O'Driscoll
Director
* By: /s/ Greigory Park .
----------------------------------
Greigory Park
Attorney-in-fact
17.
<PAGE>
EXHIBIT 10.37
CONNECT, INC.
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into
---------
effective as of September 10, 1998, by and between Greigory Park (the
"Employee") and CONNECT, Inc., a Delaware corporation (the "Company").
-------- -------
RECITALS
A. It is expected that another company or other entity may from time to
time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company's Board
of Directors (the "Board"). The Board recognizes that such consideration can be
-----
a distraction to the Employee, an executive corporate officer of the Company,
and can cause the Employee to consider alternative employment opportunities.
The Board has determined that it is in the best interests of the Company and its
stockholders to assure that the Company will have the continued dedication and
objectivity of the Employee, notwithstanding the possibility, threat or
occurrence of a Hostile Takeover or a Change of Control (as each are defined
below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Employee with an incentive to continue his or
her employment with the Company.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon a Change of Control or a Hostile Takeover and, under
certain circumstances, upon termination of the Employee's employment in
connection with a Change of Control, which benefits are intended to provide the
Employee with financial security and provide sufficient income and encouragement
to the Employee to remain with the Company notwithstanding the possibility of
such transactions.
D. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
E. The Board, for the reasons set forth above, authorized the Company to
enter into Change of Control Agreements with each of its executive corporate
officers substantially in the form hereof.
F. Certain capitalized terms used in the Agreement are defined in Section
4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that
------------------
the Employee's employment is and shall continue to be at-will, as defined under
applicable
<PAGE>
law. If the Employee's employment terminates for any reason, including
(without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments or benefits, other than as
provided by this Agreement, or as may otherwise be available in accordance
with the terms of Employee's offer letter from the Company, if applicable, and
the Company's established employee plans and written policies at the time of
termination. The terms of this Agreement shall terminate upon the earlier of
(i) the date on which Employee ceases to be employed as an executive corporate
officer of the Company, (ii) the date that all obligations of the parties
hereunder have been satisfied, or (iii) two (2) years after a Change of
Control. A termination of the terms of this Agreement pursuant to the
preceding sentence shall be effective for all purposes, except that such
termination shall not affect the payment or provision of compensation or
benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement.
2. Hostile Takeover. Subject to Section 7(1) below, in the event of
----------------
a Hostile Takeover and regardless of whether the Employee's employment with the
Company is terminated in connection with such takeover, each stock option
granted for the Company's securities held by the Employee shall become
immediately exercisable and vested, and shall be considered "Vested Shares"
-------------
under each such stock option, on the effective date of the Hostile Takeover as
to 100% of the shares issuable upon exercise of such option and shall be
exercisable in full in accordance with the provisions of the Option Agreement
and Plan pursuant to which such option was granted; and the Company's right of
repurchase with respect to such shares and any shares previously issued upon
exercise of stock options held by the Employee shall immediately lapse on such
date.
3. Change of Control.
-----------------
(a) Payment upon Change of Control. Except as limited by Section
------------------------------
7(l) below, the Employee shall be entitled to receive a cash payment equal to
2.99 times his or her total compensation for fiscal 1997 (base salary plus
any bonus received) on or prior to the closing of a Change of Control (as
defined in Section 4(a) below); provided however that such payment shall be
reduced as follows if the following circumstances apply: (i) if the payment to
the Employee would exceed one percent (1%) of the aggregate value received by
the stockholders of the Company in connection with such Change of Control,
such payment would be reduced to an amount equal to one percent (1%) of such
aggregate value, and (ii) if the aggregate value received by the stockholders
of the Company in connection with such Change of Control was equal to or less
than $25,000,000, such payment would be reduced to zero.
(b) Termination Following A Change of Control. Subject to Section
-----------------------------------------
7(1) below, if the Employee's employment with the Company is terminated at any
time within two (2) years after a Change of Control, then the Employee shall be
entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If the Employee voluntarily
---------------------
resigns from the Company (other than as an Involuntary Termination (as defined
below), or if the Company terminates the Employee's employment for Cause (as
defined below), then the
-2-
<PAGE>
Employee shall not be entitled to receive severance payments. The Employee's
benefits will be terminated under the Company's then existing benefit plans
and policies in accordance with such plans and policies in effect on the date
of termination or as otherwise determined by the Board of Directors of the
Company.
(ii) Involuntary Termination. If the Employee's employment
-----------------------
is terminated as a result of an Involuntary Termination other than for Cause,
the Employee shall be entitled to receive the following benefits: (i) monthly
severance payments during the period from the date of the Employee's
termination until the date 12 months after the effective date of the
termination (the "Severance Period") equal to the monthly salary which the
-----------------
Employee was receiving immediately prior to the Change of Control; (ii)
monthly severance payments during the Severance Period equal to 1/12th of the
Employee's "target bonus" (as defined below) for the fiscal year in which the
termination occurs; (iii) continuation of health and life insurance benefits
through the end of the Severance Period substantially identical to those to
which the Employee was entitled immediately prior to the Change of Control;
(iv) each stock option held by the Employee shall become immediately
exercisable and vested, and shall be considered "Vested Shares" under each
such stock option, on the date of termination as to 100% of the shares
issuable upon exercise of such option and shall be exercisable in full in
accordance with the provisions of the Option Agreement and Plan pursuant to
which such option was granted; and the Company's right of repurchase with
respect to such shares and any shares previously issued upon exercise of stock
options held by the Employee shall immediately lapse on such date; and (v)
outplacement services with a total value not to exceed $15,000. The severance
payments described in subsections (i) and (ii) above shall be paid during the
Severance Period in accordance with the Company's standard payroll practices.
For purposes of this Agreement, the term "target bonus" shall mean that
------ -----
percentage of the Employee's base salary that is prescribed by the Company
under its Management Bonus Program as the percentage of such base salary
payable to the Company as a bonus if the Company pays bonuses at one-hundred
percent (100%) of its operating plan.
(iii) Involuntary Termination for Cause. If the Employee's
---------------------------------
employment is terminated for Cause, then the Employee shall not be entitled to
receive severance payments. The Employee's benefits will be terminated under
the Company's then existing benefit plans and policies in accordance with such
plans and policies in effect on the date of termination.
(b) Termination Apart from A Change of Control. In the event the
------------------------------------------
Employee's employment terminates for any reason, either prior to the occurrence
of a Change of Control or after the two year period following the effective date
of a Change of Control, then the Employee shall not be entitled to receive any
severance payments under this Agreement. The Employee's benefits will be
terminated under the terms of the Company's then existing benefit plans and
policies in accordance with such plans and policies in effect on the date of
termination or as otherwise determined by the Board of Directors of the Company.
4. Definition of Terms. The following terms referred to in this
-------------------
Agreement shall have the following meanings:
-3-
<PAGE>
(a) Change of Control. "Change of Control" shall mean the
----------------- -----------------
occurrence of any of the following events:
(i) Ownership. Any "Person" (as such term is used in Sections
---------- ------
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "Beneficial Owner" (as defined in Rule 13d- 3 under said Act),
----------------
directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company's
then outstanding voting securities without the approval of the Board of
Directors of the Company; or
(ii) Merger/Sale of Assets. A merger or consolidation of the
---------------------
Company, whether or not approved by the Board of Directors of the Company,
other than a merger or consolidation which would result in holders of more
than fifty percent (50%) of the voting power represented by the voting
securities of the Company outstanding immediately prior thereto continuing to
hold (either by the voting securities remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities
of the Company, or such surviving entity outstanding immediately after such
merger or consolidation, or the Company sells all substantially all of the
Company's assets.
(iii) Change in Board Composition. A change in the
---------------------------
composition of the Board of Directors of the Company, as a result of which
fewer than a majority of the directors are Incumbent Directors. "Incumbent
---------
Directors" shall mean directors who either (A) are directors of the Company as
- ---------
of the date of this Agreement or (B) are elected, or nominated for election,
to the Board of Directors of the Company with the affirmative votes of at
least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest relating to the
election of directors to the Company).
(b) Cause. "Cause" shall mean (i) gross negligence or willful
----- -----
misconduct in the performance of the Employee's duties to the Company where such
gross negligence or willful misconduct has resulted or is likely to result in
substantial and material damage to the Company or its subsidiaries (ii) repeated
unexplained or unjustified absence from the Company, (iii) a material and
willful violation of any federal or state law; (iv) commission of any act of
fraud with respect to the Company; or (v) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company, in each case as determined in good faith by the Board of
Directors of the Company.
(c) Hostile Takeover. "Hostile Takeover" shall mean a
---------------- ----------------
transaction or series of transactions that results in any person becoming the
Beneficial Owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the total voting power
represented by the Company's then outstanding voting securities without the
approval of the Board of Directors of the Company.
-4-
<PAGE>
(d) Involuntary Termination. "Involuntary Termination" shall
----------------------- -----------------------
include any termination by the Company other than for Cause and the Employee's
voluntary termination, following (i) a material reduction or change in job
duties, responsibilities and requirements inconsistent with the Employee's
position with the Company and the Employee's prior duties, responsibilities
and requirements; (ii) any reduction of the Employee's base compensation
(other than in connection with a general decrease in base salaries for most
officers of the Company and any successor corporation); or (iii) the
Employee's refusal to relocate to a facility or location more than 50 miles
from the Company's current location.
5. Successors. Any successor to the Company (whether direct or
----------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributes, devisees and legatees.
6. Notice. Notices and all other communications contemplated by
------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. Mailed notices to the Employee
shall be addressed to the Employee at the home address which the Employee most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
7. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Employee shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
------
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision
or of the same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and
-5-
<PAGE>
concerning similar subject matter dated prior to the date of this Agreement,
and by execution of this Agreement both parties agree that any such
predecessor agreement shall be deemed null and void.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or
------------
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.
(f) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Santa Clara, California, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction. Punitive
damages shall not be awarded.
(g) Legal Fees and Expenses. The parties shall each bear their
-----------------------
own expenses, legal fees and other fees incurred in connection with this
Agreement.
(h) No Assignment of Benefits. The rights of any person to
-------------------------
payments or benefits under this Agreement shall not be made subject to option
or assignment, either by voluntary or involuntary assignment or by operation
of law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (h)
shall be void.
(i) Employment Taxes. All payments made pursuant to this
----------------
Agreement will be subject to withholding of applicable income and employment
taxes.
(j) Assignment by Company. The Company may assign its rights
---------------------
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment.
In the case of any such assignment, the term "Company" when used in a section
of this Agreement shall mean the corporation that actually employs the
Employee.
(k) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
-6-
<PAGE>
(l) Limitation on Payments. In the event that the severance and
----------------------
other benefits provided for in this Agreement to the Employee (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
- -------------------
Code of 1986, as amended (the "Code") and (ii) but for this Section, would be
----
subject to the excise tax imposed by Section 4999 of the Code, then the
Employee's benefits under Sections 2 and 3 shall be payable either:
(a) in full, or
(b) as to such lesser amount which would result in no
portion of such severance benefits being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by the Employee on an after-tax basis, of
the greatest amount of benefits under Sections 2 and 3, notwithstanding that
all or some portion of such benefits may be taxable under Section 4999 of the
Code. Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section 7(1) shall be made in writing by the
Company's independent public accountants (the "Accountants"), whose
-----------
determination shall be conclusive and binding upon the Employee and the
Company for all purposes. For purposes of making the calculations required by
this Section 7(1), the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Section 280G and 4999 of
the Code. The Company and the Employee shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order
to make a determination under this Section. The Company shall bear all costs
the Accountants may reasonably incur in connection with any calculations
contemplated by this Section 7(1).
-7-
<PAGE>
Each of the parties has executed this Agreement, in the case of the Company
by its duly authorized officer, as of the day and year first above written.
CONNECT, INC. Greigory Park
/s/ Joseph G. Girate /s/ Greigory Park
- ---------------------------- ------------------------------
By: Joseph G. Girata
_________________________
Title: Chief Financial Officer
________________________
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